There are many reasons why you might one day consider converting your sole proprietorship to a micro-business. It may be due to a drop in sales, to a desire to slow down your activity as you approach retirement, for example, or to the search for social or tax optimization... Whatever the reasons, you should know that this conversion is perfectly feasible, provided you meet the required criteria.
What are the conditions for switching from sole proprietorship to micro-enterprise?
First of all, it's important to remember that there are two types of ceiling for micro-businesses:
- the VAT exemption limit, above which you are required to invoice inclusive of VAT ;
- the ceiling for micro-entrepreneur status, beyond which you can no longer benefit from this scheme.
These two ceilings should not be confused, as they are totally independent. Indeed, if your sales exceed the amount authorized for VAT exemption, you can still retain the status of micro-entrepreneur, with all its advantages. On the other hand, if your sales exceed the 2nd ceiling, you automatically switch to sole proprietorship status.
The essential condition for switching from sole proprietorship to micro-enterprise is that your sales must be less than:
- 176,200 excl. tax for commercial and accommodation activities;
- 72,600 excl. tax for services and self-employed activities.
If you run a mixed business, i.e. one that involves both sales and the provision of services, the amount of €72,600 (excl. VAT) will be used as the basis for the portion of your sales generated by the provision of services, and the total for both types of business may not exceed €176,200 (excl. VAT).
In short, as long as your annual sales exceed these ceilings, you will not be entitled to apply for micro-entrepreneur status. That's why the transition from sole proprietorship to micro-entrepreneur should be planned well in advance.
What are the steps involved in converting a sole proprietorship into a micro-business?
The good news is that you don't have to close your sole proprietorship to set up a micro-business. You'll keep your SIRET number and your contact details. This means you can keep your advertising materials as they are, and continue to use them without any problems.
All you need to do is inform your local Service des Impôts des Entreprises (SIE) that you have opted out of the real-estate tax system, and apply for the micro tax system. This must be done on plain paper. For a change in year N + 1, you must submit your request by December 31 of the current year at the latest. This option is valid for one year, renewable by tacit agreement.
The advantages and disadvantages of switching from sole proprietorship to micro-enterprise
The benefits
By choosing to convert your sole proprietorship into a micro-enterprise, you will leave the simplified real estate system with its accounting obligations and benefit from the micro-social and tax system with the following advantages:
- You won't need to call on the services of an accountant, as all you'll need to do is keep a book of receipts and, for resale activities, a register of purchases.
- You will no longer be required to have a business bank account, but only one that is dedicated to your business.
- You won't have to pay any social security contributions in months when your sales are zero.
- Under certain conditions, you can benefit from a flat-rate income tax payment.
- Finally, if you don't exceed the authorized ceiling, you can take advantage of VAT exemption, which can make your rates more competitive if you work mainly with private customers.
Disadvantages
Generally speaking, a self-employed worker decides to switch from sole proprietorship to micro-enterprise because of a drop in activity, whether desired or sudden. The major disadvantages of micro-enterprise are minimal, sincethey lie mainly in the ceiling on sales.
On the other hand, it's important to remember that the micro-tax system doesn't allow you to deduct your actual expenses, but only to benefit from a flat-rate deduction on your sales. So, if you have high monthly expenses to run your business (advertising costs, insurance, car travel, hotel nights, meals eaten out...) plus your social security contributions, it's best to seek advice from a chartered accountant to make sure you're making the right choice. He or she will be able to run simulations for both scenarios and help you make the right decision.
A final point not to be overlooked: if you intend to apply for a bank loan, you risk having less credibility with a financial institution, since you won't be able to present a balance sheet and income statement, as sole traders do.