Setting up a business is not without risks, especially when you're a sole trader.
The executive has the power to act in the name and on behalf of the company. He or she can therefore sign contracts, take out loans or hold the company liable to third parties. In the event of non-payment, breach of contract or criminal offence, the company is liable to pay compensation.
In this case, the entrepreneur's liabilitymay be directly recognized, to the point of forcing him to commit his personal assets to recover debts, for example.
It's important to be aware of the conditions under which you may be held liable, and thus avoid numerous inconveniences.
Entrepreneurial financial liability applies in particular when the company is at risk of insolvency, i.e. when it is unable to meet its debts. In this case, the extent of the entrepreneur's liability depends on the conditions laid down in the articles of association.
They are directly linked to the choice of legal status for the company.
If he chooses to set up a traditional sole proprietorship or an auto-entreprise, his personal assets (home, vehicles, second homes and other property) may be seized by the courts to pay off creditors. This situation is not without its risks, especially in the face of increasingly unstable markets.
If he chooses to set up a SAS, SARL, SASU, EURL or EIRL, his liability will be limited to the amount of his contributions to the company. If the company is in debt, his or her personal assets cannot be used to collect debts.
A company's civil liability refers to "the obligation to compensate for bodily injury, material or immaterial damage that may be caused to a third party, by the goods or persons dependent on it, in the course of its operations"(French Civil Code). There are several types of civil liability, depending on the case.
Liability in tort or quasi-delict is incurred in the event of professional misconduct outside the scope of a contract. On the other hand, contractual civil liability covers all damage caused by failure to comply with a signed contract.
More often than not, these errors are due to negligence or mismanagement on the part of managers, particularly those recognized as de facto managers.
In most cases, only the company is liable for damages suffered by a person as a result of a fault committed by the director.
An executive may be held personally liable if he or she commits a fault that is separable from his or her duties, i.e. if it is intentional or particularly serious. For example, the misuse of corporate assets for personal gain, or to benefit another company, gives rise to personal liability. It is the executive's responsibility to repair the damage he or she has caused.
An executive's civil liability may be incurred by the company itself, its partners or a third party.
The contractor is criminally liable if a breach of the law is found, even if he has not personally participated in the project, and even if there is no prejudice.
In this case, the onus is on the employee to prove his or her innocence and good faith. He or she may be held criminally liable by the courts, and third parties may bring civil actions against .
In most cases, these areinfringements specific to the company's activity or to general regulations (tax, customs, labor law, etc.).
Some penalties are very severe, with fines of up to several hundred thousand euros and prison sentences.
The criminal liability of a legal entity (i.e. a company) does not exclude the criminal liability of its directors.
Limiting your exposure to possible financial, civil or criminal liability depends mainly on the legal status you choose. However, it is not a bulwark against your own civil or criminal liability.
There is no remedy for this. The courts may decide to take legal action, whatever your situation. To do so, you must have suffered a loss, or have committed a criminal offence.
However, it is possible to make the right choices to limit your vulnerability as much as possible, and protect your personal assets in as many circumstances as possible.
Written by our expert Paul LASBARRERES-CANDAU
October 17, 2018
