Business in France: The limited liability EIRL explained

Since 2011 French legislation introduced the EIRL (entreprise individuelle à responsabilité limitée), allowing for a sole trader to limit their liability without the need to establish a full-fledged corporation or company. The simplified structure saves cost, time, and a considerable amount of paperwork.

The risk of working as an independent professional or small business in France used to be that, since there was no simple way to obtain a limited liability protection,  the entire estate, personal assets, including the family home, were at risk and could be seized. Under the EIRL the entrepreneur allocates a designated share of their assets to the business or professional activity. In case of financial difficulties, default, or insolvency, creditors will only have access to claim on these designated assets., without affecting any of the entrepreneur’s personal property, savings, or investments.

Formalities

The creation of an EIRL requires the fulfilment of some formalities including the publishing of the statement of assignment of the protected assets. If the affected estate’s value is important (the threshold in 2015 was €30,000), a designated expert such as an accountant or notary, in the case of property, will have to provide an official assessment before the beginning of the activity. If a designated professional does not intervene, all the business and personal estate could be potentially at risk of being seized by creditors for the difference between the declared value and the actual value.

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The law also demands the express agreement of the entrepreneur’s spouse if the affected estate includes any jointly owned assets. In the case of a foreign entrepreneur, it may be necessary to determine the nature (common or not) of the affected estate. For the determination of the matrimonial regime, which can change due to the move in France,  the assistance of a specialised lawyer may be required.

Tax

The use of the EIRL status requires several decisions. For instance, regarding tax law, the individual entrepreneur will have an option between ‘income taxation’ or ‘company taxation’. The choice to be made is important not just for tax purposes but because it will also determine the social contributions and regime that will apply to the entrepreneur and any dependants.

Set-up cost

The registration fee for some independent professionals is around €50 to set up the list of protected assets. The intervention of a notaire to register a property can vary but is usually in the range of €120- €160.

Note: the EIRL business must have a separate, dedicated bank account and the status as EIRL entreprise individuelle à responsabilité limitée must be clearly indicated in all business and client documentation.

For all the above mentioned reasons, the creation of an EIRL requires some prior preparation and should involve consultation with a specializsed lawyer in order to make the most efficient use of the new French legal possibilities.

Source: EIRL, Service Public

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The information in this article is provided for informational purposes and does not constitute legal, professional or financial advice. We encourage you seek the advice of a professional before acting on any of this information. Any hyperlinks to other resources on the Internet are provided as sources and not intended as an endorsement.