ESTABLISHING A BUSINESS ENTITY IN FRANCE 1. Types of Business Entities • Description of the types of entities available in each jurisdiction through which to conduct business Business may be conducted in France either through a French branch of a foreign company (1) or through a French company (2). Both are considered to be forms of direct investment in France. (1) Branch A branch is a permanent place of business established by a foreign company in France. It is not recognized under French law as a separate legal entity. All of its rights and obligations constitute the rights and obligations of the foreign company. The representative of the branch is appointed by the foreign company. His/her authority, revocation of that authority, remuneration and liability to the company are therefore governed by the law applicable to the foreign company. (2) Companies A variety of forms of limited and unlimited liability companies exist under French law; these are classified as either commercial (the form for carrying on commercial activities) or civil. The type of company most likely to be encountered by a foreign investor is the limited liability company, of which three distinct forms exist in France: the société anonyme (“ SA ”), the société à responsabilité limitée (“ SARL ”) and the société par actions simplifiée (“ SAS ”).

• Matters to be considered when choosing a particular business entity type In considering whether to establish a branch or a company, various tax considerations must be considered. The establishment of a branch is slightly simpler since it is not subject to all of the legal formalities for the incorporation of a company. A French branch office has no share capital, no articles of association ( statuts ) and does not hold shareholders' meetings; however, it is obliged to file tax returns in France in the same way as a company. For labour law purposes, there is no substantial difference between a branch and a subsidiary. From an administrative standpoint, a branch is easier to manage than a subsidiary but may raise issues in specific circumstances, for instance because the legal rules applicable to a branch are less clearly defined. In terms of sale of a business, it is normally easier and less costly to sell a subsidiary than a branch, because in the latter case there may be substantial stamp duties (although there are circumstances where these can be reduced e.g., partial contribution of assets within certain merger laws). In summary, a branch is simple to set up, and is useful when commercial activities in France are just beginning. Later, however, it might prove more expedient to establish a subsidiary. Subject to specific tax considerations, the

ILN Corporate Group – Establishing a Business Entity Series

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