Sole traders' homes protected

SOLE traders will - as of the start of next year - be able legally to separate business and personal property so the latter is protected from business creditors.

The measure has been welcomed by the UPA, the artisans’ union, representing 1.2 million businesses, which says such protection is long overdue. According to its leader, Jean Lardin, the fact that, in the case of business failure, sole traders may lose not only their business but their home has been like a “sword of Damocles” hanging over their heads and a “psychological barrier to starting a business.”

The new status is called EIRL (entreprise individuelle à responsabilité limitée - limited liability sole trader business).

It gives sole traders - who trade in their own name - similar protection to sociétés (limited companies).

The scheme starts from January 1, 2011 and is a new flagship project for Small Business Minister Hervé Novelli, who launched the popular auto-entrepreneur scheme last year (a simplified way of setting up a small business). It is estimated that around 100,000 people may take up EIRL status next year.

Mr Novelli said: “The success of the measure will be judged by the number of EIRLs that are created, but also by the ending of these tragic situations where small businesspeople, after going through a tough period, end up being ruined not only financially but personally and psychologically as well.”

The EIRL comes on top of two other previous measures which have not been as popular as hoped. The EURL is a kind of one-person company, while the déclaration d'insaisissabilité is a procedure carried out by a notaire, under which you declare the home you live in, and other bricks-and-mortar property unconnected to your business, to be sheltered from creditors.

Who can take up EIRL status?

Any sole trader, including people in commerce, artisans (trades and crafts) and liberal professionals (various services of a more intellectual kind). You will be able to set up directly as an EIRL or adopt the status for an existing firm. Auto-entrepreneurs will also be concerned.

How will you do it?

You will become an EIRL by making a declaration of what property can be considered as connected to the business (and therefore at risk to creditors). Some kinds of property will automatically have to be included in this, such as anything that is directly necessary for the business activity - eg. a shopkeeper’s stock or a tradesperson’s tools. Other items may optionally be included, such as a personal car you sometimes use for the business, or part of your home you use for professional reasons.

The declaration will be done: at the chamber of commerce for people in commerce, at the chamber of trade for artisans and at the greffe (office) of the tribunal de commerce (commercial court) for auto-entrepreneurs or liberal professionals. If a building is to be included, there will also have to be an entry made at the local mortgage registry by a notaire.

Where any goods you want to list are in shared ownership, you will need to get the explicit consent of the other owners; a given piece of property will only be able to be listed in a single EIRL declaration.

It is expected that a report by an expert such as an accountant will be required where assets (apart from money in accounts) above a certain value are involved.

Assets not included in the declaration will automatically be protected.

Some details remain to be ironed out before the status comes in - for example an advisor at the Paris Chamber of Commerce said it was not yet known if a charge would be made for making the EIRL declaration or not.

Which creditors does it protect you against?

You are protected from claims by any creditors whose claims arise after the creation of the EIRL and for any whose claims arose before, as long as this is indicated at the time of creating the EIRL. Any existing creditors will have to be informed and given a notice period to express opposition if they wish (should they oppose it a court will make a ruling).

The owner of an EIRL will not be protected by the status if they are found to be guilty of fraud or serious neglect of important accounting or banking rules.

TaxOwners of an EIRL will have the option of either paying income tax on their business income or corporation tax (impôt sur les sociétés).