“Business creation: which legal status to choose”, interview with Mehdi OUCHALLAL, LegalPlace

The choice of the legal status of a company is a central issue when setting up a business. Depending on the planned activity and the personal situation of the manager, some statutes are more suitable than others. The legal form of a company depends in particular on the social regime of the director, the method of taxation of the company, the responsibility of the director and his partners…

Also, it is important to anticipate the evolution of the company to avoid the inconvenience of having to change its legal status. To learn more about the questions that arise when creating a company, BORDEAUX Business spoke with Mehdi OUCHALLAL, founder and CEO of LegalPlace.

Medhi OUCHALLAL, co-founder and CEO of LegalPlace

What is the starting point, the first questions to ask yourself to create a company?

The first question that an entrepreneur asks himself is “do I start on a sole proprietorship, a micro-enterprise (formerly self-enterprise), or on the creation of a company. When you create a company, you create a legal person, whereas in microenterprise, it is the entrepreneur (formerly self-entrepreneur) who exercises as a natural person. From there, the implications are completely different. The choice is therefore made according to the situation specific to the entrepreneur and the business he will launch.

To begin his reflection, he must already have precise information on the contours of the economic activity of the future company. For this, it is important to make a business plan. In particular, we want to know how much income his activity will generate. That is the main point. It will also be useful to know who his customers will be.

Also, if the activity of the company to be created is rather complementary to a main activity, theentrepreneur will often look for a light structure such as the micro-enterprise, sufficient for additional income. For a larger, more ambitious project, he will probably have more interest in creating a company.

In what situation is the legal status of the micro-enterprise suitable? What are its advantages and disadvantages?

The micro-enterprise is the lightest. The entrepreneur will only keep simplified accounting. So on a daily basis, it’s much less laborious. On the creation side of the company, the steps are simple: no statutes to write, no documentation. We make a simple declaration and obtaining the SIRET is fast, easy and free. Overall, the operation is lighter. There are also tax advantages since the tax and social systems are simplified. The levies correspond to about a quarter of the income. In addition, there is no VAT. This is an advantage for individual customers especially since they pay VAT on the product. The counterpart is that the entrepreneur cannot recover VAT on his purchases.

woman entrepreneur creation company
The choice of legal status is decisive for the company and the manager.

He still has constraints with the legal status of micro-entrepreneur. Starting with the turnover limit which amounts to about € 72,000 for a service activity. If exceeded, the entrepreneur switches to the normal tax regime, which is no longer as easy to manage. Hence the importance of knowing your forecast before creating your business.

There is also the question of whether he wants to protect his wealth as an entrepreneur. In particular, if he owns real estate, shares… When you are in a micro-enterprise, heritage is not protected. So if the company incurs debts and cannot pay its due dates, you can seize your personal assets.

And in what situation is a company required?

As part of a more ambitious activity, it will then be necessary to create a company. It is already necessary to know if the entrepreneur creates the company alone because, otherwise, it makes it possible to eliminate certain legal statuses such as the micro-enterprise. There are many advantages to creating a company, because you create a legal person. As such, it has its own heritage. In addition, if necessary, partners can be brought in via the issuance of shares or shares, the sale of shares or shares… We also no longer have to worry about the turnover limit. The company can also raise funds.

Another advantage is a company to benefit from the deduction of expenses from the taxable result. Also, if it makes investments, even if it has made money but has a lot of expenses, it can reduce its taxation or even appear in deficit and not pay taxes at all. Unlike the micro-enterprise, which pays about 25% of its turnover no matter what.

On the other hand, a legal person is more cumbersome to create and manage. Business creation is longer and more complex. There are statutes to be drafted, which determine the structure of the company; it is necessary to provide for the possible possibility of entry of a partner; one needs to open a bank account to create the company with capital deposit; registration formalities must be carried out at the business formalities centre; remember to publish the legal announcement. On the accounting side, it switches to a complete accounting with establishment of annual accounts, etc.

entrepreneur building creation company choose legal status
When setting up a business, anticipating the development of your activity makes it possible to make the most appropriate choice of legal status.

Is it possible and easy to switch from the legal status of a micro-enterprise to another form of company?

The question often arises when the micro-entrepreneur finds himself exceeding the turnover threshold and no longer wants to stay in a sole proprietorship. In this case, it becomes necessary to switch to society. But changing legal status is complicated from a regulatory point of view. If we focus on the legal rule: we focused society on its own assets and finally, we create a society that will absorb this. You transfer the goodwill of yourself to society. These changes are subject to heavy formalism and burdens.

In fact, many entrepreneurs take a less rigorous path. They put an end to the self-employed activity and move on to the creation of a new structure. Except that this can be reclassified by the tax administration of transfer of business in disguise. And therefore, lead to a tax adjustment.

Are certain legal statuses necessary depending on the nature of the activity?

Almost all activities can be done under the different legal statuses. On the other hand, there are certain activities that cannot be done in micro-enterprises. This is particularly the case for certain regulated activities such as lawyers, chartered accountants, activities relating to agricultural profits, etc. On the other hand, depending on the regulated professions, the entrepreneur will need to produce certain documents to be registered (such as diplomas required for example to be a hairdresser). In this, whether he chooses the micro-enterprise or the company.

entrepreneurs entrepreneur business manager office choice legal status creation takeover company
Liberal profession, craftsman, technological society… The company’s raison d’être also refers to the choice of legal status.

What if the spouse is destined to participate regularly in the activity of the company?

If the spouse is actively involved, he or she must be recognized as such. This is not possible under the micro-enterprise since by definition, we are necessarily alone. In this case, it is necessary to start immediately on a form of company where the spouses will be co-entrepreneurs. One can choose the SARL for example, which is pretty much a EURL with more than one partner, or a SAS. The spouse can thus have capital and all his place, and be protected as such. It is given a very specific function recognized by law.

Are there any special arrangements to be made if a specific assembly is planned?

As soon as you start on the assembly, you must clearly opt for the company. I will give you the example of a family holding company. In this context, we use our funds to create the company and make sure that the assets remain in the family holding company… The company was designed to be able to make asset optimization arrangements.

It is also particularly suitable in the context of transmission. For example, when you are close to retirement. The ownership of the company is reflected in the shares and one can pass on its last gradually to its heirs. This can only be done through a society.

Another example is the case of subsidiaries of a company. We have activities that span several sectors of activity or several geographical sectors. We create one entity per sector, but we keep the holding company above to bring them together and optimize the taxation of the whole.

What is the impact of the choice of legal form on the social status of the manager?

In recent years, there has been harmonization, so there are now relatively few notable differences. When you are in a micro-enterprise, you are subject to the self-employed workers’ scheme (TNS), not under the general social security scheme.

freelance self-employed worker micro-enterprise status
The choice of legal status at the time of the creation of the company also influences the tax regime of the manager.

In SAS, the entrepreneur president is under a social regime assimilated employees. This is the only legal status that allows him to benefit from the general social security system. The impact is significant, particularly in terms of mutual insurance companies’ offers. We note that the offers are often more interesting in relation to quality for money when we are under the general social security system.

What is the impact of the choice on the tax regime of the creator?

When you are under the personal status of self-business, all the money earned goes directly into your wealth. The tax regime of the micro-enterprise and that of the entrepreneur are confused and one is systematically taxed on the receipts of money.

In society, you can not pay yourself income. It is society that makes money. You can pass investments, expenses and have a loss-making activity. In this context, it is possible not to pay taxes, but also not to pay income. Also, in some cases, the entrepreneur may continue to perceive unemployment.

On the tax side of the entity, the company is subject to corporation tax: 28 to 31% of profits (excluding reduced rates below certain thresholds). For all tax matters, it is complicated to give a general rule. We enter into the particularities and considerations of tax optimization.

Anyway, the best advice you can give to a business creator is to discuss it with a professional, often a chartered accountant. It is essential to choose the most suitable plan for both your professional project and your personal situation.

Sources:

(1) The micro-enterprise regime,Ministry of the Economy, Finance and Recovery

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