What is a french "Individual Company" ?

Starting your own business is an exciting journey, but choosing the right legal status is crucial. Among the most popular options, the sole proprietorship stands out for its administrative and tax simplicity. Accessible to all, this status allows individuals to engage in commercial, artisanal, or liberal activities without creating a separate legal entity. But what are its advantages and disadvantages? How does it actually work? And how does it differ from a micro-enterprise? In this article, we cover everything you need to know about sole proprietorships to help you make the best choice.

Definition and Characteristics of a Sole Proprietorship

What is a Sole Proprietorship?

A sole proprietorship is a legal structure that allows an individual to conduct economic activities independently, without distinguishing between personal and business assets. The entrepreneur is personally responsible for all business debts. However, since 2022, a reform has automatically protected the personal assets of business owners unless fraud or voluntary waiver occurs.

Key Legal and Tax Features

A sole proprietorship has several distinguishing features:

• Administrative simplicity: No need to draft bylaws or establish a minimum capital.

• Flexible taxation: Business profits are taxed directly in the owner's name, with an option to switch to corporate tax (IS) in some cases.

• Specific social security regime: The entrepreneur is covered under the self-employed social security system, with contributions based on taxable income.

• Full autonomy: The owner makes all business decisions independently, without partners or a board of directors.

Differences Between a Sole Proprietorship and a Company

Unlike a company (SARL, SAS, etc.), a sole proprietorship does not have a distinct legal personality separate from its owner. This means the entrepreneur is personally liable for business debts (except for primary residence and protected assets under the 2022 reform). However, the management is much simpler, with no need for general meetings, annual account submissions, or complex legal structures.

How Does a Sole Proprietorship Work?

Accounting Obligations

One of the main advantages of a sole proprietorship is its simplified accounting obligations. Unlike companies, entrepreneurs are not required to file annual financial statements. However, they must maintain a record of income and, depending on their activity, a purchase ledger. More detailed accounting is required under the standard tax regime.

Applicable Tax Regime

The tax regime for a sole proprietorship depends on revenue and tax structure:

• Simplified micro-tax regime: Available for entrepreneurs with annual revenue below certain thresholds, with a flat-rate expense deduction.

• Standard tax regime: Allows for actual expense deductions and is mandatory for businesses exceeding micro-enterprise limits.

• Corporate tax option (IS): Though rarely chosen, this allows businesses to be taxed as corporations, which can be advantageous for highly profitable activities.

Social Security Regime for the Owner

The sole proprietor falls under the self-employed worker regime (TNS), where social security contributions are calculated based on taxable income. While often more cost-effective than salaried social security systems, it provides less comprehensive coverage.

Sole Proprietorship vs. Micro-Enterprise: Key Differences

Tax Regime: Income Tax vs. Simplified Micro-Tax

The micro-enterprise is a simplified version of a sole proprietorship, benefiting from an ultra-streamlined tax regime. Taxation is flat-rate, with a possible withholding tax option, whereas a traditional sole proprietorship allows for actual expense deductions.

Accounting and Administrative Obligations

A standard sole proprietorship requires more detailed accounting and administrative management than a micro-enterprise, which operates with a simplified revenue declaration.

Protection of Personal Assets

Since the 2022 reform, all sole proprietorships now automatically separate personal and business assets, providing enhanced legal security.

Advantages and Disadvantages of a Sole Proprietorship

Advantages of a Sole Proprietorship

• Simple creation and management: Ideal for quickly starting a business without administrative burdens.

• Low operational costs: No incorporation fees or minimum capital requirement.

• Flexible taxation: Multiple options based on the owner’s needs.

• Complete independence: The entrepreneur maintains full control over business operations.

Disadvantages and Risks

• Financial liability: Despite personal asset protection, the entrepreneur is solely responsible for business debts.

• Difficulty attracting investors: Unlike corporations, sole proprietorships cannot raise capital from external investors.

• Limited social protection: The self-employed regime provides less coverage than salaried social security systems.

How to Create a Sole Proprietorship?

Step 1: Registering the Business

Registration is done through the INPI one-stop shop, which now centralizes all business incorporation formalities.

Step 2: Choosing the Tax and Social Security Regime

Upon registration, the entrepreneur must choose a tax regime (micro-tax or standard tax) and is automatically affiliated with the self-employed social security system.

Step 3: Managing and Growing the Business

Once the business is established, the owner must comply with accounting, tax, and administrative obligations to ensure long-term success.

Frequently Asked Questions (FAQ)

Who Can Start a Sole Proprietorship?

Any legal adult (or emancipated minor) can choose this business status.

What is the Revenue Limit?

Unlike micro-enterprises, there is no revenue cap for sole proprietorships.

How Does Business Closure Work?

Closing a sole proprietorship requires filing a business termination declaration and settling any outstanding tax and social security obligations.