Forget everything you know about the Limited Liability Sole Proprietor Enterprise (Entreprise Individuelle à Responsabilité Limitée or EIRL in French).
What does this new status bring in terms of changes? Who’s eligible for such a status? What are the consequences for currently existing EIRLs? Let’s take a look at the situation in this article.
The Limited Liability Sole Proprietor Enterprise (EIRL in French) legal status was created in 2010 to allow Individual Entrepreneurs to separate their personal and professional assets without having to create a separate corporate entity.
A corporate entity is a legal entity created by a group of people (for example, a company or an association). It has its own independent assets.
Before 2010, if an Individual Entrepreneur wanted to protect their professional assets, they had to create a company, such as a Limited Liability Unipersonal Entreprise (Entreprise Unipersonnelle à Responsabilité Limitée or EURL in French) or a Simplified Single Shareholder Company (Société par Actions Simplifiée Unipersonelle or SASU in French). This was a complex process that required - and still requires - the completion of many administrative formalities (such as drafting bylaws, constituting and depositing a share capital, publishing a legal announcement, and also heavier accounting obligations).
The EIRL regime was, therefore, a welcome innovation in the French entrepreneurial world. It allowed independent contractors to protect their personal assets while keeping their status as Individual Entrepreneurs.
To separate personal from professional assets, nevertheless, one had to fill out what is called an allocation declaration. In this declaration, the entrepreneur had to draw up a complete list of all the assets they had decided to allocate to their activity. These assets then became their professional assets.
However, the allocation declaration was a somewhat tedious formality because:
Offering a protection of personal assets, choice of tax regime... At first glance, the EIRL status seemed rather interesting for Individual Entrepreneurs.
And yet, this status wasn’t as popular as expected. According to the INSEE, only 97,000 EIRLs were created between 2010 and June 2021.
What were the reasons behind that? Entrepreneurs mentioned an unclear way of functioning and formalities they felt were too heavy and complex. That’s why, in its stead, a new reform was implemented, creating a unique Individual Entrepreneur status.
Since the 14 February 2022 law on independent professional activities, you can no longer create new EIRLs. In its place, a new unique Individual Entrepreneur status (EI in French), effective from 15 May 2022. Here’s the crux of the reform.
One of the major changes introduced by this new status is that all Individual Entrepreneurs now benefit from the separation of their personal and professional assets. Freelancers who opted for an EIRL status are no longer the only ones benefiting from this separation.
This separation automatically occurs. In other words, you don’t need to complete any particular declarations or steps. As a reminder, under the EIRL regime, you had to fill out an allocation declaration.
What the Individual Entrepreneur’s professional assets include
Professional assets encompass all the assets applicable to the Individual Entrepreneur’s activity, as listed by the 26 April 2022 decree on the removal of the EIRL status. These include:
Protection of personal assets and impact on the Individual Entrepreneurs’ liability
Thanks to this new provision, an Individual Entrepreneur’s liability is now limited to the assets allocated to their activity.
Put into concrete terms, this means that in the event of a payment default, professional creditors will only be able to seize the goods the company uses. An independent contractor’s personal assets (for instance, the sums available in their checking account and their private property, such as a car) will therefore be protected in case of financial difficulties.
However, three exceptions apply:
The separation of personal and professional assets applies only to debts incurred beginning on 15 May 2022.
Another advantage of this new unique status is being able to opt to pay corporate tax (impôt sur les sociétés or IS in French). This tax option is now open to all Individual Entrepreneurs, save for those who have chosen the micro-enterprise regime.
To opt for taxation under corporate tax, you first need to ask to be recognized as a Limited Liability Unipersonal Enterprise (EURL in French) before the end of the 3rd month of your activity.
For example, if you created your company on 1 August 2022, you have until 31 October 2022 to ask to be recognized as an EURL.
You must send your request by postal mail to the Corporate Tax Office (service des impôts des entreprises or SIE in French) your company is assigned to.
Head to the tax authorities’ official website (in French) to find the contact details of the competent department, based on your needs and where your headquarters are located.
What recognition as an EURL means, in practice
Being recognized as a Limited Liability Unipersonal Enterprise (EURL) doesn’t result in the creation of a new company. Instead, you’ll keep your status as an Individual Entrepreneur, with all its characteristics. For instance, you’ll continue making decisions freely without recording everything in your minutes; you won’t need to write bylaws or to constitute and deposit a share capital, and so on.
Recognition as an EURL simply creates a fiscal person distinct from the entrepreneur. From then on, your company will be subject to new rules specific to corporate taxes.
Before opting to pay corporate tax (Impôt sur les sociétés or IS in French), we recommend you seek guidance from a professional (a certified public accountant or a lawyer, for instance) to ensure this is the best tax regime for your situation.
As an Individual Entrepreneur, you’ll need to add a new mandatory mention to all your business documents and professional correspondence. Indeed, since 15 May 2022, you need to add 'entrepreneur individuel' (Individual Entrepreneur) or simply‘EI’ before or after your first and last name.
This mention is required on primarily these documents:
If you forget to include this mention, you are likely to receive a fine of up to €750.
We also recommend adding this mention to all your advertising documents (such as your business cards).
Did you create an EIRL before 14 February 2022? Don’t worry: you don’t have to take any particular steps.
Since May 15 of this year, you are automatically subject to the Individual Entrepreneur status. This means the new rules apply to any debt created after this date. On the other hand, the former EIRL rules still apply to any debt incurred before the 15 May 2022 reform.
In the end, little has changed — many of the characteristics of this new status already concerned you under the EIRL regime.
Just don’t forget to include the mandatory ‘EIRL’ or ‘Entrepreneur Individuel à Responsabilité Limitée’ (Limited liability Sole Proprietor) on all your business documents.
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