Micro-enterprises and individual enterprises The company: doing business by creating a legal entity Wage portage: run a business…as a salaried employee

Summary

How to choose the right legal status as a freelancer in France

12 mins

January 03, 2024

By Panama Harris

Thinking of embarking on the adventure that is freelancing, but don’t know where to start? Perhaps you’re already a freelancer, but you’re considering changing your legal status to better align with your type of activity? It’s true - it’s not quite so easy to catch the subtle differences between the legal statuses and tax schemes for each option.

In this article, we’ll present the different options available for your freelance business, dividing them into three categories: individual enterprises, sole-proprietor companies and wage portage.

Micro-enterprises and individual enterprises

The first possible option is operating your freelance business as an individual enterprise. What does that mean? There’s no need to create a legal entity distinct from yourself - you operate your business under your own name. There are four 4 elements to keep in mind:

An individual person can only have one individual enterprise.
There isn’t the concept of a salary. The director of the company pays themselves however much they want from the company’s net receipts (i.e. after social charges and taxes).
Individual enterprises are subject to the accounting obligations for non-salaried independent contractors.
You cannot have associates.

There are several types of individual enterprises: micro-enterprises, limited liability individual enterprises (entreprises individuelles à responsabilité limitée or EIRLs and the classic individual enterprise.

Micro-enterprises

Many freelancers choose to be auto-entrepreneurs as they’re starting out. Why? Simplicity. In fact, that’s why the State created this simplified regime - to make it that much easier to get into entrepreneurship.

Since January 1, 2016 the auto-entrepreneur and micro-entrepreneur regimes have been merged together. “Micro-entreprise” is now the official legal term in use. It refers to a special status under the “individual enterprise” umbrella, and is not a distinct legal status in and of itself.

Its advantages in regards to company creation

First off, and this is a rather key point, there is no cost to becoming an auto-entrepreneur. You don’t need capital to start your company.

You also don’t need to compose Articles of Association for your company. All you need to do is declare the launch of your business online. You need to include a copy of your ID with the Cerfa P0 form according to the type of activity you intend to undertake (commercial, artisanal, liberal). If you decide to get into commercial or artisanal work, you also need to include proof of legal address (that’s less than 3 months old) along with a sworn statement that you hold no criminal convictions (attestation sur l’honneur de non condamnation). And that’s it.

💡 Qonto can speed up the process of creating your micro-enterprise online. Thanks to our partnership with Legalstart, you can become an auto-entrepreneur with little fuss. We take care of the admin. All that’s left is to do is wait for your SIREN (French company registration number) to arrive in the mail and you’re ready for takeoff.

Its day-to-day perks

Beyond its ease of creation, micro-enterprises also benefit from simplified accounting and tax requirements.

You most likely don’t need to hire an accountant as an auto-entrepreneur. You should be able to handle your accounting obligations on your own.
You’re subject to income tax. This means that you don’t have to submit any additional income declarations apart from your annual income tax return.
The social charges that you’re required to contribute to via URSSAF are lower than any of the other regimes. They’re capped at 12.8% of your revenue (chiffre d’affaires) from resale, selling foodstuffs or providing accommodation, 22% for commercial and artisanal services rendered and for liberal professions in the SSI (sécurité sociale pour indépendants) regime, and 22.2% for liberal professional in the CIPAV (Caisse interprofessionnelle de prévoyance et d'assurance vieillesse) social security regime.
You’re only required to submit a single declaration with the URSSAF to pay your social charges, be it monthly or quarterly. Enter your monthly or quarterly revenue (according to the frequency you’ve chosen) into the right field on your URSSAF declaration online. You can even automate this step with accounting software.
You’re not subject to withholding VAT on revenue up to a set threshold. That makes one less administrative step to keep track of.

Knowing its limits

Starting and managing a micro-enterprise can be quite easy. However there are some limits to this status that you ought to keep in mind in the long run.

Personal wealth This is a key point to consider: in regards to auto-entrepreneurs, there’s no distinction between the director’s personal wealth and the commercial wealth of their company. The two are indistinguishable from one another. What does that mean, in real terms? This can pose a risk in the event of a legal dispute with commercial creditors. Not only are they within their rights to reclaim their due from your personal effects (cars, current accounts, etc.), but they can do so from your spouse’s personal effects as well.
Social rights You’re entitled to the same social coverage as salaried workers on many fronts…but not all. As it relates to medical insurance, your daily medical leave compensation and family allowances stay just about the same. To avoid any unpleasant surprises down the road, you can preemptively protect yourself by signing up for death and disability insurance, but the conditions for coverage and policies differ from those for salaried workers. Retirement benefits depend on the amount of income you declare. And you need to declare a certain yearly amount to validate that year’s trimesters. Not to mention you don’t pay into unemployment insurance, so you can’t claim it if you ever have to close down or lose your business.
Deductible costs This tax regime does not allow you to deduct any real costs from your revenue. Another way to see it is that you can’t ask to be reimbursed for just any expense. There are only specifically outlined instances where you can be reimbursed for professional expenses.
Revenue thresholds Since this tax regime allows for simplified accounting obligations, the French State set in place a revenue threshold for these businesses to observe (€188,700 for the resale of merchandise, the sales of foodstuffs or offering accommodation and €77,700 for commercial and artisanal services, along with liberal activities). If you surpass this threshold for two consecutive years, you’re automatically transferred out of this regime starting January of the following year. ⇒ If your business engages in commercial or artisanal activity, then you’ll be subject to the ‘real tax’ regime (BIC). ⇒ If your business engages in liberal activity, you’ll be subject to the ‘controlled declaration’ regime. In either case, you remain an individual enterprise, unless you decide to change your legal status ahead of time. If your business is growing steadily, this tax regime will only be transitory. You’ll have to update it over time.
VAT thresholds For micro-enterprises, this can be a bit of a double-edged sword: once you go over a certain revenue, you become subject to withholding VAT for the State. You’re exempt for revenue up to €91,900 from the resale of merchandise, the selling of foodstuffs and offering accommodation, and up to €36,800 for commercial and artisanal services or liberal activity. If you work exclusively with other businesses, this doesn’t affect you: they’re the ones responsible for withholding VAT, so increasing your prices by 20% comes out neutral at the end of the year when the VAT needs to be handed over to the State. This wouldn’t be the case if you sold your products or services to individuals.

In what instance should I choose to be a micro-entreprise? This simplified regime is perfect for launching and testing out a business with minimal fuss. It’s also a useful status if you don’t expect your business revenue to surpass the micro-enterprise thresholds, since its social contribution rates are the lowest of all the other options available to you.

Are you legally required to have a bank account as a micro-entrepreneur? Ever since the PACTE law passed 22 May 2019, independent contractors - which also includes micro-entrepreneurs - must open a separate bank account for their business activity if their annual income surpasses €10,000 for two consecutive calendar years. Even though it’s not a requirement from the moment you create your company, we strongly recommend you open a business account from the get-go. You’ll not only be able to clearly differentiate between your company’s influx and outflux of funds, but you’ll also get banking services that are specifically adapted for businesses (business cards, accounting prep, a dashboard for account transactions, etc.).

The EIRL

The limited liability individual enterprise (entreprise individuelle à responsabilité limitée or EIRL) shares a number of commonalities with the micro-enterprise status. But the main differences are the absence of an income ceiling, the possibility to limit the director of the company’s personal liability, as well as the possibility of opting into corporate tax (impôt sur les sociétés or IS).

Important: The EIRL status has gone away. Since 16 February 2022, you can no longer open an EIRL. Which is why we won’t go into further detail about this status. And what about those created before the cutoff date? They can continue to operate as they did before.

The individual enterprise (EI)

As is suggested by the name, individual enterprises are a legal status for a company comprised of one person operating in their own name. This status allows you to select from a variety of tax regimes, notably the micro-enterprise regime - but you can also opt for the real simplified regime or the real normal regime.

What’s the difference between a ‘real simplified ‘and a ‘real normal’ regime? The real simplified regime is for individual enterprises that have a pre-tax annual revenue between €77,700 and €264,000 for services rendered and between €188,700 and €876,000 for commercial activity or offering accommodation. If you go beyond these income thresholds, then the real normal regime applies.

Generally speaking, the pros and cons of an individual enterprise are similar to those previously described above:

Creating an individual enterprise is quick and easy. You don’t need to deposit any capital, nor do you need to draft Articles of Association. And your accounting obligations are limited - you simply need to maintain a daily log of transactions, a general ledger and an up-to-date inventory to be compliant with the law.
The one drawback is the director’s personal responsibility in the event of liquidation and seizure by creditors. All of their personal property - save for their primary residence - is considered seizable.

There are two primary distinctions that ought to be made here:

On a positive note - an individual enterprise can deduct costs from its taxable revenue. Costs that, of course, need to be accounted for in the company books.
On the other hand, the EI contribution rate for social charges can quickly overtake those of the other legal statuses. In this instance, social charges are calculated according to the total income of the company - not on the salary that’s paid out to the director.

The individual enterprise status is being redefined as the EIRL status comes to a close. It’s set to integrate some of the latter’s key features, like the protection of personal property from seizure, along with the choice to opt into corporate tax.

When should you choose the EI status? This legal status could be a good fit if you’re not looking to set up a legal person for the company and you’ve exceeded the revenue thresholds for micro-enterprises.

The company: doing business by creating a legal entity

The second option you could take as you set up your business is creating a legal entity, a.k.a. a company. There are two legal statuses accessible to freelancers: the EURL and the SASU (definitions below). In both instances, these are sole-proprietorship companies: they only have one associate.

For certain customers, doing business with a company rather than a solo entrepreneur is a question of credibility. That said, setting up a company is more complex than setting up an individual enterprise.

To start, you have to draft your Articles of Association and deposit capital for your company. Qonto can help you in this process by simplifying your share capital deposit. It’s 100% online, and you’ll receive your digital deposit certificate within 72 hours.

A company’s accounting obligations differ from those for an individual enterprise as well: they’re generally more comprehensive. Not only do you have to make sure your accounting books are always up to date, but you must also prepare your company’s annual accounts (balance sheet, profit and loss report, legal annexes). While hiring an accountant isn’t a legal requirement, it’s strongly recommended that you get one to stay compliant.

Let’s take a closer look at the EURL and the SASU.

The EURL

The Limited Liability Sole Proprietor Enterprise (Entreprise Unipersonnelle à Responsabilité Limitée or EURL), not to be confused with the EIRL, is also called the sole-proprietor SARL (Limited Liability Company), meaning a SARL with only one associate.

What are its advantages?

Personal responsibility: as the name suggests, the personal responsibility of the director is limited to their contributions to the company, contrary to the EI. This means their personal property is safe from seizure in the event of insolvency.

There is an exception to this rule if a sole associate of the EURL commits a serious error in the line of duty - in which case, their personal property can come into play. If this is the case, legal action can be taken against them personally, as opposed to the legal entity.

Social capital: you can set any amount, starting at €1. You choose the amount that makes the most sense for your company. It is, however, recommended that you set an amount that’s higher than the minimum to send the right message to your clients.
Professional fees: you can deduct professional fees (with the appropriate proof, of course) from your revenue. The costs incurred must directly support your business.
Taxation: you have the choice between paying either income tax or corporate tax (if the associate is a individual person, as opposed to a legal entity). This is where you can set your business up to pay the optimal rate for your social charges. If the EURL has profits, it’s probably best to opt into paying corporate tax.
Company evolution: you can have your business evolve over time. You can upgrade to a SARL if you decide to bring in another associate, for example.

There’s no legal obligation to create a pay slip in order to pay yourself. On the other hand, you need to be sure to keep track of your salary payouts to calculate the eventual social charges you’ll need to pay on it - which accounts for 45% of your net payment. You’ll need to pay this sum into the social organizations the following year. It’s strongly recommended that you set aside these funds in a dedicated account every pay period to avoid nasty surprises further down the line.

The main downside for the EURL status is the social protection body it’s assigned to. It doesn’t belong to the general regime (régime général) - it belongs to the freelancers’ regime. This means the contributions are higher, as would be any eventual compensation. The director-associate can offset this difference by paying into complementary coverage, especially when it comes to retirement.

Why choose the EURL? It can be a good compromise between the level of social protections and their associated charges if you want to pay yourself through your company’s net monthly earnings and not out of your company’s annual dividends (EURL dividend payouts are heavily taxed).

The SASU

The Simplified Single Shareholder Company (Société par Actions Simplifiée Unipersonnelle or SASU) is a Simplified Shareholder Company with a single associate. It has the same advantages of a EURL as it relates to the director’s liability: limited to their contribution of capital to the company, except in the instance of grave error. As it relates to social capital: it’s open-ended, and starts at €1; and as for professional fees, they can be deducted from your revenue (with the right proof). You can also turn your SASU into a SAS if you bring another associate on board.

It’s a legal status that can bring you and your business a lot of flexibility. You can draft your Articles of Association and set up the structure of your organization as you see fit.

The one particularity of the SASU compared to the other legal statuses is in how it treats the solo associate’s social protections, as well as their pay. It’s the only legal status that allows the associate to sign up for the general regime for social security (as opposed to the freelancers’ regime, as it would be for the other statuses). Since you would be registered in the regime as a salaried worker, you would receive the same protections and compensation as a normal salaried worker - with the notable exception of unemployment insurance; a SASU’s social protection contributions don’t pay into unemployment insurance. In the event the business closes down, you cannot claim compensation.

Important: in order to receive these social benefits, you have to receive a minimum salary. Dividends an associate might pay out to themselves are exempt from social charges - which works in the favor of choosing a SASU status. It doesn’t count as part of the president’s compensation. ⇒ If you’re exclusively paid in dividends, you’re not contributing to social charges, which means you cannot receive social protection. We recommend that you simulate both instances to find the setup that works best for you. Hiring an accountant will likely save you time and effort in this instance. As a SASU, you also have to emit a pay stub every time you pay yourself.

The flipside of having similar social protections to a salaried worker is that your contribution rate is quite high: it comes out to 75% of your net compensation.

When should you choose the SASU setup? This legal status can be a good fit if you’re looking for strong social protection, or if you’re looking to pay yourself a low monthly salary with a bigger payout at the end of the year.

Wage portage: run a business…as a salaried employee

One last option that could be interesting for your freelance business is opting into wage portage. In this instance, the freelancer doesn’t create their own company, but rather they associate themselves with an umbrella company. This works particularly well for those who work in consulting.

In real terms, this setup has a three-part dynamic:

The freelancer is responsible for sourcing their clients and projects, just as they would within any other legal status
The client company signs a contract with the portage company and pays them the money due for the freelancer’s work
The freelancer signs a contract with the portage service, who in turn pays the freelancer for the projects they work on

In this setup the freelancer effectively becomes a salaried worker for the wage portage company. As a result, they receive the same coverage as a normal salaried worker, including unemployment insurance.

The downside to this security? The portage service claims a commission on every paid invoice (which can vary anywhere from 5-15% of the invoiced amount) and pays the freelancer the remaining balance.

When should you choose to have wage portage? It can be a helpful setup if you’re looking to work for yourself, all while having the security of knowing your admin is properly handled.

By now you should have a good idea of the various legal statuses available to freelancers. Which is the best for your business? It’s hard to say. It depends entirely on your unique needs and situation.

No matter the status you choose in the end, Qonto is here to help.

ABOUT THE AUTHOR

Panama Harris

Panama is a Copywriter at Qonto with over 15 years' previous experience working as a freelancer around the world. Her mission is to take the mystery out of entrepreneurship and make it more accessible.

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