Choosing the legal status of your company is an essential step in its creation.
This choice determines not only :
- The tax system
- Partners' liability
- Social protection for managers
It also has an impact on the company's management style and development.
Between sole proprietorship, which offers simplicity and accessibility, and corporate legal forms such as the SARL, SAS orEURL, each option presents advantages and constraints. So it's vital to understand these specific features before making a decision.
Explore the decisive criteria for making the right choice, compare the different legal statuses and discover our best practical advice for structuring your business start-up project.
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Understanding legal status: key concepts
What is a legal status?
A company's legal status defines its legal framework, structure and obligations in terms of liability, taxation and social protection. It determines how the company operates and its relations with third parties (customers, suppliers, tax authorities, etc.).
There is a fundamental distinction between a sole proprietorship and a company:
- A sole proprietorship is directly linked to its manager, who operates in his or her own name and is liable for business debts from his or her personal assets (with exceptions such as the EIRL, which allows separation).
- A company is a legal entity distinct from its creator(s), which limits the liability of associates to the amount of their contributions. It is legally more structured and involves more management formalities.
The choice of legal status therefore depends on a number of factors, not least the level of responsibility the entrepreneur is prepared to assume, and the way in which he or she wishes to structure the project.
Sole proprietorship and company: what are the major differences?
Sole proprietorship status is often preferred for its ease of management. No share capital is required, and start-up formalities are streamlined. The tax system is also simplified, since profits are taxed directly through theincome tax (income tax). However, liability is unlimited, which exposes the entrepreneur to risks in the event of professional debts.
Conversely, a company (SARL, SAS, EURL, SASU...) is a separate legal entity, which means that the liability of the partners is limited to the amount of their contribution. This structure is more secure, but entails greater accounting and administrative obligations.
What impact will this have on taxation and social protection?
The tax system varies according to the legal form chosen:
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Sole proprietorship: profits taxedunder the income tax system, unless option for corporation tax under certain conditions.
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Company: By default, corporate income tax ( impôt sur les sociétés - IS), but certain structures(SARL de famille, EURL) can opt for corporate income tax (IR).
As far as social security is concerned, sole proprietors and majority managers of SARLs are governed by the TNS (travailleur non-salarié - non-salaried worker) regime, while managers of SASs and SASUs are assimilated to salaried employees, thus benefiting from more extensive social security protection.
Understanding these differences is essential to making the right choice for your business project, taking into account the financial and administrative impacts.
Essential criteria for choosing a legal status
The choice of legal status is a strategic step in the creation of a company. It affects management, the liability of partners, taxation and the social security system for the director. Several criteria need to be analyzed to identify the structure best suited to your project.
Number of partners: sole proprietorship or partnership?
One of the first criteria to take into account is the number of people involved in the project.
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A single business creator: asole proprietorship (EI) or a single-member company such as theEURL (Entreprise Unipersonnelle à Responsabilité Limitée) or the SASU (Société par Actions Simplifiée Unipersonnelle) are suitable solutions.
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Several associates: the creation of a company is mandatory. Depending on the desired level of structuring, a SARL (Société à Responsabilité Limitée) or SAS (Société par Actions Simplifiée) may be envisaged.
Partners' liability: limited or unlimited?
The level of protection afforded to personal assets is a key factor in the choice of status.
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Unlimited liability: in a sole proprietorship, the manager's personal assets can be seized in the event of business debts. Only theEIRL option can protect certain personal assets.
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Limited liability: in a company (SARL, SAS, EURL, SASU), partners are only liable up to the amount of their contributions, which protects their personal assets in the event of financial difficulties.
Share capital and financial requirements
Some businesses require significant initial investment, which influences the choice of legal status.
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No minimum capital:sole proprietorships and micro-enterprises require no initial capital contribution.
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With share capital: companies (SARL, SAS, SA...) must define a share capital, the amount of which can be freely set. This is useful for reassuring partners and investors.
Tax system: income tax or corporation tax?
The tax system depends on the legal status chosen:
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Sole proprietorships and micro-businesses:income tax by default.
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Companies: in EURL, SARL or SASU, you can opt forcorporation tax (IS) to optimize your tax situation.
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SAS and SASU: automatically subject to corporate income tax (IS), unless a temporary option to pay corporate income tax (IR) is granted.
Social security system for managers: self-employed or assimilated employee?
The choice of status also has an impact on the manager's social security system:
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Travailleur non salarié (TNS): for sole proprietors and majority managers of SARLs. Less costly in terms of contributions, but more limited in terms of social protection.
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Assimilé salarié: chairmen of SAS and SASU contribute to the general Social Security scheme, benefiting from better social security coverage.
Protection of personal assets
Entrepreneurs wishing to separate their personal and professional assets prefer legal forms with limited liability (EURL, SASU, SARL, SAS).
By analyzing these criteria, each entrepreneur can choose the legal status best suited to his or her project, and anticipate its consequences in terms of management, taxation and social protection.
Overview of the different legal forms in France
The choice of legal form depends on a number of criteria, and must be adapted to the specific needs of the company. Here's a detailed overview of the main legal forms available, with their advantages and disadvantages.
Sole proprietorships and micro-businesses
L'Sole Proprietorship (EI) is one of the simplest forms of business to set up and manage. It requires no share capital, and allows the entrepreneur to work under his or her own name.
Advantages:
- Quick set-up, no complex formalities.
- Simplified taxation (income tax).
- No need for extensive accounting.
- Micro-fiscal regime possible with the micro-enterprise to reduce charges.
Disadvantages:
- Unlimited liability: the entrepreneur commits his personal assets.
- Social security contributions based on sales, even in the absence of profits.
- Not suitable for projects requiring a high initial investment.
The micro-enterprise (a specific type of micro-enterprise) is ideal for testing out a business, but is limited in terms of sales (€77,700 for services and €188,700 for sales in 2024) and deductibility of charges and VAT. It is therefore important to carefully analyze the advantages and disadvantages of micro-enterprise before choosing this system.
If certain thresholds are exceeded, the micro-entrepreneur must change tax status, which means switching to a classic sole proprietorship or setting up a company. This transition can be a source of difficulties if it has not been anticipated, particularly in terms of social security contributions and VAT, which must be declared and paid differently. It is therefore advisable to regularly monitor your sales to avoid a sudden change of regime.
Limited Liability Sole Proprietorship (EIRL)
TheEIRL makes it possible to protect personal assets by allocating a separate part to professional activities.
Advantages:
- Separation of personal and business assets.
- Retain the advantages of sole proprietorship.
Disadvantages:
- Less flexible than a company for financing and investments.
- This status is tending to disappear since the reform of the Sole Proprietorship in 2022.
TheEIRL remains an intermediate solution for those wishing to limit their liability without setting up a company.
Single-member limited liability company (EURL)
The EURL is a single-member company, similar to the SARL but simplified. It enables you to protect your personal assets and choose between income tax (IR) and corporation tax (IS).
Advantages:
- Liability limited to contributions.
- Choose between income tax and corporate income tax to optimize taxation.
- Possibility of converting to a limited liability company if the business grows.
Disadvantages:
- More complex set-up formalities than a sole proprietorship.
- High social charges for the manager (non-salaried worker regime).
TheEURL is an excellent option for entrepreneurs wishing to secure their project while retaining full control of their business.
Single-member simplified joint stock company (SASU)
The SASU is a more flexible form of single-person company than the EURL. It is ideal for ambitious projects requiring an attractive legal framework for investors.
Advantages:
- Liability limited to share capital.
- Status of salaried manager (more advantageous social protection).
- Flexibility in drafting bylaws.
Disadvantages:
- Higher social security charges than for EURL.
- More complex administrative formalities.
The SASU is often the preferred choice for start-ups or companies with high growth potential.
Let's take the example of a freelance consultant who starts out as a SASU (simplified joint-stock company) to work alone. After a few years, his business develops and he wishes to join forces with other professionals to expand his services. Thanks to the flexibility of the SAS, he can easily integrate these new partners and adapt the distribution of capital without excessive administrative complications. This type of transition is a real advantage for fast-growing companies.
Limited liability company (SARL)
La SARL is a company with between 2 and 100 partners, ideal for projects requiring a secure framework.
Another advantage of the SASU is its ability to evolve easily into an SAS, enabling the company to welcome new partners and facilitate access to financing. What's more, the many advantages of the SAS make it a very popular option for entrepreneurs looking for a scalable structure.
Advantages:
- Partners' liability limited to contributions.
- Adaptable manager status: TNS (less costly) or assimilated employee (better social protection).
- A more stable legal framework.
Disadvantages:
- Less flexibility than SAS for organizing the management and transfer of shares.
- High social security contributions for the majority shareholder.
The SARL is a good compromise for entrepreneurs seeking a structured framework without excessive complexity.
Simplified joint-stock company (SAS)
The SAS is a highly flexible company, favored for projects requiring investment and scalable structuring.
Advantages:
- Limited liability.
- Great flexibility in the organization of bylaws and the distribution of shares.
- Chairman treated as an employee (advantageous social protection).
Disadvantages:
- More red tape than a SARL.
- Higher social security contributions for the manager.
The SAS is ideal for entrepreneurs aiming for rapid growth and attracting investors.
Other less common statuses
Other legal forms exist for specific cases:
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Société Anonyme (SA). Designed for large companies with at least 2 shareholders and minimum capital of €37,000.
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General partnership (SNC). Suitable for partners wishing joint management, but with unlimited liability.
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Société Civile Professionnelle (SCP). For liberal professions wishing to work together (lawyers, doctors, notaries).
These statutes are often less used by sole traders, but are still suitable for certain specific activities.
Comparative table of the main legal forms
Comparing legal forms: which one to choose for your project?
The choice of a company's legal status should be guided by the specific needs of the project, the level of protection sought, taxation and management requirements. Here's a comparison of the main legal forms based on essential criteria, to help every entrepreneur make the right decision.
Comparative table of legal forms
Which status to choose for your project?
You are a sole trader with low sales
👉 Choose micro-enterprise or sole proprietorship
The micro-enterprise is the ideal solution for those starting a business with little investment and limited sales. Easy to manage and inexpensive, it avoids heavy administrative burdens.
You want to secure your personal assets
👉 Opt for EURL or SASU
These forms allow you to limit your liability to the contributions you make, and offer a more protective legal framework. TheEURL is suited to entrepreneurs seeking simpler management and a TNS social security scheme, while the SASU offers enhanced social protection thanks to itsassimilated employee status.
Launching a multi-partner business
👉 Give preference to SARL or SASThe SARL (limited liability company) is ideal for a structured, secure structure, particularly for a family business.
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The SAS is more flexible and facilitates the entry of investors.
You are aiming for strong growth and fund raising
👉 S AS is the best option
The articles of association allow great flexibility in the entry of new partners and the issue of shares. It's the preferred form for start-ups.
You work in a regulated profession
👉 Think SCP or SEL
The liberal professions (lawyers, doctors, chartered accountants) can opt for specific types of status, such as the Société Civile Professionnelle (SCP) or the Société d'Exercice Libéral (SEL).
Mistakes to avoid when choosing a status
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Choose a status without tax anticipation. Some statutes offer greater tax flexibility, notably the choice between income tax (IR) and corporation tax (IS).
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Failure to anticipate the company's development. A micro-business can be limiting in the event of strong growth.
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Underestimating accounting obligations. Corporate statutes (SARL, SAS) require rigorous accounting.
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Ignore the impact on social protection. The TNS regime is less costly, but offers weaker social protection than an assimilated employee.
By analyzing these different criteria, each entrepreneur can identify the legal status best suited to his or her business creation project.
To avoid these mistakes, it is advisable to seek the support of a chartered accountant or a business start-up consultant. Every project is unique, and a poorly anticipated choice of status can give rise to legal, tax and administrative complications that are difficult to rectify later on.
Changing status during the life of the company
The choice of legal status is not definitive. It is possible to change to a form better suited to the company's needs as it grows. However, this change involves administrative, tax and legal formalities that need to be carefully anticipated.
Why change your legal status?
There are several reasons for changing the legal status:
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Business growth. A micro-enterprise may reach its sales ceiling, necessitating a transition to a EURL, SASU or SARL.
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Need to secure personal assets. A sole trader may wish to limit his liability by incorporating.
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Changing the number of partners. A sole trader wishing to form a partnership must convert a EURL into a SARL or a SASU into a SAS.
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Tax and social security optimization. Some companies switch fromincome tax (IR) tocorporation tax (IS) to benefit from more advantageous tax treatment.
How do I change my status?
Changing status involves :
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Amendment of articles of association (drafting of minutes of general meeting for companies).
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A declaration to the Clerk of the Commercial Court.
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An update on tax and social security formalities.
This can be a complex process. It is therefore advisable to enlist the help of a chartered accountant or a specialized service such as SeDomicilier to ensure that all the necessary steps are taken.
Conclusion
Choosing the right legal status is a crucial step for any entrepreneur.
It determines :
- Management mode
- The tax system
- Social protection and the level of liability of associates.
Depending on their project, business and objectives, entrepreneurs can opt for a sole proprietorship, a one-person company (EURL, SASU) or a corporate form (SARL, SAS, SA).
Anticipating the company's future needs is essential to avoid changing status too soon. The right choice from the outset secures your business and optimizes your tax situation.
To facilitate these steps and ensure efficient administrative support, solutions like SeDomicilier enable entrepreneurs to concentrate on their development while benefiting from an adapted legal framework.
Before taking the plunge, it is advisable to consult a chartered accountant in order to choose the most advantageous status for your project and situation.
