Selecting the appropriate structure for your French company.
Dear Mr. Smith,
During our telephone conversation, you asked for guidance as to the appropriate structure of the French company you wish to organize with a view to it becoming the corner stone of your California-based company’s expansion onto Europe.
You have further advised me that you have had discussions with a French national, Mr. Paul Dupont, who you envision naming as the director of the French/European operations, as he has a number of years of experience in the marketing in the same sector as your American company.
It will be necessary to decide if you prefer to establish:
– Wholly owned French subsidiary, or
– A branch office in France
Here is a table which summarizes some of the advantages or disadvantages of the two possible structures.
|Advantage/Disadvantage||French subsidiary||Branch office in France|
|French taxes||No advantage or disadvantage||No advantage or disadvantage|
|U.S. taxes||No advantage or disadvantage||No advantage or disadvantage|
|Set-up costs||Somewhat more expensive||Somewhat less expensive|
|Annual costs||Somewhat more expensive||Somewhat less expensive|
|U.S. parent subject to product liability claims in the U.S.||Complex issue not possible to summarize in a few words||U.S. head office exposure somewhat greater under certain scenarios|
|U.S. parent subject to claims by employees for severance benefits, if the business must be closed down because French/European operations not profitable||Subject to the piercing of the corporate veil, some protection||Decisions of French courts can be enforced against the U.S. head office|
If you opt for the creation of a French company, a smaller, start-up operation should probably be a French « SARL » form of limited liability company.
SARL form of French Company
Subject to our conference call with the French/American CPA of whom I spoke, the form of the French company you will wish to use is a « SARL ». The alternative « SA » corporate form would be too expensive for your proposed start-up operations.
As I mentioned, the SARL has no long list of officers or board of directors. The company is managed by one or more managers (« gérants »), who must be individuals.
Under French law, citizens who are not from an OECD country cannot be a gérant unless he/she has obtained a Foreigner’s Commercial Card (« carte de commerçant étranger »). Fortunately, almost all industrial countries (including the United States) are OECD member countries.
In my view, it would be most imprudent if Mr. Dupont were to be the sole gérant, as only he could sign documents and bind the company. If he and your company had a parting of the ways, you would have a company with no management. I have seen this happen and the legal and business time devoted to curing the situation is significant.
Therefore, I strongly urged that an American (such as yourself) and Mr. Dupont, each become a co-manager (« co-gérant »). Thus, if Mr. Dupont is discharged by the majority stockholder (your company), there will be continuing management, a function needed even to wind-up a French company.
If and when you decide to proceed with the French project, I will need to clear the name of the new company and then to draft the corporate statutes, pay the registration tax, effect publication in a newspaper of public record, file certain documents with the clerk of the commercial court and open a French bank account on which each of the co-managers would have clearly defined/limited authority.
Before commencing such work, I would provide you with a budget for the services to be rendered.
To get the project moving, I would first need:
1. your company’s official address and a list of the chief officers,
2. its current certificate of incorporation (which I would order),
3. the official American title of the future American co-manager (co-gérant),
4. the first page of his/her passport, and
5. the preferred name for the French company.
To protect the employer, not the employee, it is critical that all French employees have carefully defined employments contracts. (see note on this subject.) Therefore, before you go too far down the road in the discussions of Mr. Dupont, we should discuss your objectives and refine your strategy with respect to Mr. Dupont.
Once you have reviewed this memorandum, please give me a call so I can answer your questions.