A comparative guide to english and french companies

Introduction

Choosing the right country to start your company is paramount towards its success.

Your expenses can vary greatly, depending on a country’s setting up costs or the taxes on various business enterprises.

Moreover, each country has its own business culture and regulations that will shape the structure of your company and provide the guidelines to how it should be managed.

In Europe, France and the UK are amongst the most attractive countries in the developed world to start a company. But which is best?

To determine whether England or France is the most promising country to start your business, it is important to compare the different types of companies that exist in both countries and their legal implications.

In this guide, a short presentation is made of the advantages and disadvantages of English and French companies regarding the rules towards their constitution, structure, management and taxation system. This will help you make an informed choice on the future location of your business for which we offer all the necessary services to create and maintain.

A brief overview of the different companies in France and the UK

In England, there exist two types of companies: a private limited company (LTD), which can be limited by shares or guarantees, or a public limited company (PLC)

In France, there exists various business entities generally referred to as “sociétés” for which the simple translation as ‘companies’ does not suffice. The “sociétés” which are the equivalent of English companies are called “sociétés commerciales” (commercial companies) and include the société à responsabilité limité (SARL), the société par actions simplifiées (SAS) and the société anonyme (SA)

The private limited company which involves small to medium sized businesses and its equivalent in French law, the SARL and SAS will be the focus of our comparative study.

Constitution of the private limited company and the French SARL and SAS

Today, the requirements to set up a private limited company in the UK or a French SARL or SAS are very similar:

–       all companies do not require a minimum capital

–       all companies do not require a minimum of shareholders and the shareholders can be both natural or legal persons

–       all companies need at least one director (a “président” for the SAS and “gérant” for the SARL)

However, forming a limited company in the UK does have considerable advantages:

–       there is no requirement that the share capital be entirely subscribed to on formation contrary to both the SARL and the SAS

–       for the capital that has been subscribed to there is no deadline to pay it up; contrast with the SARL and SAS where if the capital is not paid up over the five year period following the date of registration of the company the latter  is dissolved

–       no mandatory valuation procedure applies for payment of the capital in money’s worth whilst in the SAS the valuation procedure is mandatory for contributions in kind (“apport en nature”) and in the SARL an auditor has to be designated if a contribution in kind either exceeds 30 000€ or the value of all the contributions in kind is superior to half of the capital

–        the director can be a natural or legal person, whilst in a SARL the director called the ‘gérant’ can only be a natural person.

–       very low costs of constitution and reduced bureaucracy

Structure of the private limited company and the French SARL and SAS

The private limited company and the SAS do not require the company to be managed in a particular way – except for the designation of one director for the private limited company and that of a ‘président’ for the SAS, the articles of the company are free to define how the power will be divided between the directors and shareholders and how the company will be managed.

This contrasts strongly with the SARL which provides that the company will be managed by one or several “gérants” with identical powers and two types of general meetings (GMs) to represent the shareholders: the ordinary and extraordinary GM, with specific quorums, majorities and fields of action.

However, in practice similarly to the SARL both the LTD and SAS’s constitution typically divides management power between the board of directors and the GMs; moreover, there are certain mandatory provisions and court decisions that limit the powers of the articles to shape the structure and management of the company:

–       in a SAS decisions that are designated by the articles as collective decisions cannot exclude a shareholder’s vote (Arts et Entreprise, Com. 23 oct. 2007)

–       in a SAS certain decisions have to be adopted by the unanimity of shareholders such as a decision to add in the articles of the company an approval clause for the transfer of shares

–       in a SAS if a management body is named like an executive body in the SA (such as a “Conseil de Surveillance”, or “Directoire”) the provisions of the SA concerning that executive body will apply to the SAS (CA Paris, 18^th of may2010)

–       in a private limited company the Company’s Act 2006 provides that certain decisions have to be taken by shareholders or a class of shareholders with a specific majority (eg. a change in the company’s name has to be made by special resolution (decision passed by a majority of no less than 75%))

–       in both the LTD and SAS an auditor has to be named to audit the accounts if certain thresholds are met; those thresholds are much lower in the SAS than the LTD[1] so auditors are much more present in the SAS. Moreover if the SAS is a part of a group it has to have an auditor whilst a group LTD can be exempt if it fulfils certain requirements.

Director’s liability and removal

In both the SAS and the SARL, the “président” and the “gérant” are invested with the broadest powers to act in all circumstances in the name of the company. Similarly, in the private limited company the articles usually provide that the directors are responsible for the management of the company’s business for which purpose they may exercise all the powers of the company.

In all companies, if a director exceeds his powers when dealing with a third party the acts will still bind the company unless the outsider was of bad faith.

However, if a director breaches his duty the extent of his liability will depend on whether the company was created in the UK or in France.

–       in a SAS or a SARL a director is liable towards both the company AND the shareholders for any injury suffered as a result of his breach[2];

–       in a private limited company ONLY the company can bring an action for breach of duty.

Therefore contrary to French companies a private limited company protects directors from liability claims issued by shareholders as a result of a director’s breach of duty.

On the other hand a private limited company is less protective of a director who is removed from office. Unless the articles of the company provide for it, a decision to remove a director from office does not have to be justified. This is also the case in the SAS. On the other hand, in a SARL the removal of a “gérant” from office following a resolution in an ordinary general meeting must be for just purposes (“justes motifs”) otherwise the company may be liable to pay some hefty damages.

Taxation system

In the UK the corporate tax rate is much lower than in France:

–       in the UK the corporate tax rate from the 1^st of April 2013 is of 20% for profits of £300 000 or less (‘small profits’ rate) and 23% for profits above £300 000 (‘main profits’ rate), with a marginal relief[3] if the profits are below £1.5 million and above £300 000

–       in France the corporation tax rate equals to 33,1/3%

However in France the corporate tax can be reduced to 15% for small businesses if they satisfy the following criterias:

–       the turnover without tax is below 7 630 000€

–       the company is controlled by a minimum of 75% of natural persons

–       the capital must be entirely subscribed to and paid up

–       the 15% rate only applies if the annual benefit is of 38 120€ – any extra is taxed at the usual rate (33,1/3%)

Therefore from a corporate tax perspective it is more interesting to create a small company in France than in the UK.

Conclusion

As pointed out earlier there are various advantages and disadvantages for creating a company in France or in the UK. It appears that creating a company in the UK is easier and more promising financially. On the other hand, the running of a private limited company and an SAS are very similar as in both companies the articles define the structure and management of the business. Furthermore France’s tax system is very appealing for small companies. Therefore, whether you choose to come to France or the UK will depend entirely on the nature of your company. As a result, before making a final choice further research may be required and we are happy to advise you in this process to guarantee the success of your company.