France

Legal and Regulatory Requirements for French Companies

Company Formation Org

Explore the legal and regulatory landscape for French companies, ensuring compliance with foreign investment regulations to foster a favourable environment for investors.

Company Formation France

France maintains a favorable stance towards foreign investors, encouraging their participation in the economy. However, to navigate the landscape successfully, understanding and adhering to legal and regulatory requirements are paramount for French companies. By observing these rules, investors can confidently engage in the thriving French market.

In this guide, we will delve into the essential legal and regulatory framework that governs French companies. We aim to provide a clear and concise overview, empowering you to make informed decisions and thrive in this dynamic business landscape. Continue reading to find out the legal intricacies while seizing the boundless opportunities that await in France.

Common Legal Structures in France

French company law offers a range of business structures to accommodate different sizes and needs. For small and medium-sized enterprises, two popular options are: 

  • The simplified company limited by shares (SAS) and 
  • The private limited company (SARL). 

These structures grant limited liability protection to shareholders, ensuring that their assets are safeguarded up to the extent of their shareholding. This aspect is particularly appealing to entrepreneurs seeking to minimize personal risk while conducting business.

On the other hand, large businesses often opt for:

  • The public limited company (SA)

The SA structure allows for raising capital through public offerings, enabling companies to attract a broader investor base. Additionally, shareholders’ liability remains limited to their shares, fostering investor confidence and facilitating growth.

While these trading companies dominate the business landscape in France, the use of Societas Europaea (SE) is relatively uncommon. The SE structure is more prevalent in cross-border operations involving several European countries.

In addition to the trading companies, French law recognizes several legal business forms where partners assume joint and several liability for the company’s debts. These forms serve as flow-through structures from a tax perspective, providing flexibility and transparency in tax treatment.

Registering and Setting up the Company

Company Formation France

To start a company in France, you need to get it registered with the Trade and Companies Registrar (RCS). This process typically takes around five to ten days after submitting the following documents:

  • Proof of the company’s registered office address.
  • Certificates from the bank for cash contributions.
  • Signed articles of association.
  • A list of shareholders with the number of shares and the amount each shareholder has invested.
  • Acceptance letters from statutory auditors, if necessary.
  • A declaration from the beneficiary (“déclaration du bénéficiaire effectif“).

Reporting Requirements

Every year, the general meeting needs to make the minutes of their meeting public, where they approve the yearly accounts. The RCS (Registry of Commerce and Companies) will issue a document called “Kbis extract,” which is like an ID for the French company. If there are any changes to the company’s information or the rules it follows (articles of association), these changes must be published and registered with the RCS.

Share Capital

The share capital, which is the money invested in the company by its shareholders, is determined by the articles of association. There is no specific minimum or maximum amount required for this investment.

Non-Cash Consideration

Shares can be given out in exchange for things other than money, such as assets or services. When this happens, an auditor’s report is needed to evaluate the value of those contributions.

Rights Related to Shares

In a SAS (Société par actions simplifiée), shareholders can freely sell or transfer their shares unless the articles of association say otherwise. The company can issue two types of shares: ordinary shares and preferred shares. Each type of share has specific rights mentioned in the articles of association.

Default Rights of Ordinary Shares

Unless stated otherwise in the articles of association, each ordinary share has following rights:

  • They have the right to receive company profits and liquidation premium.
  • They can attend and vote at shareholders’ meetings.
  • They can access some basic information about the company, such as its yearly accounts.

This covers the essential steps to register and set up a company in France, along with the rights and requirements related to shares.

Taxes

Company Formation France

The corporate tax system in France works based on your business’s turnover and structure. Over the past few years, the corporate tax rates in France have decreased, making it more attractive for businesses to start there. The standard tax rate used to be 33% for companies with the highest turnovers, but now it’s reduced to 25%.

The tax system in France is managed by the Public Finance Department, which handles local taxes and audits both individuals and corporations.

Regarding corporate tax rates in France, they have been gradually decreasing. In 2021, the standard rate was 26.5%, but since 2022, all companies pay a flat rate of 25%. Small companies can benefit from an even lower rate of 15% on their first €38,120 of profits.

Corporate Tax Year and Deadlines

The corporate tax year in France typically aligns with the calendar year, although some elements like VAT may need to be filed quarterly.

As for deadlines, companies must file a French tax return within three months of the close of their accounts or by 30th April. Corporate tax is payable quarterly on 15th March, 15th June, 15th September, and 15th December. There are exemptions for new companies or those who paid less than €3,000 in the previous year, allowing them to pay French corporate tax yearly.

Tax Requirements for Corporations

In France, there are different types of corporate forms, each with its own tax requirements. Let’s break them down in simple terms:

  • Limited Liability Companies (SARL): These are commonly used by small and medium-sized businesses. SARLs need to pay corporate income tax. If the company is formed by family members, they can choose to pay income tax on their share of the profits personally.
  • Joint Stock Companies (SA): Larger businesses usually use this form and can be listed on the stock exchange. To create an SA, a minimum share capital of €37,000 is required, and they are also subject to corporate income tax.
  • Simplified Joint-Stock Companies (SAS): SAS companies are popular because they offer flexibility. Shareholders can decide the rules for organization and operation during the creation process. They can’t be listed on the stock exchange, have no minimum share capital requirement, and are subject to corporate income tax. In some cases, they can choose to be tax transparent.

Remember, it’s crucial to seek advice from an accountant to understand your company’s specific tax deadlines and responsibilities. This way, you can avoid late tax filings and any related issues.

Financial Reporting

Companies

Every French trading company must follow certain accounting rules and maintain yearly financial records. These records include 

  • A balance sheet, 
  • A profit and loss account, 
  • And, if necessary, management reports and minutes of the annual meeting where the accounts are approved and profit allocation is decided. 

These records must be submitted to the Commercial and Companies Registry. The cash flow and changes in equity statements are not included in the French annual accounts. However, some companies may need to add changes in equity statements in the appendix, depending on how they present their accounts.

Branches of Overseas Companies

The same rules apply to French branches of companies based in other countries.

Submission Deadlines

Management or an authorized third party must submit the annual accounts within a month after the Annual General Meeting (AGM) approves them. If the accounts are filed electronically, they must be submitted within two months after the AGM.

The AGM of shareholders must be held within six months after the end of the financial year. For example, if the accounting period ends on 31st December 2022, the AGM signing off the accounts must be held by 30th June 2023 at the latest. The annual accounts must then be filed with the registrar of the Commercial Court by 31st July 2023 at the latest, or by 31st August 2023 if the accounts are filed electronically.

Audit 

In France, audits of annual accounts are required, and the rules for appointing a statutory auditor follow the guidelines set by the European Union directives.

For Public Interest Entities (PIEs), like companies with securities listed on EU-regulated markets, banks, and insurance companies, appointing a statutory auditor is mandatory.

When it comes to individual companies that are not controlled by or do not control other entities, they must appoint a statutory auditor if they meet at least two of the following criteria:

  • Their total balance sheet is more than €4,000,000,
  • Their total turnover is more than €8,000,000, or
  • They have more than 50 employees.

Employment Regulations 

Company Formation France

Employment laws 

The laws that govern employment come from international, EU, and domestic sources. In France, the main ones are the French Labour Code (explained through past court cases), collective bargaining agreements, individual employment contracts, and internal company regulations.

Employment law protection

Anyone who works for pay under someone else’s authority is considered an “employee” and is protected by employment law. Even if there’s an agreement that says otherwise, they are still classified as an employee (e.g., service providers or agency workers).

Employment contracts 

There’s no legal requirement for written employment contracts. However, some collective agreements may demand it. Fixed-term and part-time contracts must be in writing, and certain important information must be provided in writing, including details about the job, pay, working hours, etc.

Employers must follow these minimum terms and conditions:

Minimum wage: Employers must pay at least the national minimum wage (SMIC), which was €1,678.95 per month for a 35-hour workweek as of August 1, 2022. The collective agreement may also set a minimum wage based on the employee’s classification.

Working time: The standard working week is 35 hours, but employees can work more with overtime or under specific arrangements. There are limits on weekly and daily working hours.

Part-time: Part-time contracts since July 1, 2014, must have at least 24 hours per week unless specified differently in a collective agreement or allowed by law (e.g., personal reasons, students with multiple jobs).

Paid leave: Employees get 25 days of paid leave per year, plus public holidays (around 10 days per year).