#AFrenchStart: What type of business structure should I choose in France?
A foreign company can establish itself in France by setting up a legal entity whose form can range from the simplest to the most complex. The legal papers below (Liaison office, Branch, and Corporation) cater to various needs and expectations for each type of legal entity. They require varying levels of investment and relate to different stages of development on the French territory. The type of entity will depend on criteria linked to the project’s state of progress, the perceived risk, the company’s size, or even the kind of business activity envisaged. However, it will still be possible to change the entity’s form as the business grows.
Step 1: Choose your business structure
In the #AFrenchStart sequence, we will give you the keys to a successful launch in France! The first step is to choose the business structure of your establishment. You will discover the three forms your business can take. Creating and managing a business has become easier in recent years thanks to important reforms. Indeed, many services are now available online! For example, tax services are at your fingertips thanks to the Tax4Business portal, while a one-stop-shop has been created for the administrative procedures involved in setting up a business.
Liaison office: the least restrictive type of structure
First of all, the liaison office is the least restrictive type of business structure in France for those setting up a business for the first time. It is a good observation point that enables a foreign company to:
- make its first contacts in France with various partners (customers, suppliers, banks, investors, etc.);
- collect information (in particular, to see whether the market in which it wishes to establish itself is viable);
- provide information on behalf of the foreign company or advertise its existence.
The liaison office thus only plays a role of a relay, preparing the negotiations between customers in France and the international investors. The purpose of the liaison office is not to engage in commercial activity and to conclude contracts in the name and on behalf of the foreign company. Notice that if commercial relations are envisaged later in France, invoices and arrangements must be sent and signed directly by the foreign company.
The liaison office does not have an independent legal personality and is therefore not required to keep accounts. It carries out only a preparatory or ancillary activity. It is not classed as a stable establishment for tax purposes. If the liaison office conducts commercial transactions, it can be classified as a permanent establishment. The liaison office will then become subject to tax in France. The registration of this legal structure with the RCS is not mandatory insofar as no commercial activity is carried out.
Branch: the intermediate option of business structure
Setting up a liaison office is not a suitable option for a company wishing to set up in France to expand their commercial operations geographically. Therefore, creating a branch is an intermediate solution for setting up operations in France. It enables a foreign company to create a permanent establishment in France that is separate from the foreign-registered office, headed by an individual with the authority to enter into binding agreements with third parties.
The branch has no independent legal personality, i.e., distinct from that of the foreign company. However, unlike the liaison office, it constitutes a permanent establishment of a foreign company in France for tax purposes. It is therefore subject to income tax in France. As this form of establishment involves commercial activity in France, registration on the company register is mandatory within 15 days of operations commencing. A branch thus has a certain degree of autonomy in running its business. It may enter into agreements with its partners in its name but on behalf of the foreign company.
Subsidiary: the most durable form of establishment
Thus, a subsidiary is the most durable and sophisticated business structure in France for a foreign company wishing to develop its business. It comes with certain constraints but also numerous advantages:
- Firstly, the separation of the parent company’s assets from those of the subsidiary, given that subsidiaries are separate legal entities in France.
- Secondly, companies established in France can apply for government support when they are founded or seek to develop their operations in France.
French law provides a wide array of legal business structures, thus catering to foreign investors’ needs and expectations. However, the joint-stock company is the most popular legal form because of its advantages.
So, contact us for free guidance on your investments projects in France!
Article written by Samy Trabelsi