An individual company refers in France to a type of enterprise without a legal entity.
It means that it’s constituted by a single member or “natural entity”, who will be the only associate and the director of the individual enterprise. By no means can a third party manage an individual company.
There are three main types of individual enterprise: auto entrepreneur, micro enterprise, and limited liability individual entrepreneur (known in France as EIRL). However, the two first ones are now considered to be the same.
Individual companies are one of the preferred legal forms for enterprise creators without any associates in France due to the ease of their functioning, the significantly reduced amount of administrative procedures, and the lower creation costs. It’s important to know that, in general, individual enterprises are thought for entrepreneurs who don’t have a high revenue derived from their activity, and the number of employees they can hire is limited. If a single person expects to have a big company, a unipersonal company (such as a SASU or an EURL) is a more suitable legal form.
Particularities of an individual company
An individual company can be chosen as legal form by almost any type of professional (liberal professionals, commercial activities, artisans, farmers, etc.), with the exception of certain financial sectors. The only requirement to be considered as an individual company is that the founder (the entrepreneur), an adult owning his capital, is the only person managing and making all the decisions that concern the company, even if they can hire up to 10 employees.
The main attractive of an individual company is the ease concerning all the administrative procedures. With regards to the process of company creation, the inscription of the enterprise in their corresponding centre for enterprise formalities (CFE in France) is one of the fastest, and it can be done by filling a P0 form (the equivalent of a M0 form, but for natural instead of legal entities). The reason why the process is so fast is that, because there’s only a person involved in the management of the company, it’s not compulsory to hold any general assembly, nor draft any company statutes, neither deposit any company constitution capital in a bank account (this type of enterprise doesn’t require any). It’s, however, compulsory to have a registered address in the French territory and, like any other company, be registered in the SIREN to obtain a tax identification number and a K extract.
The accountancy books of an individual enterprise aren’t required at the end of every business year due to the fact that the personal patrimony of the director is confused with that of the company, meaning that he’s liable and can be personally prosecuted by creditors in case of debts, except for their main residence, which cannot be claimed. Conversely, this is not the situation for an EIRL, where a sum is deposited to respond for the debts, but the personal patrimony of the entrepreneur is not liable. Individual companies directors must, however, keep a journal, a general ledger, and a stock register to reflect the activity of the enterprise.
Individual companies can adhere to three different tax regimes: Income tax (IR in French), corporate tax (IS) or ‘micro’ tax, designed particularly for individual enterprises and which is meant to be simpler to declare. It’s important to note, however, that only the EIRLs can opt for the corporate tax.
Lastly, in order to liquidate an individual company, it’s only necessary to present a P4 form dully completed to the corresponding CFE. The process of dissolution and liquidation of the company will then be made effective for free. Indeed, the company as it existed cannot be transferred to a possible buyer, although it can be sold. It’s the professional activity that cannot be carried out by someone else, although they can, for instance, buy the name.
Disadvantages of individual companies
In an individual company, as we previously noted, there is no distinction between the personal capital of the director and that of the company, because indeed everything belongs to him. Therefore, the director is personally responsible for the debts. Additionally, if they are married and haven’t established a separation of property up to two years after the marriage at most, the spouses are also liable with their personal patrimony.
In the case of an EIRL, as mentioned above, a sum of money is normally required to back up the company, although theoretically, the initial amount is generally one euro.
Additionally, after a law approved at the beginning of the current year, individual companies have to declare their revenues to the social security. However, the social security charges are directly proportional to the revenues of the company, so the more benefits, the higher are the taxes.
Lastly, it must be noted that there’s no VAT refund for any purchases related to the professional activity of an individual company (such as office material).