Should my French company be an SA?

Understanding an SA for French businesses

The SA, or “Société anonyme”, is the French name for the Limited Company or Public Limited Company. This type of company is based on equity: it brings together people who may not know of each other, and whose participation is based on how much capital they have invested in the company. As such, it mainly concerns important projects.

Here, we will mostly focus on SAs with a Board of Directors and a CEO. However, SAs can also be managed by a supervisory board and a management board.

Summary

1. The associates in SAs
2. Financial commitment
3. Liability
4. How does the SA function?
5. Tax regime of the SA
6. Social plan of the managers of SA
7. Tax regime of the managers of SA
8. Transferring an SA
9. Main advantages and disadvantages of the SA

The associates in SAs

An SA must have at least 2 shareholders. That is, unless the company is listed, in which case it must have at least 7 shareholders.

There is no maximum number of shareholders. Each of them can be either ”natura persons” or “legal persons”; which means they can be either individuls, or entities representing several people.

Financial commitment

At least 37 000 € of equity needs to be established.

At least half of the contributions in cash have to be paid when the company is created, and they must have been paid in full after 5 years. An SA may have variable capital. This means that at least 18 500 € of equity has to be paid at the company’s birth.

Contributions in industry (which refers to making one’s workforce available to the company) are strictly prohibited.

Liability

For shareholders: their liability is limited to their contributions.

For managers: their civil liability may be incurred in the event of misconduct. They are also criminally responsible.

How does the SA function?

The company is managed by a board of directors, comprising 3 to 18 members, which determines the orientations of the activity and ensures their implementation. Its chief executive officer is appointed by the board of directors from among its members.
The chief executive officer appointed by the board of directors, or if this wasn’t possible, the chairman of the board of directors, ensures the day-to-day management of the company and represents the company in its dealings with third parties.
The frequency of board meetings is unregulated.
Shareholders meet at least once a year in an Ordinary General Meeting (OGM).

The annual approval of the accounts as well as the ordinary decisions are taken in ordinary general meetings by the majority of the votes (50% + 1 vote). The blocking minority is therefore 50%. To make a decision, the shareholders present or represented must make up at least 1/5 of the shares (quorum).

Decisions to amend the by-laws are taken at an Extraordinary General Meeting (EGM) by a 2/3 majority of the votes. The blocking minority is therefore 33% + 1 vote. To make a decision, shareholders present or represented must hold at least 1/4 of the shares at the first meeting of the EGM (quorum). Otherwise, the second EGM must be held within a maximum period of 2 months and shareholders present or represented must make up at least 1/5 of the shares.

Tax regime of the SA

The SA subject to corporation tax.

The remuneration of the executive officers is tax-deductible, which means that taxes are only calculated after subtracting their remuneration from the overall profits of the company.

However, if the company is less than 5 years-old, it can instead opt for the income tax, but for this, a few conditions must be met:

• The company must be unlisted
• The company must have less than 50 employees,
• The company must achieve an annual turnover or a balance sheet total of fewer than 10 million euros,
• The company must have at least 50% of voting rights owned by natural persons
• The company must have at least 34% of voting rights owned by the manager (s) of the company and its members (their) tax home.
• This option requires the agreement of all shareholders.

It is valid for 5 years, unless denounced notice of termination is given.

Social plan of the managers of SA

President and General Manager

They are regarded as an Employee. As such, they benefit from the social security and the retirement scheme of employees, but not from unemployment insurance and labor law provisions

Clarification: The President may combine his duties as President with a contract of employment (concluded prior to his appointment) relating to separate technical functions. But, it will be covered by the employment center under this contract only if it is possible to establish a relationship of subordination between him and the company (a rare situation in practice).

Other administrators

In principle, they are unpaid. They therefore do not fall under the scheme for employees or for non-salaried workers.

However, directors may combine their work as directors with an employment contract if the latter corresponds to an actual job. The number of directors with a contract of employment must not exceed one third of the directors in office.

Tax Regime plan of the managers of SA

President and CEO: salaries and wages. Possibility to apply the standard deduction for professional expenses of 10% or to deduct the real and justified expenses.
The same goes for directors holding a contract of employment.

Transferring an SA

Transferring an SA implies selling shares.
However, disposals of shares are subject to a tax of 0.1% payable by the purchaser, and to the Capital gains tax regime for businesses payable by the seller.

Main advantages and disadvantages of the SA

Advantages

• The liability of shareholders is limited to their contributions.
• Evolutionary structure facilitating partnerships.
• Social charges calculated solely on remuneration.
• Ease and flexibility of share transfer (by transfer from bank account to bank account).
• Credibility for potential partners (bankers, customers, suppliers).

Disadvantages

• Charges and formalism of constitution.
• Cumbersome legislation.
• Instability of the CEO, (revocation without notice and without compensation by the board of directors).
• The obligation to appoint an auditor.

If you want to learn more about the SA and how it fares against other company types, you should check out this table detailing the differences between each company type.