Status of Individual Entrepreneurs in France: Legal, Tax, and Social Overview

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A reformed framework now applies to anyone establishing a sole proprietorship in France. This system introduces a clear distinction between professional and personal assets, enhancing protection for business owners while simplifying procedures.

This reform also brings the gradual discontinuation of the former limited liability status for individual entrepreneurs (EIRL). Since February 15, 2022, new EIRL registrations are no longer permitted.

This article explores:

  • The legal structure of the individual business

  • Tax and social contribution rules

  • Key operations relating to this type of business

I. Legal Structure

Separation of Assets

The core feature of this new status is the automatic separation between business and personal property. Unlike the old EIRL regime, this separation is now granted by default, requiring no formal declaration from the entrepreneur.

What Constitutes Professional Property

Assets considered part of the professional domain include all property, rights, obligations, and guarantees used for self-employed business activities. These may include:

  • Commercial goodwill, craft licenses, farming rights, and related intangible and tangible assets

  • Business tools, inventory, vehicles used professionally

  • Real estate used partly or fully for business purposes, including sections of a primary residence

  • Intellectual property like client databases, trademarks, patents, licenses, designs, and trade names

  • Cash reserves and accounts used for business purposes

Personal Assets

These consist of everything not designated for professional use, such as private property, household items, personal loans, and any portion of the residence not used for business purposes.

Protection Against Creditors

As of May 15, 2022, creditors can only claim against the business assets for business-related debts. This protection begins when:

  • The entrepreneur is registered in a professional register

  • The activity is declared, even if registration is not required

  • The first business act is carried out

Exceptions and Waivers

In certain cases, an entrepreneur can waive asset protection—usually at the request of a creditor—after a cooling-off period of 7 days. This exposes both personal and professional assets, except those exempted by law.

Tax Authority Exceptions

The tax office may still seize protected assets if the entrepreneur has engaged in fraud or has seriously and repeatedly failed to meet tax obligations. This includes income tax and contributions related to professional income, or property tax on business-related assets.

Social Contribution Enforcement

Social security agencies may also claim personal assets if there is deliberate misconduct or repeated failure to comply with payment obligations under social laws.

Personal Creditors

When personal assets are insufficient, creditors may recover their debts from business assets, up to the value of the most recently reported annual profit.

Required Business Labeling

The entrepreneur must clearly identify their business status in all official communications. The legal name or alias must be followed by the label “individual entrepreneur” or its abbreviation. This applies to invoices, contracts, websites, and promotional materials.

II. Tax and Social Contribution Rules

Income Tax Framework

Profits from the business are generally taxed under personal income tax, based on the nature of the activity (industrial, commercial, liberal, or agricultural).

However, the entrepreneur may opt to be taxed under the corporate income tax system.

Option for Business Assimilation

Entrepreneurs can choose to have their business treated similarly to a single-member limited liability company (EURL) or agricultural equivalent (EARL). This election is permanent and includes automatic corporate tax liability.

That said, a return to income tax is allowed within five financial years, although the legal classification as an EURL/ EARL equivalent remains in place.

Under this framework:

  • Personal withdrawals (remuneration) are tax-deductible and treated like wages

  • Other withdrawals are seen as dividends and are not deductible

Social Contributions

Entrepreneurs are covered by the self-employed social protection system and do not receive payslips. Social contributions depend on the business’s taxable profit or, for those under the corporate tax regime, on remuneration and certain dividends.

Micro-entrepreneurs contribute based on their actual turnover.

Unemployment insurance is not automatic, but private insurance is available for income protection.

III. Business Operations and Transitions

Creating a Sole Proprietorship

Setting up a sole business remains straightforward: registration is done through relevant chambers depending on the business type (commercial, craft, or liberal).
As of January 1, 2023, all procedures—creation, modification, closure—must be conducted online via a centralized platform.

Asset Transfers

From Personal to Business Use (Unincorporated)

Transferring personal assets into the professional sphere does not count as a taxable sale. Upon eventual resale, both a personal and a professional capital gain may apply, calculated based on their respective ownership periods.

For Assimilated Businesses (EURL/EARL)

Transferring business-use property into an assimilated business structure is not treated as a sale. However, transferring other property is considered a contribution, and any gain is taxed according to individual capital gains rules—potentially eligible for exemptions.

Full Assimilation and Tax Impacts

Opting for business assimilation triggers a legal and tax shift:

  • Assets are considered transferred to a separate legal entity

  • The original business is legally closed

  • Unrealized profits, deferred gains, and provisions become taxable

  • Final profits and liquidation bonuses (if applicable) may be taxed as capital income

Business Closure

Closing a sole business that has not opted for assimilation leads to immediate taxation of all profits, deferred gains, and remaining business assets.
If the business is assimilated (EURL/EARL), its closure has the same legal consequences as winding up a company, including taxation of the liquidation proceeds.