Incorporation of an SAS: 5 errors to avoid
Incorporation of an SAS: Investors often ask us about the best way to set up in France. In our experience, our prospects tend to fit one of the 3 following profiles:
- For individual craftsmen starting from scratch: self-employed status (le statut d’auto entrepreneur) is the best option, despite certain traps.
- For companies who want to be discrete or whose sales forecasts are still uncertain: the SARL is ideal because of the flexibility of the manager remuneration regime. In our opinion this is a temporary solution.
- For companies with sufficient financial resources and who want to convey a professional image to customers, prospects, and the French labour market, the best option is to register as an SAS.
In the term SAS, the first “SA” stands for société anonyme (limited company) and the final ‘S’ stands for simplified. In a country that is traditionally administratively complex, we believe this to be the best legal framework.
If you chose this option, here is our initial advice:
- Carefully describe your company’s purpose, conforming with the collective agreement to avoid future distortions in the employee system.
- Appoint the president of the SAS from the leaders of your organisation outside France as a symbol of international affiliation when dealing with local third parties.
- Recruit a manager / director (with the status of employee, not necessarily general manager/director) to manage the day-to-day business.
- Choose the best level of share capital: avoid weakening your position with too little capital. Later in the recruitment phase, employees will be reluctant to join an underfunded company. Would an employee join a company whose capital is € 500?
In our experience, here are the 5 mismanagement decisions foreign direct investors (FDI) tend to make.
- The capital invested is insufficient to finance the activity and the bank refuses to open the account for fear of an unauthorized overdraft.
- The business plan is unreliable or, even if the objectives are realistic, the time required to achieve them is longer than expected, thus causing start-up losses.
- Allocating a fixed salary that is too high where the manager benefits from the social benefits of an employment contract, if the company’s resources do not allow it.
- In the absence of turnover, the company pays the remuneration in accordance with the commitments of the employment contract and consumes cash unnecessarily.
- The salary is taxable to payroll taxes even if it has not been paid to the beneficiary.
How do you recover from those errors once you are stuck?
First of all, a new cash injection would be appreciated by the bank if interim losses have consumed the initial investment.
To try to avoid a loss early on, cancellation of the employment agreement with retroactive effect is an option, especially as you are both the employer and employee in this scenario.
You must be realistic: if the inflow of business in the new entity is clearly insufficient, far below your budget, your best bet is to dismantle the company rather than persisting with a loss making company that would also jeopardise your credibility.
In this were the case, Maupard would be able to assist you.