When you start out as an entrepreneur, you must first choose a legal form: either opt for a sole proprietorship, or set up a company on your own, with one or more partners. Your choice needs to be carefully considered, as it will have consequences on a number of levels, including your remuneration and tax liability. The legal status of a company is of vital importance when it comes to earning a living. Here's how.
Which status to choose?
If there's more than one of you, you'll need to set up a company. The options are SARL, SAS, SNC, SCP and SA.
If you're setting up your own business, you'll either have a classic sole proprietorship or micro-enterprise, or an EIRL, EURL or SASU.
In addition to differing degrees of liability (from unlimited in the case of a sole proprietorship to limited to capital contributions in the case of a company) and different ways of calculating social security contributions, the legal form also determines how you are remunerated and taxed.
How do you earn a living as a sole trader?
With a micro-business, the question of salary does not arise. Sales are declared to Urssaf on a monthly or quarterly basis, and charges payable are automatically calculated. Micro-entrepreneurs can opt to pay their income tax in full discharge, in which case they pay a fixed percentage of their sales when their charges are paid, and pay no additional income tax.
Surprising as it may seem, although sole proprietorships, like companies, produce a balance sheet and annual financial statements, the remuneration of the sole proprietor is not included in the operating expenses. However, the sole proprietor regularly draws on the company's cash flow for his personal needs. However, the French Commercial Code, like the French Labor Code, does not consider this to be a salary in the strict sense of the term, but merely a financial transaction.
The General Chart of Accounts does indeed provide for a "remuneration of the operator's work" account (account 644) in which salaries can be entered, as a counterpart to the "operator's account" (account 108). In practice, however, these accounts are hardly ever used, and if they are, they must be neutralized at year-end. This is because a sole trader's salaries are not tax-deductible expenses. As far as the authorities are concerned, a sole trader's salary is his company's profit.
We could therefore consider the sums deducted by the operator throughout the year from the company's account to be his salary, received in return for work done. In fact, they may also represent the repayment of personal contributions. This should be taken into account in management analyses.
There are two other ways for a self-employed worker to calculate his salary. They can either estimate a certain gross hourly wage based on their duties, then multiply it by the number of hours worked. Or, they can base their salary on industry or collective agreements.
How do you get paid in a company?
There's no obligation to get paid in a company. You can work on a voluntary basis. Remuneration is set at the Annual General Meeting or directly in the Articles of Association. They may be fixed or proportional. In the latter case, they are calculated in relation to profits or sales.
An executive's remuneration can take several forms: salaries, dividends, benefits in kind (housing, laptop, company car, etc.), interest on a partner's current account (when the partner has lent funds to the company).
Dividends are amounts paid by the company to shareholders as income, in proportion to their contributions. They are taxed at a flat rate of 30%.
It's tempting to pay yourself through dividends alone, because when a company is subject to corporation tax, there are no social security contributions on dividends for SAS or SARLs with minority management, for example. On the other hand, this also means that you won't benefit from any social security protection.
It should be noted that the managers of EURLs and SARLs are considered as non-salaried workers, and are therefore subject to social security charges of around 45% of taxable income.
Salaries are expenses that reduce taxable profit, unlike dividends, which are non-deductible. Remunerating yourself with a small salary and large dividends is not always the best way to save money. Seek the advice of a chartered accountant to help you make the right choice.
Taking no salary and only dividends is an attitude that the taxman strongly dislikes. What's more, this practice is subject to the PUMa tax (a levy affecting all taxpayers with little earned income and substantial wealth), which makes it less attractive.
If the company is subject to corporate income tax, executive remuneration follows the same pattern. It is taxed as salary and wages. A flat-rate deduction of 10% is applied, with the option of deducting actual business expenses, if these exceed the deduction.