The choice of structure in France and Great Britain

You've probably wondered how to set up your company in France and the UK.

One can indeed try to relate this or that French company to this or that British company.

However, they have their own specificities.

It so happens that British and French law obeys the two systems of law governing the international legal order: Latino-Roman law and Anglo-Saxon law, so much so that one ends up getting lost in them?

What really matters is whether or not you wish to have your liability limited and whether or not you have significant capital to invest.

What are the choices available to a British national or a British company wanting to set up in France?

Partnerships are generally contrasted with corporations because the former see the partners personally liable for debts or losses, whereas in the latter, they are liable only up to the amount of the sums they have incurred.

In addition, one obeys the rules of civil law with its seat in Article 1832 of the Civil Code while the others are governed by commercial law.

A. Partnerships of persons:

They are deemed to be companies where the affectio societatis is the most important: the partners are associated because of the persons present in the capital.

In this respect, you will note a French specificity: the Auto-Entreprenariat which is similar to sole proprietorship (UK) with an income cap but this type of company has no equivalent in French law.

Still, the best known civil company is the SCI or Société Civile Immobilière, the purpose of which is to manage a property.

However, the main civil societies are as follows:

  • Société civile professionnelle (SCP) are companies in which at least two partners have decided to exercise jointly the same liberal activity: they concern only regulated liberal professions,
  • Société civile de moyens (SCM) are companies involving regulated or unregulated liberal professions that wish to share common premises, equipment and structures in order to achieve economies,
  • Société d’exercice libéral (SEL) are companies that bring together members of regulated professions (chartered accountants, doctors, lawyers, etc.) to enable them to practise together and to share the costs of premises and structure (sharing a secretariat, for example).

Another specificity also lies in the creation of a Society for the Collection and Distribution of Rights, which is a society where authors exercise the collective management of their rights.

However, there are other civil societies, such as agricultural societies, which obviously have agriculture and everything related to it as their object:

  • Groupement agricole d'exploitation en commun (GAEC): joint agricultural grouping
  • Société civile d’exploitation agricole (SCEA): Civil Society for Agricultural Exploitation
  • Groupement foncier agricole (GFA), Groupement foncier rural, etc.: agricultural land association
  • Exploitation agricole à responsabilité limitée (EARL): farm with limited liability.

Other civil societies still exist: these are cooperative societies which are quite residual, but which also need to be dealt with here.

It is a question of:

  • Société coopérative de production (SCOP) is a company in which the cooperating employees are majority shareholders in the company of which they hold at least 51% of the capital and 65% of the voting rights,
  • Société coopérative d'intérêt collectif (SCIC) is a public limited company (SA) which brings together, around a project, salaried actors, beneficiary actors (clients, users, etc.) and contributors (local authorities) to produce goods and services of collective interest for the benefit of a territory,
  • Société d'intérêt collectif agricole (SCEA); these companies can be either SARLs or SAs,
  • Société coopérative agricole (SCA)

At this level of presentation, you will note that Agricultural Cooperative Societies are sui generis companies, i.e. neither civil nor commercial companies.

B. Commercial companies:

These companies are subject to commercial/business law.

The best-known French trading companies are:

  • the public limited company, or Société Anonyme SA, which may take the form of a Société coopérative de production (SCOP) or a Société d'économie mixte (semi-public company),
  • the limited liability company, or Société à Responsabilité Limitée SARL, which may also take the form of a SCOP or a semi-public company.

Strictly speaking, the SA is defined as a capital company because its corporate name does not reveal the names of the shareholders whose identity it may not even know when the company's securities are bearer shares, whereas the SARL is a form of intermediary company because although it is a limited liability commercial company where liability is therefore limited to contributions, it also has the characteristics of a partnership, in particular because the shares held in the capital are not freely transferable without the agreement of all or some of the members.

But without being exhaustive, they are very numerous, as you can see from the fact that they coexist side by side:

  • Société par actions simplifiée or SAS which is a capital company very similar to the SA, which may have only one partner, individual or legal entity, its capital is identical to that of the SA (37,000.00 euros minimum) but its operation is more flexible than that of the SA.
  • Société par actions simplifiée unipersonnelle or SASU,
  • Sole proprietorship with limited liability or EURL (variant of SARL with only one partner),
  • Société en nom collectif (SNC) is a company in which the partners all have the status of traders and as such are liable indefinitely and jointly and severally for all the company's debts,
  • Société en commandite simple SCS (Limited partnership) is a form of company in which the day-to-day operations are managed by one or more managing partners and financed by limited or passive partners who are legally liable for losses in proportion to the amount of their investment,
  • Société en commandite par actions SCA (limited partnership limited by shares) allows a complete separation of the management and ownership of capital in the company. Indeed, the SCA is a company whose capital is divided into shares, but which includes two categories of partners:
    • several limited partners who have the status of shareholders and whose liability is limited to the amount of their contributions (the SCA is comparable to an SA in this respect),
    • one or more general partners who are jointly and severally and indefinitely liable for the company's debts. The company's manager(s) are generally chosen from among them, as shareholders who are merely limited partners cannot become managers,

Which are also well known, while the rest are listed:

  • professional sports limited company or SASP, and
  • European Company (SE)

1. Method of constitution:

A commercial company is formed by the drafting and ratification of an agreement which gives it a proper name, a domicile, a nationality, a patrimony represented by shares, a life span and a corporate object.

These are known as the articles of association of the company.

When this information has been filed at the registry of a public court, registered under a number and published, it acquires a legal personality enabling it to carry out in its own name and on its behalf all the legal acts of a natural person (opening a bank account, buying, selling, renting, hiring employees, providing security, going to court, etc.) of which the manager is in some way the guardian.

It must keep accounts of all its activities, draw up and publish its balance sheet each year at the registry where it is registered and declare its profits and losses.

2. Administration mode:

Public limited companies are managed either in the form of a chairman and a board of directors or a management board and a supervisory board.

Reports are issued by these bodies, in support of which meetings are held at which shareholders generally vote annually.

LLCs, on the other hand, are managed through a manager, who is required to report at least once a year to a general meeting of shareholders.

The other structures mentioned follow more or less the same mode of administration as the two main companies, the SA and the SARL.

What are the choices available to a French national or a French company wanting to set up in Great Britain?

There are three types of company in English law: sole proprietorships, reserved for small businesses, partnerships which allow regulated professions to organise themselves in the form of companies and, finally, corporations which may constitute the equivalent of French commercial companies.

A. Proprietorships:

Strictly speaking, this type of company has no equivalent in French law.

In no case can it be a U.E.R.L. (which was transposed into English law by a law of 1992) insofar as this entity has no legal personality.

It is in fact a minimum profit-making structure within which a person carries on a professional activity, usually commercial.

The sole proprietorship corresponds to the sole proprietorship under French law.

As the sole proprietorship is not a legal entity, it has no assets and can only have one member.

It does not require a written document to be constituted and may even be simply implicit.

It is the direct owner of the assets and personally liable for the debts.

The sole proprietorship therefore has no share capital either.

As the sole member of this entity is the sole owner, the sole proprietorship's mode of administration is the simplest possible: the sole proprietor is the manager.

Finally, the absence of legal personality means that the sole proprietorship is not subject to tax.

The use of sole proprietorship is relatively frequent but is necessarily limited to small businesses.

The fact that the sole proprietorship's liability is not limited and that there is only one possible manager prohibits too much activity.

B. Partnerships:

Two types of partnerships are often referred to: (i) the Partnership in the strict sense, which derives from the law of 1890 (amended in 1998) and in which the liability of the partners is always unlimited, and (ii) the Limited Partnership, which derives from a law of 1907 (amended in 1980) and in which some of the partners have limited liability.

Apart from this difference, however, it is in fact one and the same type of company.

This company still has a profit-making purpose but is now only used by the professions, which are prohibited by law from using other forms of company.

This is, for example, the case of the lawyer.

The type of French company that would most closely resemble a partnership would be the Société en Nom Collectif (or the Société en Commandite Simple if some of the partners have limited liability).

Their resemblance simply stops at the fact that in both cases the liability of the (some of the) partners is unlimited.

Unlike the SNC (or the SCS), the partnership does not, in fact, have a legal personality.

This is precisely the reason why the liability of the partners is unlimited: the partners are directly liable for all of the partners' assets.

Unlike the SNC, the creditor will not be obliged to first sue the partnership patrimony before being able to act against the partners' patrimony.

The SNC or SCS is in fact closer to a private corporation in which the liability of the partners is not limited.

1. Method of constitution:

The partnership must be formed by at least two partners and not more than 20, it being specified that at least one of the partners must be a full partner.

No written form is required to form a partnership in the strict sense, which may even be implied (implied from conduct).

The limited partnership must however be registered in accordance with the law of 28th August 1907.

Failing this, it shall be considered as a general partnership.

The absence of legal personality as well as the unlimited liability of the partners implies that no minimum capital is required.

2. Mode of administration:

The mode of administration of the partnership can almost entirely be determined in the articles of association. However, some rules are given by the law as a supplement.

In principle, each full partner is co-manager of the company.

Unless otherwise agreed, ordinary decisions must be taken by simple majority and decisions amending the articles or admitting a new full partner must be taken unanimously.

C. The corporations:

Corporations are the only groupings under English law which have legal personality.

They are therefore the only ones that are taxed at the level of the company itself.

There are several types of corporations.

Firstly, a distinction must be made between Corporation Sole, a one-man company whose interest is essentially historical and whose sole function is to confer legal personality on certain functions or offices, and Corporation Aggregate, a type of company which before 1992 brought together all profit-making legal persons comprising at least 2 partners.

Within the latter type of company, a distinction must be made between public and private companies.

There are two categories of public company:

  • Charted Corporations, a company incorporated by Royal Charter (e.g. the BBC) or by donation;
  • Statutory Companies, a company set up by a special Act of Parliament.

Registered Corporations are governed by the Companies Act 1985, as amended by the Companies Acts 1989, and comprise two types of company:

  • Private Companies, which are joint stock companies which cannot be publicly traded and whose great flexibility allows them to be the French equivalent of the Société Anonyme, the Société par Action Simplifié, the Société A Responsabilité Limitée, or even the S.N.C. or the S.C.S;
  • Public Companies, which are joint stock companies that can go public.

Finally, it should be noted that a private company is not necessarily a limited liability company.

Indeed, it may be stipulated in the articles that the liability of the members shall be limited to the amount of their share (limited company), shall be unlimited (unlimited company) or, before 1980, shall be limited to a sum guaranteed by them and payable in case of liquidation (company limited by guarantee).

It should be noted, however, that the company limited by guarantee and the unlimited company are very rarely encountered. When speaking of the private company, reference will therefore always be made to the limited company.

1. Constitution of registered corporations:

While a public company must have at least two partners, since 1992 only one person has been allowed to incorporate a private company.

This will be the French equivalent of the E.U.R.L. although, given the flexibility of this English company, it exceeds this qualification.

However, there is no English equivalent to the Société en Commandite par Action.

In order for the company to be validly incorporated, it is necessary that at least one director and one secretary be appointed at the time of registration for the private company and two directors and one secretary for the public company.

No minimum capital is required to constitute a private company.

Its share capital is divided into shares which, unless otherwise provided in the articles of association, may be freely sold and purchased.

A public company must have a minimum capital of £50,000 of which at least one quarter must have been paid up at the time of incorporation.

In order to be registered, the public company must submit to the Registrar of Companies certain documents including the following:

  • the Memorandum of Association, the role of which is to provide third parties with essential information on the company and which must therefore necessarily indicate the company name, the type of company concerned, the registered office, the corporate object and, if there is a share capital, its amount and the number of shares subscribed for by the signatories of the Memorandum of Association;
  • the articles of association (Articles of Association) which are used internally and which regulate the organisation of the company.

2. Administration mode:

The company's mode of administration is very flexible.

The law of 1985 contains only a few mandatory rules on the very organisation of the company and practically no indication on its management.

The powers of the company are necessarily divided between two main bodies: the directors and the shareholders' meetings.

Here are a few guides which can only lead you to ask yourself new questions.

A glossary of terms is also at your disposal.

  • EI (Entreprise individuelle/entreprise en nom personnel): ≈ sole proprietorship (UK)
  • Investment funds:
    • FCP (Fonds commun de placement): unincorporated investment fund
    • SICAF (Société d’investissement à capital fixe): closed-end investment fund
    • SICAV (Société d’investissement à capital variable): ≈ unit trust (UK), mutual fund (US)
  • Partnerships (société de personnes):
    • SNC (Société en nom collectif): ≈ general partnership
    • SCS (Société en commandite simple): ≈ limited partnership
    • SCA (Société en commandite par actions): ≈ master limited partnership (US), mixed liability company (Guernsey)
  • Companies (joint stock company):
    • SARL, (Société à responsabilité limitée): ≈ private limited company (Ltd.) (UK)
    • EURL (Entreprise unipersonnelle à responsabilité limitée): ≈ single member company (SME Pvt) (Pakistan)
    • SA (Société anonyme): ≈ public limited company (p.l.c.) (UK)
    • SCOP (Société coopérative de production): ≈ cooperative
    • SEM (Société d’économie mixte): semi-public company
    • Société par actions: ≈ (limited liability) joint stock company (JSC)
    • SAS (Société par actions simplifiée): ≈ simplified joint stock company, often used for subsidiaries. It has a chairman but no board.
    • SASU (Société par actions simplifiée unipersonnelle): single member simplified joint stock company