- July 6, 2018
- Posted by: Editorial
- Category: Funding
Creating your French business with assistance from relatives
If you’re creating a business, it makes sense that you’d ask your friend or your family for help, especially considering how tough it can be to gather enough money to fund your project. As such, there are several ways your relatives can help you fund your company. They can donate money to your company, give you a loan, or even directly contribute to the company’s equity. This last case is what is referred to as “Love money”. And, thankfully, getting your relatives to help isn’t always that hard; after all, they can obtain tax benefits.
- Donating money
- Lending money
- Contributing to the capital of the company: the “love money”
- Going for crowdfunding
When your relatives donate money to your company they can get tax benefits such as tax relief, and, under certain conditions, this donation may not be taxed.
Exemption from tax on donations
If you donate money to your children, grandchildren, or great-grandchildren (basically any descendant you may possibly have), you won’t have to pay taxes on this donation. If you don’t have any descendants, this also applies for nephews and nieces. A few conditions do have to be met, though:
- You need to be less than 80 years old
- At the time of the transfer, the one receiving money must either be an emancipated minor, or an adult (In France, that translates to being 18 years old or more)
- You cannot be relieved of more than 31 865 € of taxes every 15 years. This limit only applies if you donate to the same person, though.
There’s a bit of a procedure that must be respected, as well:
- You can transfer the money by cash, bank note, bank transfer, or money order
- This transfer can either be supervised by a notary or be done by a private deed.
- Even if you don’t pay any taxes on it, you must still declare this transfer to the tax authorities! This has to be done within a month of the transfer.
Basically, the way it works is that instead of being taxed on the amount donated, you will be able to subtract a certain amount from your donation before the taxation applies. How much exactly? It actually depends on the relationship between you and the one who receives the donation.
For example, if you’re their parent, you’ll be able to subtract up to 100 000€, but if you’re their grand-parent, it’s only 31 865 €.
It’s very frequent for family members or friends to lend money to one another. From a legal standpoint, this is perfectly fine as long as it remains exceptional. Here are the specifics:
- Interests are not mandatory. Furthermore, the interest rate cannot be higher than the “usual rate”.
- If the loan represents more than 760 €, you have to declare it o the tax service. This goes even if there’s no written proof of this loan.
- However, it becomes mandatory to have a written document detailing the loan whenever it represents more than 1 500 €. Much like donations, this can either be done with a notary or by a private deed.
There are also a few tips that might be worth remembering. In particular, you should try to make this operation by bank note or bank transfer. That way, there will be a record of this operation. You should especially avoid transferring this money by cash, though. If you do, make absolutely sure you’ve got a written document detailing exactly how much money was lent, how it’s going to be paid back, how much interests there are, etc.
Contributing to the capital of the company: the “love money”
If your business is a french company, such as an SA, SARL or SAS, your relatives can also contribute to the equity of the company directly. (If you’re not sure what these are, you should check out this table detailing every main company type in France).
What you should know about this:
- Contributing to the equity of a company gives you shares. As such, not only are you entitled to a portion of the benefits of the company, but you also have the right to take part in the main decisions of the company.
- You won’t be able to get these contributions back until you sell these shares.
- As associates, you will, however, be able to lend money to the company by placing money on your current account.
This technique is very useful, as it allows you to help your relatives without being the main shareholder of the company. Though, it might be a good idea to have an expert oversee this procedure, to make sure that contributions in capital and contributions in current accounts are balanced.
The tax benefits you’ll get out of it
By investing in the company of your relative, you’ll be able to pay less income tax. More precisely, you can have a “discount” of up to 25% of the amount that you invested.
Going for crowdfunding
Indeed, it’s always possible to have your relatives help you fund your company by using a crowdfunding platform. With these devices, you’re able to get help not only from your relatives, but from any and all individuals who may be interested in your project.