An EIRL (Entreprise Individuelle à Responsabilité Limitée) is a legal status for entrepreneurs wishing to open a sole proprietorship.
Its main feature is that the partner's liability is limited to the amount of his contribution to the company.
But that's not the only advantage: simplified set-up formalities, streamlined management rules, flexible taxation and easy closure are just some of the factors behind the success of this status in France.
In 2016, the number of EIRLs created increased by 10%, according to INSEE.
In this article, we present an inventory of the main advantages and disadvantages of the EIRL.
The first specific feature of an EIRL is the separation of the entrepreneur's professional and private assets, whereas it is in fact a sole proprietorship.
For the first time, it's possible to be a sole trader while protecting your personal assets.
In addition, the declaration of assignment must be published in a legal gazette, together with the declaration of registration.
EIRLs are not required to draw up articles of association, which is why there is no difference between a legal entity and an individual.
In reality, the EIRL is a legal status in its own right, giving the company its own patrimony.
From a legal standpoint, the EIRL is for entrepreneurs wishing to protect their personal assets in the event of bankruptcy, while benefiting from the same tax conditions as micro-entrepreneurs.
The entrepreneur therefore remains the owner of both assets despite their separation.
Created in 2011, its aim is to encourage the creation of sole proprietorships while avoiding personal bankruptcies.
It's possible to run an EIRL business whether you're a sole trader, merchant, craftsman, farmer or self-employed professional.
You are the only master on board
Running your own EIRL allows you to work the way you want to: choose your workplace, your working hours, the assignments you want to carry out, your schedule, and so on.
In other words, you can carry out your business in the way that suits you best, and with total freedom.
No management decision needs to be justified, and there is no need to appoint an auditor.
Free choice between income tax and corporation tax
EURLs are subject to income tax ( impôt sur le revenu - IR) by default when they are created. However, entrepreneurs can opt for corporate income tax (IS) if they wish.
In this case, an EURL can benefit from the reduced 15% corporate income tax rate if its annual sales do not exceed €7,630,000 excluding VAT; if its capital is fully paid up at the end of the financial year; and if it is at least 75% owned by individuals.
The reduced rate applies to the first 38,120 euros of sales each year.
Beyond that, the standard rate of 33.33% applies.
If the sole shareholder is a legal entity, the company is automatically subject to corporate income tax.
Combining EIRL and microentrepreneur status
EIRL managers can benefit from the simplified micro-social regime specific to micro-entrepreneurs.
It offers a host of management facilities, such as simplified calculation of social security contributions, the option to deduct income tax at source, and virtually non-existent accounting formalities.
To achieve this, the EIRL must not generate more than €170,000 in annual sales if it carries out a commercial or hosting activity.
In the case of a service or self-employed activity, the ceiling is set at €70,000 by the tax authorities.
A few administrative and accounting formalities to be observed in spite of everything
The EIRL requires a few specific administrative formalities when it is set up, given its special status.
In particular, the assets assigned to the business must be precisely defined, so that there is no ambiguity as to the separation of the entrepreneur's private and professional assets.
Entrepreneurs are also required to file annual financial statements. He is responsible for valuing his assets, and the appointment of a contribution auditor is compulsory if the assets are worth more than €30,000.
In the event of a breach, the contractor becomes fully liable, and his personal assets may be involved.
The obligation to have a business bank account
All companies with annual sales of over €5,000 are required to open a specific bank account.
The EIRL is therefore a special legal status, halfway between sole proprietorship and limited partner liability.
Choosing to set up an EIRL depends on your business sector, your growth forecasts, your objectives and your financial situation.
It is often advisable to call on a professional before setting up your own business.
Written by our expert Paul LASBARRERES-CANDAU
August 3, 2018
