Whether expanding an existing business or considering an investment, operating in France requires an understanding of its legal, regulatory and administrative framework.

This guide outlines the main points to consider at the outset to help businesses navigate the French market.

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Setting up a company

Legal structure

Commercial companies and civil companies are the two main categories of companies in France.

Subject to certain exceptions, only commercial companies can carry on businesses - they may be formed as a: Société Anonyme (SA), Société à Responsabilité Limitée (SARL), Société par Actions Simplifiée (SAS), Société en Nom Collectif (SNC), Société en Participation (SP), Société en Commandite Simple (SCS), Société Européenne (SE), Société en Commandite par Actions (SCA).

The choice will have implications on the company’s legal status, tax position, assets and employment relations.

A company wishing to expand its business in France will usually form a subsidiary. The most common forms used by such businesses are the SAS and the SARL which are companies with a limited shareholder liability.

The SA and the SCA are the only companies that can make a public offering of their shares.

The SAS has the best flexibility as the shareholders may freely manage and operate the company. It can only have one one president, but other directors can be elected and can one or more shareholders.

Apart from the SP, any type of commercial companies will be able to own assets, employ workers and be subject to French taxation.

Liability of the members

The liability of the shareholders of a SA, SAS, SE, SCA and SARL is limited to the amount due to be paid to the company for their shares.

The shareholders of a SP and SNC are personally liable for the debts of the company.

A SCS and SCA have shareholders with limited and unlimited liability.

Key features

• Articles of association: It sets out, amongst other matters, the internal rules of the company and its corporate purpose (i.e: business activities that it intends to carry on). Except for the SA, SAS and the SE, the articles of association must mention the names of all subscribing shareholders.
• Registered office (not required for a SP): It may be the local of the company or a domiciliation in an agency. A lease, domiciliation agreement or title deed will be needed.
• Bank account: It has to be opened in a French bank (established in France as a company or as a branch) for the deposit of the share capital (not required for a SNC, SP or SCS).
• Effective beneficiaries: any natural persons who hold, directly or indirectly, at least 25% of the share capital or voting rights of the company. Persons who exercise control over the company through other means (including control in fact), even where they hold less than 25% of the share capital or voting rights, must also be disclosed as beneficial owners.

Representatives

Any natural person (including Foreigners) may act as the legal representative of a French commercial company.

Each natural person appointed as a member of the company’s management must sign a certificate attesting to their parentage and absence of a criminal record.

In a SAS, the legal representative can also be a legal entity (i.e: a Foreign company) represented by its own legal representatives or by a proxy holder.

Legal representatives can, of course, be held liable if they breach the law, the articles of association of the company, or in the case of wrongdoing in the course of the business administration.

Public Information

The company’s incorporation notice must be published in a French journal of legal notices.

The company (other than a SP) must be registered with the Registry of Commerce and Companies.

The excerpt from this Registry, the so called Extrait Kbis (showing the company’s main particulars), the articles of association and the names of the company’s officers are made public.

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Financing a company

A French company may be financed through equity contributions (share capital increases) and/or shareholder or third-party loans.

The minimum share capital requirements depend on the legal form of the company. A Société Anonyme (SA) requires a minimum share capital of €37,000, whereas no statutory minimum applies to a Société par Actions Simplifiée (SAS) or a Société à Responsabilité Limitée (SARL).

For SA and SAS companies, at least 50% of cash contributions must be paid up at the time of incorporation, with the balance payable within five years. For a SARL, at least 20% of cash contributions must be paid up on incorporation, with the remainder payable within five years.

Share buy-backs are subject to strict statutory conditions and are permitted only in limited circumstances. In particular, only fully paid shares may be repurchased, and the company must have sufficient distributable reserves.

In addition to equity financing, companies may be funded through shareholder loans or external debt, subject to applicable corporate, tax and regulatory rules.

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Opening a branch office

A Foreign company can establish a place of business in France without forming a new subsidiary company by setting up a branch office. It will be considered and treated as the same legal entity as its parent.

The Foreign parent is directly responsible for all incurred liabilities of the French branch office.

The Foreign company must file prescribed particulars of both of the Foreign company and its French establishment with the French Registry of Commerce such as:

• the equivalent of an original certificate of incorporation and existence (showing the company’s main particulars) not less than 3 months old with  certified translations ;
• a certified copy of the Foreign company’s articles of association with a certified translation ; 
• a copy of the deed of title, lease or domiciliation agreement relating to the premises of the French branch office; and
• details of the authorised representative(s) of the French branch office.

Once the branch is registered in France, the Foreign company will have to file with the relevant Commercial Court, every year, a copy of the annual accounts with a certified translation.

The French branch office must have a local manager duly empowered to act on behalf of the company towards third parties. He/she will only carry out permitted activities (by the Foreign company) pursuant to a power of attorney.

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Renting premises

Business premises can either be owned or leased. Companies usually start their activities in France, by renting business premises. ​

Articles L.145-1 and seq of the French Commercial Code regulate the main features of the French commercial leases as follows:

• the duration of the lease cannot be less than 9 years with a break option for the tenant (that can be waived in the lease) every 3 years with a 6 month prior termination notice (to be served by bailiff or notified by registered letter with acknowledgment of receipt). It is possible to conclude a short-term lease at the term of its maximum duration set to 36 months.
• upon the expiry date of the lease, the tenant has the right to renew the lease on the same terms and conditions, subject to the tenant having satisfied its obligations under the lease or to obtaining the payment of an eviction indemnity covering the tenant’s loss of business.
• the tenant can freely assign the lease along with a transfer of its “fonds de commerce” (ongoing business). The assignment of the lease without the business transfer is subject to the landlord‘s prior consent unless otherwise stated in the lease.
• the landlord can review the amount of the rent every 3 years and vary the rent on an annual basis in line with the variations of the commercial rents index ( ILC or ILAT). 

The cost of most charges and building works (excluding structural work of article 606 of the French civil code) are usually borne by the tenant. Commercial leases must provide an inventory of the charges, taxes and other costs.

On the expiry of the lease, the tenant returns the premises to the landlord in its original state. It usually transfers the benefit of any improvements (if any) to the landlord with no compensation.

The tenant usually pay a deposit to the landlord and/or provide the landlord with a guarantee (either from a bank or an affiliated company). It is forbidden to rent the business premises unless expressly stated in the lease. However, corporate tenants can usually sublet the premises to other companies of their group.

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​Contracting

Principles

It is important to bear in mind the below principles before entering into any contract with a third party:

Freedom of contract: co-contracting parties can be chosen freely and parties can freely draft the content of their contract.

Good faith: any contract must be negotiated, constituted and executed in good faith.

Certainty of terms: the terms of the contract have to be complete and should not be vague or ambiguous. Otherwise, in case of a litigation, the courts will have to interpret them to give effect to the true intention of the parties.

Authority: the absence of authority of a co-contracting party may render the contract unenforceable.

Capacity: the person or entity’s capacity to enter into a contract may be limited by law, statute, internal policies or constitutional documents. 

Formation: a contract can be written or oral. However, certain contracts are required to be written or by deed

Main features

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Implied terms: terms may be implied into a contract by provisions of the Civil Code, Commercial Code, other codes or statutes. For instance, article 1194 of the French Civil Code provides that “contracts create obligations not merely in relation to what they expressly provide, but also to all the consequences which are given to them by equity, usage or legislation”.

Penalty clauses: a penalty clause is a contractual clause which provides for a fixed or predetermined amount to be payable by a party in case of breach of contractual obligations or delays in the performance of contractual obligations.

Limitations of liability: liability may be limited (ie: the time for bringing a claim, the amount of liability, restrictions on the loss recoverable for a breach of contract). It is not possible under French law to exclude liability for gross negligence, wilful misconduct or breach of an essential contractual obligation. Limitations of liability will rarely be enforceable in contracts that are concluded with consumers or non-professional parties.

Unfair contract terms:  unfair contract terms are provisions whose effect or purpose is to cause a significant imbalance in the parties rights and obligations arising under a contract.

The rules apply to any kind of contract entered into between a business/professional and a consumer or ‘nonprofessional” (Article L.212-1 of the French Consumer Code). Article R.212-1 of the French Consumer Code provides a non-exhaustive list of  terms that are deemed automatically unfair (i.e: terms hindering the pursuit of legal remedies). Article L.212-2 of the same Code provides a “grey list” containing ten terms which are deemed unfair unless proved otherwise. 

Article L.442-1-2° of the French Commercial Code prohibits a party from subjecting the other party to obligations that create a significant imbalance in their rights and obligations, at any time during the commercial relationship.

Termination: there are 3 different ways to terminate a contract: via a termination clause (which must mention which non-performance will lead to termination of the contract), a unilateral termination or through a judicial termination. 

Under the French Commercial Code, sufficient prior notice is required to unilaterally terminate an established commercial relationship. Otherwise, the recipient of the notice is entitled to claim damages. 

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Business taxation

Corporation income tax

It applies on profits realised by companies (SA, SAS, SCA and SARL) operating in France and on earnings taxable in France.

Limited partnerships (SCS) are subject to CIT on the portion of profits attributable to the limited partners. 

Société Civile (SC) are subject to CIT if they are engaged in commercial activities or if they elect to do so.

Branches of foreign companies based in France are subject to CIT. Their profits net of CIT are deemed distributed to non-resident shareholders of the foreign company and automatically subject to a temporary withholding tax (WHT) of 30% (it can be reduced or cancelled pursuant to the provisions of a double tax treaty provisions).

The ordinary rate of CIT is currently 25% applicable under €500,000 of profit. A reduced rate of 15% applies to SMEs up to €42 500.

Tax credits may apply such as  research tax credits, employment tax credits, free zone tax credits.

​Deductions

​Deduction may be applied for general operating expenses, depreciation, amortisation and various tax-deductible expenses incurred in the normal business of the company or for its benefit.

The tax deductibility of interest is limited to the higher of the two following amounts: €3m or 30% of the tax EBITDA.

Capital gains

It applies to all transfer of fixed assets of companies subject to CIT.

Short-term capital gain (relates to all assets held for less than 2 years) are taxable as ordinary profit.  Short-term capital losses are deductible from the tax base.

Long-term capital gains usually involves shares or patents.The transfer of shares considered as participation shares which have been held for more than 2 years are taxable on a 12% basis at the ordinary tax rate. Long-term capital losses can not be used to offset short-term capital gain nor the ordinary tax result of the company. The transfer of patents, copyrighted software, and manufacturing process related to patents or software and income resulting from the licensing of these assets are taxable upon detention, at a 10% rate after application of a nexus ratio, aiming at reserving such favourable regime to companies which incur R&D expenses. This favourable tax regime does not apply when the seller and the buyer are related entities. 

Dividends

Dividends received by a company in France from subsidiaries either located in France or abroad are taxable on a 5% basis at the common tax rate, provided that (i) the company hold at least 5% of the share capital of the company distributing (ii) is subject to standard CIT and (iii) held the shares for a period of at least 2 years or commits to do so.

Losses

Losses can be offset against any profits made in the next financial year (limited above €1m of profits, to 50% of any profits exceeding this threshold). Losses that cannot be used can be carried forward indefinitely.

They can also be carried back to previous financial year within the limit of €1M.

Registration duties

Companies are liable to registration duties on incorporation, during their lifetime and on dissolution for certain events and when shareholders sell their shares.

VAT

VAT is charged on a supply of goods or services made in France and on goods and certain services imported into France. The current rate of VAT is 20% with reduced rates of 10%, 5.5% and 2.1% for certain supplies.

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Employment

The French Labour Code and national collective bargaining agreements (specific to an economic or industrial sector) govern the relationship between employer and employees. 

Hiring

A company can hire employees as soon as it is registered with the Trade Registry.

Non-EEA nationals who are resident in France must apply for their resident permit to state that they are permitted to act as a “foreign trader” in order to be allowed to perform management functions.

Working time

The statutory working time is of 35 hours per week. Hence, any additional hour worked above that limit of 35 hours, will be deemed as overtime and must be compensated (through additional payment or additional time off, if authorised).

In any case, an employee cannot work more than 6 days a week and 35 hours of time off in a row must be given each week, usually including Sundays. 

Certain employees are not subject to working time regulation due to their status such as highest executive management.

Pay

The minimum wage or SMIC in France is revised at least every year taking into account the changes to the cost of living. 

Higher minimum wage than the SMIC can be provided in a collective bargaining agreement.

Termination of employment

There are different rules that apply to the termination of employment contracts. Unless the parties agree to an early termination, a fixed term employment contract can only have early termination in exceptional circumstances (i.e: in case of a serious breach or a force majeure event)

Indefinite-term employment contracts can also be terminated after the probationary period. The employer may terminate an indefinite term employment contract under 3 circumstances:

• dismissal for economic reasons when the continuance of the contract would imply significant economic hardship to the employer;
• dismissal for personal ground (i.e: professional incompetence, incapacity of the employee), and
• agreed termination

In the event of dismissal, a letter must be sent by registered mail to the relevant employee explaining the reason for the dismissal and, in most cases, a meeting with the employee is to be held prior to the sending of the letter.

The employer must always give the dismissed employee the documents necessary to claim for unemployment benefits.

Depending on the grounds for dismissal, a dismissal indemnity may be due. It will vary depending on the employee’s status, length of service and age.

Special regulations apply to redundancies on economic grounds. It is necessary to prepare a job preservation plan if at least 10 employees are affected in a company with more than 50 employees. In addition, there must be consultation with staff representatives, reports must be made to the DREETS, support in finding new employment must be provided and severance payments must be made.

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Data protection

Statutory frameworl

Data protection is regulated by the French Act n°78-17 of 6 January 1978 on Information Technology, Data Files and civil Liberties, amended by Act n° 2018-493 of 20 June 2018 which transposed the General Data Protection Regulation 2016/679 (GDPR).

GDPR applies to any data controller or data processor established in the European Union (EU) who process personal data related to a natural person. It also applies to data controller and data processor not established in the EU, when their processing activities are in connection with the supply of goods and services to data subjects in the EU, or to the monitoring of their behaviour within the EU.

Definition

“Personal data”corresponds to any information that identifies directly or indirectly a natural person. The data controller is the person who determines the purposes and means of the processing. The data processor processes personal data on behalf of the aforementioned controller.

Key principles

• The controller must (i) use personal data only after having determining its legal framework, (ii) process them in accordance with the laws, and (iii) inform the data subjects of the data collection. 
• Data must be collected for specified and legitimate purposes and limited to what is necessary. 
• The controller has to to erase or correct inaccurate personal data.
• The storage period must be set in accordance with the purpose.
• Personal data confidentiality must be protected.
• The rights of the data subject must be protected (i.e: the rights of access, rectification, erasure, restriction, data portability, objection).
• It is mandatory to maintain a record of processing activities as well as implement data protection impact assessments (DPIA) when a company is required to nominate a data protection officer (DPO).

Data transfers

Transfers of data outside the EEA are supervised providing that equivalent safeguards to those imposed by GDPR are observed.

Sanctions

The data controller and/or the data processor can be held liable for non-compliance with French data protection law. They may be subject to investigation of the CNIL as well as penalties up to € 20,000,000 or up to 4% of the total worldwide annual turnover of the preceding financial year.

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Intellectual property

Main intellectual rights

Patent: A patent is a novel invention that implies something inventive capable of industrial application.

It must be registered with the National Institute of Industrial Property. A patent lasts for 20 years from the date of filing the application. Fees have to be paid annually.

Trade mark: A trade mark protects a distinctive sign or mark that can be represented graphically such as words, names, acronyms, letters, numbers, sound, olfactory marks,  etc.. and any combination of the these signs. It must be registered with the National Institute of Industrial Property.

A trade mark lasts for 10 years from the date of filing the application, and the registration is renewable for periods of 10 years indefinitely.

​Copyright: A copyright protects intellectual works provided that they are original and expressed in a medium from its unauthorised copying or use.

The registration is not needed to be protected. However, the registration allows the author to benefit from a presumption of ownership.

Copyright lasts for 70 years from the end of the year in which the author dies. If more than one author collaborates to create a work, the 70 year deadline does not begin running until the last joint author dies.

Registered design right: A registered design right protects a novel design that is not similar to any existing design and that does not simply contain features that are required by the product’s technical application.

It must be registered  with the National Institute of Industrial Property.

A registered design right lasts for 5 years and it can be extended up to a maximum of 25 years. Designs may benefit from a protection of both copyright law and design law.

​Statutory framework

​The ordinance which transposed Directive (UE) 2015/2436 named “Paquet Marques” establishes an administrative procedure for invalidity and revocation of trademarks before the INPI (National Institute of Industrial Property).

All intellectual property rights may be enforced both by administrative and court proceedings. There both civil and criminal sanctions. The owner may request from the customs authorities to withhold and seize the infringing goods and/or initiate summary proceedings before the judicial authorities to obtain measures to prevent an imminent infringement or to secure the evidence of an infringement. The owner may also seek all necessary reliefs against the infringer, damages and the destruction of the infringing goods and publication of the judgment in newspapers.

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Business immigration

Relevant authorities 

• Labour authority  (DREETS) decides on work permit applications and verify if employers comply with labour and immigration regulations;
• French Office for Immigration and Integration (OFII) is in charge of communicating work permit approvals to French consulates abroad in charge of processing corresponding visa applications;
• Consulates process visa applications;
• Prefectures issues residence permits for Foreign nationals  and take care of changes of status and extensions of immigration status.

Type of visas

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Unless the applicant is covered by a visa waiver programme (i.e: US/Canadian nationals), residence in France requires a visa issued by the French consulate of the applicant’s place of residence abroad.

The duration and purposes of residence determine the category of visa:

• Short-stay visa (the Schengen visa) issued for up to 90 days over any period of 180 consecutive days.The circulation visa is a type of Schengen visa issued for a total of 1 to 5 years. A Schengen visa does not allow any activities requiring a work permit or other activities that are subject to specific authorisation. 

• Long-stay visa issued for more than 90 days)

Unsponsored business

A talent passport  can be issued for up to 4 years (and is renewable) for the following unsponsored business : 

• Independent business people (self-employed individuals or director of a company); 
• Business investors: the investment can’t be just purely financial;
• Business visitors: for punctual business meetings, discussions and negotiations, seminars and conferences, etc…

Sponsored business

A short-term temporary work permit is required in addition to a Schengen visa for Foreign employees staying in France for more than 3 months. An exemption applies for specific salaried paid activities in different fields. 

When a company wishes to send or receive a foreign employee in France for an assignment exceeding 90 days, a longstay visa and appropriate long-term work permit are required.