DANIEL ARTHUR LAPRES
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ENTREPRENEURSHIP IN FRANCE
In opening a commercial business in France, the legal formalities can be accomplished in just a few days.
What is often more time-consuming is the determination of the appropriate legal structure as a function of the financial plan.
Especially for foreigners seeking to set up a business in France, it is important to pay attention to the financial aspects of projects as they are subject to review regarding their prospects of success. If the documentation filed with the authorities is not professional and persuasive, then the immigration application is likely to fail with the business proposal. Accordingly, it is important to prepare a business plan including financial projections that are realistic and show the project to be financially sound.
We provide our clients with
assistance in negotiating their financial planning to determine how much
capital to invest, whether to invest as equity or as debt, how to apportion
the capital, procedures regarding capital contributions of intellectual
property and other assets, use of financial instruments such as options.
We assist our clients in the preparation of the plan and upon its adoption
in the formalization of the arrangements , in particular by drafting the
relevant legal agreements such as company bylaws and corporate resolutions,
shareholder agreements, financial contracts (such as loans, mortgages,
guarantees, shareholder agreements, leases) and commercial agreements (such
as supply, distribution, licenses).
The principal source of commercial law in France is the Code de Commerce. It defines who is a merchant and what acts constitute acts of commerce (Book I), it provides the legal framework for the creation and operation of companies and economic interest groups (Book II), regulates the use of exclusivity clauses and other forms of anti-competitive acts (Book III), defines and protects liberty of prices and competition (Book IV), provides a framework for bills of exchange and secured interests (Book V), and for the organization of commerce (Book VI), and it regulates certain professions (Book VIII), as well as contains a final section relating to the Overseas territories and departments (Book IX). (Detailed table of contents) .. The full text of the Code de Commerce may be found at www.legifrance.com.
As a general rule, persons intending to buy and sell goods or services will be considered as merchants. Acts carried out in connection with their businesses will be considered as acts of commerce.
Persons intending to carry on
commercial activities must register with their local Registre de Commerce
et des Sociétés (Trade Registry). It should be noted that
persons carrying on liberal professions do not register with the Registre
French law affords a wide variety of business organizations or forms through which to carry on commercial activities. For most practical purposes, French companies can be made to function like their counterparts in other major developed countries. One can set up as a sole proprietorship (as a "travailleur indépendant"), or as a single person company ("entreprise unipersonnelle à responsabilité limitée").
But business people will often prefer to launch businesses through limited liability companies. The main alternatives are the closed company ("société à responsabilité limitée") and the public corporation ("société anonyme"). The former will be preferred by most entrepreneurs. For foreign corporations, the choice of a local corporate vehicle will depend on a variety of considerations (expected size of the activity in France, closeness of the ties between the headquarters and the French unit, taxation). Most recently, a new form of company has been introduced into French law: the "société par actions simplifiée" which attracts in particular start-ups targeting an early initial public offering and international corporations establishing subsidiaries in France.
French law also recognizes various forms of partnerships: general partnerships ("société en nom collectif"), limited partnerships ("société en commandite") and limited partnerships with publicly distributed equity participations ("société encommandite par actions"). These forms of partnership can be made to work much like their equivalent in other developed countries. Their main features are the unlimited liability of the general partners for partnership debts and their fiscal transparency.
A variety of "civil" company
forms are available and find useful applications for instance in the real
estate sector and the liberal professions.
There are two main types of commercial leases: 23-month leases and 3-6-9-year leases, so called because of the importance of their triannual anniversary dates for the rights of the tenant. In principle 3-6-9 year leases invest the lessee with certain rights akin to property including the right to transfer the lease interest and the right to be indemnified if evicted at the expiration of the lease. Traditionally, the 3-6-9 year leases were associated with relatively large capital payments (key money) to the prior tenant and/or the owner and correspondingly small rental payments. The current difficulties experienced by French retailers, and the over-supply of offices have created a buyer's market in which contracts are increasingly negotiated to the advantage of the tenant. With increasing frequency, landlords are granting so-called American leases (no key money but higher rents). Even more than other areas of French law, commercial leases are complicated and elementary prudence will cause most foreign business people to consult a specialist before signing such contracts.
The text of the decree of 1953 which governs commercial leases is reproduced in the attachment below:
Décret n°53-960 du 30 septembre 1953 réglant les rapports entre bailleurs et locataires en ce qui concerne le renouvellement des baux à loyer d'immeubles ou de locaux à usage commercial, industriel ou artisanal.
SALES OF BUSINESSES
The Code de Commerce provides a number of rules governing the conditions in which businesses ("fonds de commerce") are transferred, such as those relating to its publicity, its registration and the secured interests affecting the "fonds". These transactions are very technical and it is recommended that one should always seek legal advice in carrying them out.
For instance, any sale of a business must be registered within 15 days of its signature lest it be considered without effect.
The Code de Commerce provides that exclusivity clauses by which the buyer, the licensee or the lessee of moveable property undertakes vis-à-vis his sellor, licensor or lessor not to use similar or complementary objects from other suppliers.
Anyone granting a licence to
a trade name, a trademark or a brand subject to an exclusivity or quasi-exclusivity
in the conduct of its business must produce before the signature of the
agreement a document containing sincere information putting him in a position
to make an informed decision. The document will contain in particular how
long the licensor has been in business, and his experience, the state and
the outlook for development of the market in question, the terms, the conditions
of renewal, of rescision and of transfer of the contract as well as the
scope of the exclusivity.
French law is modeled after European Union rules on the subject. But French law applies to behavior within the French market where a European Union law applies to actions with Community-scale impact.
French law prohibits concerted practices, agreements, understandings whether express or implicit as well as coalitions where their effect or purpose is to restrain or distort trade such as by limiting market access or freedom of activity of other businesses, creating obstacles to the free determination of prices by artificially favoring their rises or fall, limiting or controlling production, market outlets, investments or technical progress, or allocation of markets or sources of supply.
French law also prohibits abuses of dominant positions such as by refusals to sell, discriminatory sales practices or cancellation of commercial relations for refusal to submit to un justified commercial terms.
Prohibited practices will be considered void. Wrongdoers are liable to imprisonment for up to 4 years as well as fines of Euros 75,000.
Exceptions are provided where:
- there arise from the otherwise illegal situations economic progress (such as through maintenance of jobs) and where users get a fair share of the benefits provided that there will in no event be a risk of eliminating competition for a substantial part of the relevant market, or
- where their purposes is to improve the management of small or medium sized businesses in accordance with conditions set down by decree of the Conseil de la Concurrence.
Offers of sale and pricing practices vis-à-vis consumers which are abusive having regard to their costs of production and which are intended to cause or cause to prevent the entry of another firm onto the market. Sales below cost are prohibited in the ordinary course of trade.
The Tribunal de Commerce is competent for deciding disputes among merchants.
Consumers may bring actions before the Tribunal de Commerce or the Tribunal de Grande Instance or d'Instance depending on the size of the claim.
Consumer rights are protected in particular under the terms of the Code de la Consommation. (Detailed table of contents)
Merchants are placed under a general obligation to properly inform consumers and are protected against abusive pricing practices. The Code prohibits abuses of consumers such as through deceptive advertising or "snowballing" consumer credit.
Sellors are liable for latent defects which render the products unfit for their intended uses or which so diminish its quality that the buyer would not knowingly have concluded the purchase. But the sellor is not liable for defects which were apparent at the time of the sale.
In the event of such defects, consumers may return the product or obtain a refund for such amount as may be decided by expert opinion. If the object has disappeared, then the sellor may be obliged to return the price.
If the sellor was aware of the defect then it may be held liable for damages.
Losses of the product due to fortuitous events are borne by the buyer.
Lawsuits based on these provisions must be brought in a brief delay.
Merchants who attempt to deceive or who deceive consumers by whatever means about the nature, the kind, the origin, the substantial qualities, the composition or the content in useful principles, the quantity of the goods delivered or the fitness for use or the risks inherent in the use of the product, its manner of use or the precautions to be taken may be liable to imprisonment for up to 2 years and a fine of up to Euros 37,500.
Consumers are also protected with respect to credit for purchase of consumer goods and real estate. In particular, such contracts should contain a statement of the "effective global rate of interest". This rate is calculated by adding to the nominal (contractual ) rate of interest all charges, commissions and remunerations, whether direct or indirect, including those paid to intermediaries even where such amounts correspond to actual disbursements.
Loans contracted at effective global rates of interest which at the time of the contract were in excess of the average effective rate in effect during the prior quarter for operations of a similar nature by more than one third are considered to be usurious. In the event of successful pursuit of a lender by a borrower, the amount of the loan will be adjusted to the reference rate and reimbursements may be ordered. Also the lender is subject to imprisonment for up to two years and to a fine of up to Euros 45,000.
In addition to victimized consumers,
public authorities such as the police and also non-for-profit associations
dedicated to the protection of consumer interests may initiate actions.
INTERNATIONAL TRADE LAW
France is party to the major conventions affecting international trade, in particular:
Convention on Contracts for the International Sale of Goods
UN Convention on the Carriage of Goods (1978), the Hamburg Rules
Convention on the recognition and Enforcement of Foreign Arbitral Awards
French banks in general apply the the Uniform Customs and Practice for Documentary Credits (UCP 600) defined by the International Chamber of Commerce (ICC).
French courts will apply choice of law and choice
of jurisdiction clauses as well as arbitration clauses in international
HOW TO COLECT UNPAID BILLS
Claims against French debtors can be brought before the French courts. In doing so, the foreign plaintiff should definitely seek counsel from a French lawyer.
Claims against French debtors will often also be subject to jurisdiction of the courts of the country of the plaintiff. In such cases, the question will be whether judgments of the foreigner's court can be enforced with reasonable expediency in France. The answer is affirmative provided the court having pronounced the judgment respected the elementary rules of procedural justice (notice to the defendant, right to be heard, impartiality of the judges) and provided also the foreign judgment is not contrary to French public policy.
The successful pursuit of claims against merchants
can actually be quite expeditious in France where there is no serious defense
against the claim. Against merchant debtors there is a procedure which
does not involve any court appearance (and so is affordable even for relatively
small claims). Provided the defendant does not dispute the claim, the delay
for recovery can be as short as two or three months from the date of initiation
of the procedure. Spurious defences are discouraged by charging to the
abusive defendant an increased award of compensation.
DANIEL ARTHUR LAPRES
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