Legal overview: how to establish a business entity in France
Embarking on the journey of starting your business in France is an exciting endeavor, and we’re here to guide you through the intricacies of various business entities. France offers a favorable environment for foreign investors, welcoming those who adhere to regulations aimed at preventing money laundering. Foreign investors have the opportunity to take advantage of incentive programs or subsidies provided by European, state, and local authorities. The availability of these benefits depends on the type of company and the project’s location, making France an attractive destination for international investment.
This guide offers an overview of legal aspects of establishing an entity and conducting business in the requisite jurisdictions. It is meant as an introduction to these marketplaces and does not offer specific legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship, or its equivalent in the requisite jurisdiction.
Available in our guide
This guide is designed for investors, and in particular foreign investors, considering the creation of a business entity in France. It provides a practical overview of the main issues to anticipate before launching operations. It covers four main areas:
Available legal structures:
Investors have two main options — opening a branch (an extension of a foreign company, without separate legal personality) or creating a French company (SA, SARL, or SAS). A branch is quicker to set up, but a subsidiary is generally recommended in the long term, particularly for its flexibility and ease of transfer.
Incorporation procedures:
Registering a branch takes 3 to 4 days; incorporating a company takes about one week once all documents are gathered. The main steps include drafting the articles of association, opening a bank account, depositing share capital, and completing formalities with the commercial court.
Governance and regulation:
There is no general requirement to have French shareholders or directors, except in certain regulated sectors (healthcare, media, agriculture, etc.). French law protects minority shareholders through information rights, pre-emptive subscription rights, and legal remedies in cases of abuse.
Taxation and foreign investment:
Foreign investments are generally unrestricted, subject to statistical declarations above €15 million and prior authorization for sensitive sectors (defense, cybersecurity, biotechnology, AI, etc.). Withholding taxes apply to dividends, royalties, and branch profits, with possible reduced rates under tax treaties or European directives.
The guide also includes a detailed comparative table of the main French legal forms, setting out, for each structure, the key requirements and constraints: minimum share capital, number of shareholders, governance bodies, management rules, decision-making process, transfer of shares, statutory auditor requirements, liability regime and practical advantages or limitations. This table is intended to help investors quickly identify the structure best suited to their operational, tax and governance needs.
Download the guide to obtain a clear and practical overview of the legal options available when setting up a business in France, and to compare the main French corporate forms before making a structuring decision.
Types of Business Entities
Which legal structure should be preferred when establishing a new business in France?
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) Establishing in France with a 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) Launching a company in France
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”).
(3) Branch or Company: 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 labor 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 incorporation of a subsidiary is more frequently recommended.
Steps and Timing to Establish
(1) Overview of the administrative tasks to establish a branch in France
The registration of a branch requires the provision of various documents (e.g. commercial lease, translation of the articles of association of the foreign company, decision of the board of directors (or equivalent) to open the establishment, name of the local representative responsible for its management) to the commercial court of the place of establishment. The registration takes approximately 3 to 4 days as from filing.
(2) Main steps to create a french company
Commercial companies must be registered with the local Registry of Commerce and Companies (“registre du commerce et des sociétés”).
The following steps are required:
- Drafting of the articles of association (statuts)
- Signature of a lease or domiciliation agreement (or letter) for the company’s premises or registered address
- Opening of a bank account where the share capital will be deposited; this account is opened in the name of the company in the process of being incorporated
- Transfer of the share capital by the shareholder(s) to such bank account
- Obtaining of letters pursuant to which the statutory auditors (if required) accept their office
- Signature of the articles of association by the shareholder(s)
- Legal announcements and formalities with the commercial court
- Obtaining of the final corporate identification number
Under normal circumstances, the incorporation would take approximately a week from receipt of all the incorporation documents duly signed. Delays often result from the following matters:
- selection of the place of the registered office;
- selecting the French statutory auditors (if any);
- choosing the French bank and operating the transfer of funds.
Governance, Regulation and Ongoing Maintenance
Requirements for local shareholding/directors
Local shareholding: There are no general requirements concerning shareholders (individual or legal entity) but specific restrictions may apply with respect to regulated sectors of activity in France. For example, when certain regulated professional activities are exercised in France through companies, the majority shareholding must be constituted by individuals who are licensed in France to exercise the relevant regulated profession (e.g. lawyers, pharmacists, biologists, accountants, statutory auditors…).
Furthermore, foreign shareholders must comply with declaratory obligations or must obtain permits or authorizations in some cases which are outlined in section below.
Local managing directors: There is no general requirement for any of the managing directors to reside in France or to be a French citizen. Foreign managing directors who do not wish to reside in France are exempt from the requirement to hold a temporary residence permit or any other specific authorization.
Foreign managing directors of French companies who wish to reside and exercise commercial activities in France must be in possession of a temporary residence permit (“carte de séjour temporaire”) which allows the exercise of such commercial activities. However, EU, EEA or Swiss nationals who wish to reside and exercise commercial activities in France only have to be registered with the municipal authority of their place of residence in France.
All local managing directors, whether resident in France or abroad, must provide affidavits of parentage and non-conviction and file them with the Registry of Commerce and Companies.
Minority shareholders’ rights and protection. Minority shareholders may have specific protection rights negotiated in the articles of association (statuts) or via shareholders’ agreements. In addition, French law grants specific rights to shareholders (either to all shareholders or specifically to minority shareholders) such as:
- Rights of information (depending on the type of company).
- Right to participate and attend all shareholders’ meetings.
- In companies having the form of a SA or SAS, shareholders holding one twentieth (5%) of the share capital may (i) ask the commercial court to dismiss the statutory auditor(s), (ii) address written questions to the President, twice a year, on any aspect which may compromise the continuation of the company’s business, (iii) ask the commercial court to appoint an expert in order to produce a report on one or several management activities of the company.
- Right to the profits: it is forbidden to allocate the whole profits or losses to one or several shareholders, or to deprive a shareholder of any share in the profits. The exempting of a shareholder from any contribution to losses is also forbidden.
- Preferential subscription rights: in certain forms of companies (SA and SAS), each shareholder has a preferential subscription right in the case of a share capital increase.
- Abuse of a majority position: minority shareholders who suffer an abuse by the majority can bring a civil action (there is an abuse of majority if the decision of the majority has been taken contrary to the general interests of the company and with the sole purpose of favoring the majority shareholders to the detriment of the minority shareholders). Where a disagreement arises between shareholders leading to paralysis of the company’s operations, it is possible for a shareholder to ask the court to order the liquidation of the company.
- The same rationale applies to the principle of abuse of minority rights, which can be defined as the fact that a minority shareholder prevents an essential decision by acting against the interests of the company, with the sole aim of favoring such shareholder’s interests to the detriment of the other shareholders.
- Any shareholder may ask the court to hold the corporate officers liable and to obtain damages for the losses suffered personally by the shareholder, as distinct from the losses suffered, as the case may be, by the company (Article L.225-252 of the French Commercial Code, action ut singuli).
- Some decisions require the unanimous agreement of all of the shareholders (e.g. any decision which increases the current commitments of a shareholder, change of the nationality of a company).
Duty to declare the “ultimate beneficial owner(s)”. Every legal entity registered in France has an obligation to declare its “ultimate beneficial owner(s)” to the companies’ registry. The French legal entity has to declare the identity of any natural persons who (i) holds directly or indirectly more than 25% of the share capital or the voting rights of the company, or (ii) exercises control, by any other means, over the company. An amended declaration should be filed within 30 days of any fact or event which results in a modification or addition to such information. Only authorized persons may have access to this information.
Foreign Investment, Thin Capitalization, Residency and Material Visa Restrictions
(1) Significant barriers to entry for an offshore party
Access to certain regulated activities may be reserved to French or EU nationals or nationals of a country which has concluded a reciprocal treaty with France (e.g. architects, doctors, biologists, lawyers, statutory auditors, etc.). Exercising regulated activities may require conditions of holding a particular diploma or professional experience, or even the obtaining of an authorization issued by an administrative authority.
Furthermore, majority participation in companies active in certain regulated sectors may be reserved to professionals in that sector.
For example:
- For some regulated activities which can be exercised in France through companies, the shareholding of non-professionals is limited (e.g. third party can hold a maximum of 25% of the share capital of biology laboratory).
- Foreign investors may hold the majority of the share capital of an agricultural company only if they are in possession of an agricultural professional permit issued by the agricultural authority of the region where the farm is located.
- Foreign investors may not cumulatively hold more than 20% of the share capital of a media company.
Furthermore, prior authorization may be mandatory in restricted areas, as explained hereunder.
(2) Capitalization obligations
The net equity of a company having the form of a SA, SAS or SARL must be at least equal to half of the share capital. If any such company suffers losses causing its net asset value to fall below one half of its share capital, the shareholders must decide, within a four-month period following the approval of the accounts which revealed such loss, whether the company must be dissolved or not. If the shareholders decide to continue the company’s operations, the company must increase its net asset value to at least one half of its share capital at the latest at the close of the second fiscal year following the fiscal year during which the situation has been acknowledged. If the company carries out a capital increase without complying with the rule of equity exceeding half the capital, it must, within 2 financial years of the capital increase, reduce its capital to a minimum threshold set up.
(3) Special business or investment visa issues
Investments and acquisitions by non-resident (individuals or legal entities) in France are unrestricted and only require (i) a declaration for statistical purposes, (ii) except in the case of transactions in sensitive areas for which specific investment-control rules apply and prior authorization is mandatory.
(i) Statistical declarations:
Foreign investment which exceeds EUR 15 million and corresponds to the acquisition of at least 10% of the share capital or voting rights of a French company or real estate investments must be declared to the French central bank within 20 working days after the investment.
(ii) Prior authorization in sensitive areas:
Several sectors of activity are deemed to be sensitive because they affect public interests:
- activities involved, even occasionally, in the exercise of the public authority;
- activities which are likely to infringe public order, public security or national defence interests;
- activities carried out in the field of weapons research, production or trade of weapons;
- research and development activities relating to cybersecurity, artificial intelligence;
- biotechnology field;
- data hosting activities whose compromise or disclosure is likely to interfere with the performance of certain activities…
A complete list of the sensitive areas dated May 23, 2023 can be found on the General Treasury Department website (Direction Générale du Trésor). A non-resident contemplating a direct investment in any of the aforementioned restricted areas must first file a declaration with the Ministry of Economy and Finance (Treasury Department) setting out the details of the transaction and obtain its prior authorization.
Once the formal request for authorization is submitted, the Minister for the Economy has a maximum regulatory lead time of 75 working days / 2 months to respond to the request. If the Minister does not respond within the time limit, , the application is deemed to have been refused (art. R 151-6, al. 1 and al. 2 Code monétaire et financier).
(4) Restrictions on remitting funds out of the jurisdictions (withholding taxes, etc.)
Branch withholding tax: profits earned by a French branch of a foreign company and distributed to the foreign shareholders are subject to a withholding tax of 25% on after-tax income. However, if the foreign company is (i) located in the EU and is subject to income tax with no possibility of opting out or of being exempt and (ii) the income is taxable in the relevant EU member state, such branch tax is not applicable. This tax may be reduced or eliminated by an applicable double taxation convention. Although branch withholding tax normally applies to undistributed profits, such profits may be exempted from the tax if an application is filed with the tax authorities and if certain requirements are met.
- Dividends paid to a non-resident (individual or legal entity) by a French company are subject to a withholding tax. The rate of this tax depends on the type of the beneficiary and the time of payment:
- If the foreign beneficiary is an individual: 12.8% for dividends paid from 1st January 2018;
- If the foreign beneficiary is a legal entity: 25% for dividends paid from 1st January 2022. Such withholding tax may however be reduced or eliminated under an applicable tax convention or EU directive. For example, under the parent-subsidiary directive, dividends paid by a French company to an EU parent company are exempt from withholding tax if the parent holds more than 10% of the share capital of the French distributing company for at least two years preceding the distribution.
The rate of such withholding tax increases to 75% if the dividends are paid to a non-resident located in a non-cooperative tax jurisdiction.
Commissions, royalties and fees paid to a non-resident for services performed or used in France are subject to a domestic withholding tax of 25%. This tax may be reduced or eliminated by an applicable tax convention or where the EU interest and royalties directive applies. Where the payment is made to an entity or individual located in a non-cooperative tax jurisdiction, a 75% withholding tax applies.
Interest payments made to a non-resident (individual or legal entity) are generally exempt from withholding tax in France. However, if the payment is made to a non-resident (entity or individual) located in a non-cooperative tax jurisdiction, a 75% withholding tax applies.
(5) Obligation to register a transient branch
A transient branch must be registered with the local Registry of Commerce and Companies (“registre du commerce et des sociétés”) in order to allow employees to work within it. This registration must be done even if the transient branch is open only for a few months.
Frequently Asked Questions
What is the difference between a branch and a subsidiary?
A branch is an extension of a foreign company without separate legal personality, its rights and obligations are those of the parent company. A subsidiary (SA, SARL, or SAS) is an independent French legal entity with its own articles of association and share capital.
Which structure is recommended for a foreign investor?
A subsidiary is generally recommended. A branch can be useful at the early stage since it is easier to set up, but a subsidiary proves more practical in the long term, particularly due to its flexibility and ease of transfer.
How long does it take to set up a company in France?
It takes about one week to incorporate a company once all signed documents have been received. Registering a branch usually takes 3 to 4 days.
Is it mandatory to have a managing director residing in France?
There is no general requirement to reside in France or to be a French national. Non-resident foreign directors are not required to hold a residence permit, unless they intend to live and carry out their activities in France.
Which sectors require prior authorization for foreign investors?
So-called “sensitive” sectors, including defense and arms, cybersecurity, artificial intelligence, biotechnology, hosting of sensitive data, activities related to public order or national security, and more generally any sector involving the exercise of public authority.
What is the tax treatment of dividends paid abroad?
The withholding tax rate is 12.8% for individuals and 25% for legal entities. These rates may be reduced or eliminated under a tax treaty or the EU Parent-Subsidiary Directive. The rate increases to 75% if the beneficiary is located in a non-cooperative jurisdiction.
Are minority shareholders protected in France?
French law grants them rights to information, the right to participate in shareholders’ meetings, pre-emptive subscription rights, protection against majority abuse, and the ability to bring liability claims against directors before the courts.
Is it necessary to declare the beneficial owners of a company?
Any legal entity registered in France must declare to the registry the identity of any natural person who directly or indirectly holds more than 25% of the capital or voting rights, or who exercises control by any other means. Any change must be declared within 30 days.