How to recover startup costs in France?
Starting a business in France is different to starting one in other countries in Europe. In other European countries, incorporation is immediate, however, in France this process takes time because of French administrative formalities. During this period you can still work for your clients as a ‘company in formation’ and spend money for the company. These costs are incurred before the company exists so how can you recover them?
Don’t panic. French corporate law provides for this scenario with Article L. 210-6 of the code de commerce to help to recover startup costs in france.
What kind of costs can be absorbed by the company?
“Plane tickets, travelling around the city, appointments with future clients, deposits on premises, purchasing stock, licence applications, tax and accounting services, and, depending on the sector, investigations and studies, testing, reports, evaluations etc. It’s important for companies that are starting up to understand how to use the law to transfer these expenses to your company immediately after incorporation, and one of our aims as a business adviser in France is to support start-ups with their first steps into the French market.” – Patrick Maupard, CEO and founding partner of Maupard Fiduciaire.
In practice, the start-up costs are absorbed by the company at the time of its incorporation, as, during the first general meeting, all of the shareholders create and agree on the list of start-up expenses to be transferred to the company. They can either be posted as an amortizable asset in the balance sheet or as a current expense in the profit and loss account.
The process to recover startup costs in France is relatively straightforward. The company is incorporated by filing an application, along with a dossier, to the commercial court. When approved, the first act of the company is to hold a general meeting of the shareholders. At this meeting, all start-up costs incurred before the incorporation date must be reported in detail and added to the by-laws as an appendix, signed by every shareholder.
During the meeting, one or more people can also be appointed as the first members of the board of directors, who can take on liabilities on behalf of the company.
The report lists every expense and who is to be reimbursed. The expenses can be for anything, and there’s no limit to how long before incorporation they were incurred. If the shareholders authorize the company to absorb the expenses, the resolution takes effect pursuant to the second paragraph of Article L. 210-6 of the code de commerce which states:
“…the statement is attached as an appendix to the by-laws, the signature on which effects the absorption of liabilities by the company, once it has been incorporated at the commercial court.
Furthermore, shareholders may, under the by-laws, or with a separate document, give the power to one or more of them to take on liabilities on behalf of the company. Provided they are identified and that their terms are specified in the mandate, the incorporation of the company in the commercial register will effect the transfer of these liabilities to the company.”
This process applies specifically to the incorporation of an S.A.S., the French equivalent to a Limited Company.
As experienced international business advisers we have encountered this scenario many times, so we can foresee issues before they happen and support you every step of the way to recover startup costs in France.
Get in touch with our expert legal and business consultants and ask us what other ways you can recover startup costs in France, we’d like to hear from you.