Expert views
A change of legal status during the life of a business is not a routine operation, but it is sometimes necessary. Let us take a closer look at the situations that may arise in this regard. By Olga Romulus, chartered accountant at Fiducial.
For what reason can a business owner change the legal status of his company?
The evolution of the company can bring many reasons to transform its legal status, in particular:
– inappropriate taxation as in the case of the payment of dividends,
– a desire to reduce the manager’s social contributions
– the need to open up capital to new investors
– a change of activity,
– preparation for the transfer of his business.
It is therefore necessary to understand this subject by taking into account the various consequences that this decision will entail as well as the cost of its implementation and to opt for the most lasting choice possible.
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What are the terms and steps to follow to change company status? What should you watch out for?
At first glance, the transformation of a company seems to be a simple thing: continuity of the legal person and therefore of its rights and obligations, in particular contractual, replacement of management bodies by those provided for by the new regime, continuation of employment contracts under the same conditions, no accounting impact.
But in practice, there are several points of vigilance
– The new form of the company may involve new conditions in terms of the amount of capital and the number of partners in particular.
– Contracts of the commercial lease type, bank loan, brand license, etc. may provide for an agreement from the co-contractor to the transformation under penalty of termination of the said contract
– The change in tax regime, i.e. shift from income tax to corporation tax, or vice versa, is analyzed as a cessation of activity with immediate taxation of profits, including those with tax deferrals, unrealized capital gains, reserves and loss of “carryforward” deficits. Preferential regimes exist, but not all companies are eligible.
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What questions should you ask yourself to know if you still have the right company status?
Your legal status must correspond to your expectations on three main requirements:
– The tax system
Companies are subject either to corporate tax which is calculated in proportion to the profit of the company, or to the income tax scale which depends on the family situation of the entrepreneur.
This situation can be optional or made compulsory by the chosen form of company.
– The social system
If he is a corporate officer or minority manager of an LLC, the manager benefits from the same coverage as the general social security system, with the exception of unemployment insurance.
If he is self-employed as in the case of an individual entrepreneur or majority manager, he is subject to Social Security for the Self-Employed (SSI).
– Heritage protection
Certain articles of association only provide for partial protection of the manager’s private assets, while others allow the latter’s liability to be limited to his sole contributions, provided that he does not stand as a personal surety vis-à-vis the manager. banker for example.
In conclusion, the transformation of a company is not without fiscal and economic risks. It is essential to seek advice and assistance from a professional (chartered accountant, lawyer, etc.) in this delicate but sometimes necessary decision in the life of a company.
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