Member of the group Pose ta Dem ’for a few months, I see that for many of you it is difficult to find your way. Well, if you’ve decided to get into entrepreneurship, choosing your status isn’t an easy task either. You will have to assess your personal situation as well as your future business to be able to make the right decisions. The choice of legal status, tax and social security is indeed the last step before launching. I explain in this article how to choose the right legal status!
Guest article by Corinne Johnson
The problem is that there are so many possibilities, that it is difficult to know how to choose the right legal status (or at least the one that suits you!) … To help you, you need to know the answers to the following questions:
Do I want to start alone or with others?
Is my activity subject to specific regulations?
Do I have an idea of the level of CA that I can reach or is it the total unknown? Are my potential customers validated?
Will I generate income quickly? How will I be able to get paid? Isn’t it better to launch an activity in parallel with my current activity at first?
Which social status suits me the most?
Will I have to incur large expenses at the start of the activity (purchase of goodwill, right to lease, purchase of premises)?
Am I going to need funding up front?
Will I have to protect my personal wealth?
These questions are essential for your choice of status and regime.
I indicate below the most appropriate options based on your answers:
Note that your choice is not fixed. You can very well start with one structure and progress later to another.
Option 1: Activity cooperatives and incubators
The incubators and some cooperatives offer a CAPE contract (contract to support a business project).
When to choose this option? This option is ideal for testing an activity that requires little investment or professional costs (these being deductible from turnover).
How it works ? The structure provides you with legal accommodation (SIRET number), professional insurance, a bank account but also administrative and accounting monitoring tools as well as numerous support (thematic workshops, individual meetings, group training, support in creating (business and entrepreneurship, etc.). The costs are between € 15 and € 70 per month depending on the structure chosen. Activity cooperatives / incubators can be generalist or specialized in certain types of activity.
What social status, what contributions? This contract allows you to keep your current status and benefit from employee social security cover. For example, if you are unemployed, you will continue to receive your AREs in full. The amount of social security contributions during this period is very low (less than € 5 per month) or even zero.
What are its limits ? You cannot exercise a commercial activity requiring a commercial lease, nor certain (regulated) activities. CAPE contracts are not intended for full-time employees or people already registered for the same activity.
And after ? In a cooperative, if your activity works, you can either create your own structure, or even be an entrepreneur-employee-partner with a permanent contract. In the latter case, the cooperative will take approximately 10% of your turnover. You will pay the same social contributions as a regular employee and will be entitled to the same benefits.
Option 2: Wage portage
Originally, the wage portage was intended to “transform fees into salaries for the benefit of executives in professional transition having acquired an expertise […] or those who want to work independently while carrying out missions in company”. Note that the framework of the wage portage was defined more precisely in 2015.
When to choose this option? If your customers are not individuals, if you have long and regular assignments as a “service provider”, that you plan to invoice at least € 3,000 per month and that you wish to have employee status, the salary portage can help you suit.
Take for example an IT engineer contractor. Often large companies in the sector call on service providers to find them specific skills / missions. However, if the company already knows its candidate but does not wish to hire him, going through salary portage can be a very good choice.
How it works ? The wage portage is a tripartite relationship between 3 actors: the client, the “port” and the portage company which plays the role of intermediary between these 2 actors. The porting company invoices a percentage (often declining) of your turnover to ensure the administrative and accounting management of your file.
What social status, what contributions? The service provider will have the status of employee whose gross remuneration will be equal to the turnover. Social security contributions will be the same as a standard employee (between 75 and 80% of net salary). For example, for a turnover after deduction of professional costs of € 3,000, you will receive approximately € 1,422 net (including deduction of the cost of the carrier company). Knowing that on average a service company in the provinces charges € 500 per day (or € 10,000 per month), it is possible to make a comfortable salary.
What are its limits ? This device is intended for BtoB customers only. It does not seem suitable to me (especially for the client) when you have short assignments with several clients. It also does not seem to me suitable if you need to finance large equipment, not supported by the customer. The other major drawback is that, unlike a service company, at the end of the mission, you must find your next customer yourself.
Option 3: Individual business
To use the definition of INSEE, sole proprietorship is a business which is the exclusive property of a natural person. It is not a separate legal person from the entrepreneur. The most common forms of sole proprietorship are: trader, craftsman, self-employed, farmer.
In recent years, the most created company in France has been the sole proprietorship with the micro-social and micro-fiscal regime, more commonly called “micro-enterprise”.
When to choose this option? Some professionals who want to practice alone, cannot have a CAPE contract or a salary portage (eg merchant or doctor). Their choice is then limited to the sole proprietorship or to companies. The sole proprietorship also turns out to be a good choice if the activity requires a certain level of investment and / or expenditure, because these will be deducted from your turnover (and therefore from the basis for calculating contributions social)
How it works There are some formalities required when setting up with the competent CFE (center of business formalities). It is you or a qualified professional who will do the accounting, social and / or VAT declarations.
What social status, what contributions? The status will be that of Unpaid Worker (TNS) who contributes to a plan other than that of employees (even if the government is talking about combining the two plans shortly). The TNS does not contribute to unemployment insurance. For liberal professions for example, the rate of employee contributions will be around 45% of profits (turnover minus charges) if your profit is lower or around 50,000 € a year. This rate decreases to 23% if your profit is around 100,000 € per year. This means that if you have a profit of € 36,000 per year, your net remuneration will be around € 20,000. Social security contributions (excluding CRDS and a share of the CSG) are also deductible from profits.
What are its limits ? Sole proprietorship, as the name suggests, does not allow associates. There is no distinction between professional and personal assets (but since the Macron Law of 2015, your main residence has been elusive). Beyond this aspect, the drawback is above all in the result of the company (profits or losses) if these are substantial (so this does not really concern the first years of activity). Indeed, all the profits are considered as remuneration, therefore subject to social security contributions. This means that if your company makes € 150,000 in profits you will pay contributions on this amount (around 23%), even if you actually need € 50,000 to live on… That is why many craftsmen and traders opt for society after a few years of activity in order to leave the profits in the society and possibly reinvest or distribute the profits in the form of dividends (of which the social contributions are 17.20%).
And the micro-enterprise in all this? The micro-enterprise is an individual enterprise whose accounting management is very simplified:
no VAT to be billed or deducted below € 33,200 in annual turnover.
no accounting to keep (only a register of receipts and expenses)
When to choose this option? The micro-enterprise is ideal for testing its activity because the creation and closure procedures are simple, quick and inexpensive. Due to the non-deductibility of professional expenses in the calculation of social contributions, this scheme is suitable if your activity requires little expenditure. It is also ideal when you want to supplement your salaried income because you already have part of the professional costs covered by your company (mutual, provident, hardware, access to certain software or paid resources, etc …) and you do not don’t have to spend on your side. Be careful not to compete with your employer….
What social status, what contributions? The social status is the same as for the sole proprietorship under the real regime. There are few differences in terms of acquired rights. However, the social contributions are calculated on the basis of turnover (without taking into account the amount of professional expenses). Its rate varies according to the type of activity (sale of goods or services) and can be fixed every year by the government.
What are its limits ? Part of the answer is given in the previous paragraph. There is also a turnover limit not to be exceeded depending on the type of activity. In addition, this regime is prohibited for certain professions (doctors, accountants, etc.)
To compare the rate of social contributions between the real regime and the micro-enterprise regime, I suggest the following graph:
The higher your charges, the lower your margin and the less you will pay social security contributions in real terms. In micro-enterprises, social security contributions are identical since they are calculated on your turnover.
There are a few tips to reduce your business expenses in micro-enterprises. For example, a person working in the restaurant industry who prepares meals for events / parties, may very well ask his client to buy the food himself, and he will only charge for the provision of meal preparation … Or else he can buy the food himself and ask his suppliers to issue an invoice on behalf of his client (this is called disbursement costs). Thus the reimbursement of these expenses will not be declared in the income of the micro-enterprise and therefore will not be subject to social security contributions…. But it also means that the contractor will not be able to make a margin on this part of the quote.
Of course this advice cannot be applied to all types of activities. For example, I can’t see a beautician in a micro-enterprise asking her supplier to invoice the varnish on behalf of Madame Dupont, or even asking Madame Durant to come with her own wax…
Option 4 – The company
To explain what a company is, I have to refer to the definition of INSEE: “A company is an entity with legal personality. It is created for a commercial purpose, namely, to produce goods or services for the market, which can be a source of profit […] for its owner (s); it is the collective property of its shareholders, who have the power to appoint the directors responsible for its general management. “
Phew, that is said …
When to choose this option? The first case is when you want to join, the company is the only option you have, and this, whatever the legal form and the tax or social regime chosen. In general, commercial companies are also recommended in the event of a rapid development of your activity or a significant need for external financing. In addition, it allows you to separate your personal heritage from your professional heritage. Finally, depending on the form of company and the tax system adopted, you can have more or less the choice on the form of remuneration chosen (salary, managerial remuneration, dividends) and your social status (Unpaid Worker or Similar Employee).
How it works ? It really depends on the legal form you choose, but basically it will be necessary to carry out some administrative formalities (at least draft the statutes) and provide for a share capital (the amount of which varies according to the legal form chosen). For the rest it seems difficult to make generalities …
What social status, what contributions? It still depends on the legal form and the tax system chosen. In general, you can be either an assimilated employee or TNS. Social security contribution rates will be approximately 65% of net remuneration if you are an assimilated employee and 45% of the managerial remuneration if you are TNS. Please note that there are no social contributions on company dividends, however dividends are subject to social contributions of 17.20% (which will be used to repay France’s debt and give you the right to …. repay l ‘year after)
What are its limits ? A company requires more administrative and accounting formalities than the options seen above. Furthermore, in a company with several partners, you are probably not the only one to make decisions …
To summarize all the information that I have just given you, I suggest this diagram:
Important: do not choose your status for the wrong reasons
There is so much bias in the world of entrepreneurship that it is very common to choose a status for the wrong reasons. Here are a few :
Administrative simplicity: this is typically the case for entrepreneurs who choose the micro-enterprise for reasons such as the speed of creation, little accounting or declarative obligation (for example no VAT declaration if the turnover is less than 33,200 €).
: this is typically the case for entrepreneurs who choose the micro-enterprise for reasons such as the speed of creation, little accounting or declarative obligation (for example no VAT declaration if the turnover is less than € 33,200) . Benefit from social benefits: entrepreneurs often want to create a company and have the status of employee to benefit from better health protection, better retirement and unemployment benefits. Of course, but given the amount of an employee’s social security contributions, is the game really worth it? Couldn’t you find a competitive mutual benefit offering high protection? Isn’t it better to save or invest on your side to prepare for retirement? Or what are the risks of being unemployed for a long time? How much would you get if that was the case?
This long article is coming to an end … I hope it has informed you about the different possibilities available to you. Given the complexity of the statutes, do not hesitate to surround yourself with specialists so that they can make you personalized proposals. And remember, there are no good or bad solutions, there is only bad advice
If you are interested in the subject, you can contact Corinne on her Facebook account.
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