II. ESTABLISHING IN FRANCE
A. Different Forms of Presence
International companies setting
up in France benefit from a secure legal framework.
They can select those best suited to their
position and commercial strategy at every
stage, from prospection to business expansion.
1. First stage : the basic setting-up
a. Setting up
without officially registered representation
A foreign company can rent an office or set
up operations at a business-service center
and open a non-resident bank account. Once
the company has its own premises and/or employs
two or more people in France, it must be officially
represented by a registered liaison office,
a branch or a subsidiary.
b. The liaison
office : Exempt from corporate income tax
and VAT
A company whose activities in France are not
of a commercial nature, being limited to advertising,
the supply of information, storage or any
other preliminary operation, may be represented
by a liaison office. Registration is with
the trade register (Registre du Commerce et
des Sociétés).
c. Branch offices
: A good temporary arrangement.
Branches are considered permanent establishments
for tax purposes, and are subject to corporate
income tax and VAT. It is quicker and less
expensive to set up a branch office than a
subsidiary. The branch operates under the
authority of company headquarters. It is not
a separate legal entity. They are thus drawbacks,
for example, in the event of financial difficulties
: the company will have unlimited liability
for the debts of the branch office.
It may thus be preferable to set
up a separate entity in order to shield the
mother company from direct liability exposure
and also, to benefit from State aid, tax exemptions,
taxation of intra-group transactions. As a
result, it is a generally advised to create
a subsidiary.
2. The setting-up
of a limited liability type of company
A U.S. corporation contemplating
the establishment of a limited liability company
in France should be aware of the different
types and characteristics of French limited
liability entities.
French business entities fall
into one of two categories : sociétés
de personnes, which approximate to U.S. partnerships
and sociétés de capitaux in
which the shareholders' liability is limited
to the amount of their respective subscription.
Under French law, there are four
types of sociétés de personnes:
société en nom collectif (SNC)
(general partnership); société
en commandite (partnership with limited and
general partners); société civile
(civil partnership) and société
en participation (undisclosed partnership).
Most business entities in France
are characterised by the limited liability
of its shareholders. Under French law, there
are five such entities: société
anonyme (SA) (joint stock corporation), société
anonyme simplifiée (SAS) (simplified
joint stock corporation), société
à responsabilité limitée
(SARL) (limited liability company) société
en commandite par actions (limited partnership
with shares), rarely used, and entreprise
unipersonnelle à responsabilité
limitée (E.U.R.L.) (incorporated sole
proprietorship). Brief comments in relation
to each of these legal entities are set out
below.
(a) Société
Anonyme (SA)
The French legal form closest to the U.S.
corporation is the société anonyme
(SA). Its share capital (250,000 FF minimum)
must be held by at least seven shareholders,
who meet at least once a year to approve its
financial statements and to decide whether
profits will be distributed or retained, or
both. Day-to-day management is delegated to:
Simple majority rules apply during
annual shareholder's meeting. If major decisions
have to be made, such as a merger or a change
in the articles of association, an extraordinary
shareholder's meeting must be convened, and
qualified majority rules apply.
(b) Société
Anonyme Simplifiée (SAS)
The SAS was created in France in 1994 to attract
investments. It is a flexible limited liability
company in which the division of powers, nomination
of directors and mode of operations are freely
determined by the by-laws. Since 1999, the
minimum capital required is of 250,000 FF
and the requirement that the shareholders
must be legal entities has been removed. One
shareholder only is enough to create a SAS.
This modification of the SAS'
regime is meant to promote the setting up
of New Technology start-ups. The SAS makes
it possible for these entrepreneurs to arrange
a flexible legal structure adapted to a highly
competitive and evolving business area.
(c) Société
à Responsabilité Limitée
(SARL)
The characteristics of the SARL are the following
:
- it does not have a Board of Directors but
a manager (gérant) who need not be
a shareholder;
- the minimum share capital is FF 50,000;
- it must have a minimum of two shareholders
and a maximum of 50;
- the qualified majority rule is three-fourths;
- If the manager hired is not a citizen of
an EU member State, application must be made
for a business permit (carte de commerçant),
either through the French Consulate in the
person's home country or through the local
administrative authority in which the company
is to locate its registered office.
(d) Entreprise
Unipersonnelle à Responsabilité
Limitée (EURL)
Popular among foreign investors because it
requires only one shareholder, the EURL operates
like a SARL.
It permits the sole owner of a
business to limit its liability for business
debts only to the extent of the amount of
the capital. The sole shareholder may either
be an individual or a legal entity. In the
latter case, the EURL is automatically subject
to corporate income tax at normal rate.
In addition, while an individual
may be shareholder of only one EURL, the number
of EURL's held by a company is not limited.
The EURL is managed by a gérant who
must be an individual but needs not to be
the shareholder. In other respects, the rules
of the SARL apply to the EURL.
Hence, the EURL form may also
appear to be a convenient legal vehicle for
the American investor who wishes either to
create a subsidiary in France whose business
does not immediately necessitate the incorporation
of an SA, or to acquire 100 % of the capital
of an existing SARL.
3. French Partnerships and Similar
Structures and Non-corporate Contractual Arrangements
These consist of :
(a) Société
en nom collectif (SNC)
This is the most common form of partnership,
equivalent to a U.S. general partnership.
Its partners are jointly and collectively
liable for all debts and obligations incurred
in as much as they are considered to be merchants.
SNC are often used because of their flexibility
(no minimum capital, no board of directors,
possibility of dividend rights and capital
contributions). The contract nature of SNC
tax status (i.e. transparency) also makes
this structure attractive under certain circumstances.
(b)Groupement
d'intérêt commun (GIE)
The GIE is essentially a joint venture with
a legal personality of its own. The rules
governing it and its members, its day-to-day
management and profit-and-loss allocation
are set forth in an agreement signed by its
members. Transparent for tax purposes, the
GIE structure tends to be the favored in ventures
in large-scale industrial projects, research
and development, joint sales and exports,
or purchasing activities conducted on behalf
of members.
4. Distributorship Agreements
Distribution of goods or services
may be achieved through any of established
means :
- Distributorship agreement
- Commercial agency agreement
- Franchise agreement
(a) Distributorship
Agreement
This type of agreement is a purchase-and-sale
agreement whereby the distributor is remunerated
for its services by a gross margin on sales.
The conditions of the agreement may be negotiated
freely, subject to relevant EU and domestic
competition laws. It must be determined whether
the agreement is on an exclusive or non-exclusive
basis, for a specific or undetermined territory,
for a limited or unlimited period of time.
A distributor has no basic title
to the manufacturer's clientele. As a result,
the termination of a pure distributorship
agreement does not trigger severance payment
and damages, except for abrupt termination.
The grantor can unilaterally terminate
the distributorship agreement. But he may
be obliged to assume liability for the employees
of the distributor. As a general matter of
labor law, in the event of a "modification"
of the juridical situation of an employer,
notably as a result of a take over, sale,
merger, or transformation of its going concern
or incorporation, all employee contracts in
effect at the time of such modification remain
in effect as between the new employer and
the personnel of the company. This provision
of labor law has been interpreted by the courts
to apply to a modification consisting of the
non-renewal by a grantor of a distributorship
agreement and his decision to commercialize
his products directly; in such circumstances
grantors have been obliged to either take
over the employment of the employees hired
by the distributors to sell grantor's products
or pay severance indemnities to the employees
on the basis of an unjustified termination
of their employment contract (Art. L 122-12
of the labor law code).
(b) Commercial
Agency Agreement
This is the most common form of distributorship
agreement used in France. The commercial agent
is an independent contractor who takes orders
from customers on behalf of the principal
and receives a commission expressed as a percentage
of sales in consideration for its services.
The agent must be registered with the office
of commercial court and must hold a commercial
card. It must also register with the State
welfare agency and contract for a retirement
plan, as well as a medical plan. The commercial
agent is entitled to damages for breach or
termination of contract, which can amount
to as much as two years of anticipated commissions.
Some commercial agency agreements contain
clauses.
(c) Franchise Agreement
This is a contractual arrangement
between the owner (the franchiser) of a marketing
process and corresponding products and several
retailers (the franchisees). The arrangement
comprises :
- distribution of products by franchisees;
- licensing of trademarks and protected know-how;
and
- marketing and sales services. If the arrangements
provide for the assignment of trademarks,
the contracts must be registered with the
French National Institute of Industrial Property
(INPI).
5. Joint Ventures in France
A joint venture may be described
as an agreement of cooperation between independent
parties (often, but not always, of similar
economic weight) who enter into a common objective
whether for profit or otherwise. A joint venture
may be materialized by a simple contractual
relationship, a partnership agreement or a
joint corporation. Joint ventures which result
in a common entity are organized either in
the form of a partnership or in a form of
a corporation. Joint venture contracts provide
great flexibility to the parties by avoiding
the burdens inherent in setting up a separate
legal entity. However, limits to the contractual
freedom are sometimes imposed by public policy
rules relevant to the place where the contract
is to be performed or to the nature of its
purpose.
