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Increase in the number of new companies in France and the financial crisis

According to the French observatory on company formation, 412,814 companies were formed between January and September 2011, which is lower (-12.8%) than the number recorded during the first nine months of 2010.  Nevertheless, the level of company formations remains high – on a par with that of 2009[1].

What, then, is the explanation for this surprisingly creative energy during a period of European financial crisis, at a time whenFrance is on the verge of losing its triple A?  Culturally speaking,France is often perceived abroad as a country lacking in entrepreneurial spirit – despite the existence of government aids and local authority grants encouraging entrepreneurship.  A good example of the latter is the fact that Nicolas Sarkozy has just released an additional EUR 800 million for SMEs right in the middle of a period stifled by budgetary restrictions.  The recent increase in unemployment levels may explain the fact that numerous employees, having lost their jobs, turn to business creation in order to generate their own.  But is it really rational to set up a business, where the inability to contain the risks in terms of personal and financial investment loom even more foreboding thus acting as an obstacle to entrepreneurship in this turbulent period?

It seems to us that one of the keys to understanding these numbers can be found in the type of company structures chosen by intending entrepreneurs.  Strong growth (+42%) is shown in incorporations of companies with a sole shareholder (SASU and EURL).  At the same time, the number of individuals setting up as auto-entrepreneurs, which still account for 53% of businesses created during this period, has also decreased by 21%[2].”

Indeed, there is a wide range legal techniques available when setting up a business in France.  The auto-entrepreneur status, which was highly successful in 2008 following the implementation of the French Law on Modernisation of the Economy (LME), appears to have lost its shine.  The auto-entrepreneur status has not been included in the “2011 Autumn-Winter Companies Collection”.  It does nevertheless have the advantage simplicity, as it enables the avoidance of creation of a new legal structure whilst at the same time separating professional from personal assets and providing tax advantages, in particular as regards VAT.  It was seen at the time of its makeover in 2008 as the ideal solution for founding an independent professional business without being subject to the incorporation and management fees inherent in incorporation.  Furthermore, the auto-entrepreneur status should have remained attractive for all those who expected a turnover limited to EUR 81,500 in the case of a trading business and EUR 32,600 in the case of a service business.  Why then was so much love lost?  It seems that the keyword here is “confidence”, a current buzzword, which is the most plausible explanation: the auto-entrepreneur status just does not instil enough into its customers and suppliers.

So, who is benefitting from this relative disaffection?  The big winners look to be the sole shareholder companies (the société par actions simplifiée unipersonnelle (sole shareholder simplified limited company) and the enterprise unipersonelle à responsabilité limitéé (sole shareholder limited company) which have almost doubled in number.  It seems that it is the act of incorporating a separate legal entity that is the way to gaining the trust of third parties.  The purists’ claim that a structure with only one shareholder cannot truly be called a “company”[3] does not appear to be important: the legislator is there to respond to the ever-changing requirements of businessmen.  If the company form, which despite requiring the jumping through of certain administrative hoops in terms of incorporation and management, allows real business development whilst attracting other shareholders and investor, why leave behind this hybrid form which reassures third parties whilst remaining legally speaking very flexible?

In conclusion, these sole traders and shareholders form a huge mass of undecided individuals wavering over the choice between two regimes, according to the trend of the moment in France.  A multitude of websites provide an overview of the different options which exist and the rules which apply in each case[4].  French lawyers can assist the undecided to make the right choice according to the business in question and help them to find their way through the sea of regulation.

Samantha Verhaeghe

 

 


[1] See http://www.apce.com/cid123173/creation-entreprises-chiffres-septembre-2011.html

 

[2] See http://media.apce.com/file/18/5/chiffres_09-2011.43185.pdf

 

[3] Article 1832 of the French Civil Code, “a company shall be formed by two or more persons …”.

[4] http://www.apce.com/pid1627/comparaison-rapide.html?espace=1&tp=1

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