Individual business Turning a person into a business: the questions to ask
Verified 04 May 2023 - Legal and Administrative Information Directorate (Prime Minister)
Individual business business The transformation of the motivated by different objectives. This business can take the form of a contribution or a assignment individual business from the newly created business.
The transformation of the individual company (EI) into a business may be justified by motivations of an economic, legal, fiscal or social nature.
The Contractor shall measure, with a professional (lawyer, accountant), the advantages and disadvantages of going to business for his project taking into account his personal situation (economic constraints, family situation, assets, objectives and fiscal and social consequences).
Economic motives
Individual business company To develop his or her personal financial investment or call on the bank credit. This operation is an appropriate solution when the capital to be injected into the project is minimal and can be provided by the entrepreneur. On the other hand, it may represent a brake the development of larger-scale projects requiring large volumes of financing.
The business transition allows the contractor to to host other members or shareholders. This makes it easier for him to pursue the company’s development by entering new funds and/or new skills. This framework also promotes closer relations between the companies by creating joint subsidiaries or equity investments.
Individual business In addition, in the context of development, the head of company must finance development without being able to repay his advances. On the other hand, in the businesses, advances granted by a member may benefit from the tax treatment of interest on current accounts of members. Interest paid to members is, under certain conditions, deductible from the profits of the business.
Legal Reasons
Since May 15, 2022, the personal and professional assets of the individual entrepreneur are separated. The head of company individual business is no longer entirely responsible for his debts on all his personal property. Now his personal property is protected from all actions by professional creditors.
Nevertheless, the individual entrepreneur may waive this protection at the request of one of its creditors. For example, a bank may ask them to waive this protection before granting a loan.
In comparison, the business benefits from the legal personality and has a own heritage. It creates a wall between the assets of the entrepreneur and those of the company. The risk incurred by partners, except businesses of persons (SNC, SCS, civil businesses...), is limited to the amount of contributions which each of them has carried out when the business was set up.
The choice to practice as a business may therefore prove to be more advantageous at this level.
Tax incentives
Individual business The profits of a transaction are added to other income earned by the Head of company (financial investments, property gains, pensions, etc.) and are subject to theincome tax (IR). These benefits obey the progressivity of the tax scaleindividual business , hindering the self-financing of the
In addition, the individual entrepreneur cannot deduct any remuneration from its taxable profit. This is particularly the case with the money he pays himself through his company.
The business may enable the individual contractor to distinguishing between personal taxation and company taxation by choosing thebusiness tax (IS), at the standard rate of 25%.
Please note
Without going into business, the individual entrepreneur can opt for assimilation to the EURL on the tax side and thus be subject to business tax (IS).
Social motivations
The sole trader is a self-employed person (NWT). It is attached to the social security for the self-employed (SSI) as an integral part of the general social security system.
Please note
The majority manager of SARL and the sole associate manager of EURL are also attached to the social security of the self-employed (SSI).
On the contrary, the business manager (SAS, SA, SCA...) and the minority manager of SARL are assimilated employees and contribute to general social security scheme. Their social protection is almost identical to that of an employee (excluding unemployment insurance).
The employee-equivalent manager shall bear a rate of social contributions higher that the self-employed worker (SSA) but benefits from better provision and supplementary retirement more important. It should be noted that the difference between the two statutes (in particular the weight of social contributions) widens as the remuneration of the manager increases.
Warning
Despite his status as an employee, the manager is not eligible for unemployment benefits in the event of loss of corporate agent (except in the case of overlapping with an employment contract...).
Heritage motivations
Individual business In the event of the death of the farmer, the division heirs who must unanimously give a mandate to one of them to manage the family business. In the meantime, the family company may be paralyzed.
ISIS business can prevent the consequences of this division. The heirs will no longer be required to share the company’s assets with each other, but rather to share the social rights held by the head of company.
Moreover, the transmission of a business during the lifetime of the head of company is also facilitated. The Head of company has the possibility to give up his social rights progressively, and the registration fees to be paid are limited (0.1% the transfer price in SAS/SASU, SA, SCA...).
Individual business To transform your specific target (EI) into a business, the entrepreneur has the choice between 2 separate mechanisms :
- Transformation into a business individual business in relation to the entrepreneur brings professional heritage individual business from the given to the business it creates. This contribution helps to feed the social capital of the business. In return, the entrepreneur becomes a partner and obtains social rights (right to vote and right to dividends) to the extent of its contribution.
- Transform to business by individual business transfer of the : Contractor sells its goodwill (or the entirety of his professional estate) to the business he creates. This transaction is seen as a transfer of the company to a third party. The business may finance the purchase of the goodwill by means of a bank loan which it will reimburse on the basis of the results of the activity. This solution is useful when the entrepreneur has a quick need for cash since he immediately collects the proceeds from the sale of his business (i.e. the money lent by the bank).
In the case of conversion by assignment, the entrepreneur may form his business with a minimum share capital. By contrast, the business will provide few repayment guarantees for the lending bank. This arrangement can therefore be envisaged only if the exploitation of the goodwill is sufficiently profitable to free up the resources needed to repay the loan.
Please note
Whether it is a business by contribution or by assignment, it is advisable to be accompanied by a professional (lawyer, accountant).
Individual business The transition from the business to the choice of legal form. The entrepreneur must take into account multiple criteria.
Legal form | Tax system | Social security of the director | Financial liability of members | Amount of share capital | Registration rights in the event of assignment |
|---|---|---|---|---|---|
EURL | Self-employed person (SST) | Limited to the amount of contribution | Free | 3% of the sale price after a reduction of €23,000 | |
SARL (majority partner) | Self-employed person (SST) | Limited to the amount of contribution | Free | 3% of the sale price after a reduction of €23,000 | |
LLC (minority or egalitarian partner) | Assimilated employee | Limited to the amount of contribution | Free | 3% of the sale price after a reduction of €23,000 | |
SAS/SASU | Assimilated employee | Limited to the amount of contribution | Free | 0.1% of the transfer price | |
SA | Assimilated employee | Limited to the amount of contribution | €37,000 minimum | 0.1% of the transfer price | |
CNS | Self-employed person (SST) | Solidarity and indefinite on their personal property | Free | 3% of the sale price after a reduction of €23,000 |
Please note
Bpifrance helps you choose the right legal form for your project in 5 questions.
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