Companies are reporting significant barriers to trade following Brexit. Media reports point to excessive red tape, delays and other restrictions, which continue to cause significant challenges.
As a result, many businesses are considering opening up a French branch office or subsidiary. France is one of the quickest countries in which to set up a branch or subsidiary and establish an EU presence.
Having a presence in France can have huge benefits for businesses, reducing red tape and removing some of the barriers to trade with the EU, brought about by Brexit. This article will help you understand what is involved.
Yes, there are many benefits, but it is important to understand which of the two will work best for your business. Branches and subsidiaries are not synonymous and there are distinctions between them.
A branch is not a newly created legal entity and has no legal personality distinct from that of the company in the UK. This greatly speeds up the process, as there is no need to draft statutes, designate managers, open a bank account or incorporate a new entity.
As the focus is on the UK entity, businesses will need to provide copies of various official documents, for example their Memorandum, Articles of Association, certificate of corporation and certified French translations of all documents. There are also certain French formalities that must be observed, including:
- Filling in and sending a form to the local Centre des Formalités des Entreprises
- Various other formalities, in particular relating to the Commercial Court Registry (similar to Britain’s Companies House)
- Publishing the branch’s establishment in a journal of legal announcements.
The other main task will be to find premises. Help is available from the local Chamber of Commerce, and it is also possible to find discounted premises through organisations such as pepinières d’entreprises, or ‘business incubators’, which help newly formed companies with technical and financial support, in addition to professional advice and services.
Typically, a commercial lease must be signed with the owner of the premises. It is very strongly recommended that you seek specialist legal advice for this step, as such leases must comply with very specific rules set out in the French Code of Commerce. These rules can be something of a minefield and are specific to commercial leases – they do not apply to residential property leases, for example.
Yes, a branch office is allowed to have employees. However, since the branch does not have a legal personality, the employer is the UK company and employees are thus treated as ‘seconded’. Contracts of employment, even if they are based on an English framework, must be adapted to comply with French legal requirements. For example, French law contains a range of ‘public order rules’, i.e. mandatory rules which cannot be contracted out of.
However, secondment can only be used temporarily (12 months, although this may be renewable under certain conditions, depending on the treaties in place between the countries involved). Thereafter, businesses must comply with French employment law and social security responsibilities. It is very useful to use the secondment scheme to start with, as the employee remains attached to his or her UK employer for everything, including social security rights and obligations.
Where the seconded employee is not sent to work in a third party company but simply works for his UK employer from France, then you won’t even need to make a preliminary declaration to the French authorities.
The only recommendation with which we recommend businesses comply from the outset is to pay the employee a salary at least equivalent to what a French employee would receive for a similar job, in addition to providing the same employee benefits that a French employee would expect – for example, the bonus most employers pay in December (known as the 13 month’s salary) – as per the principles of secondment. This is because you will need to comply with French employment and social security laws anyway after 12 months.
In contrast with a branch, a subsidiary is a separate legal entity that is owned by another company, often referred to as the ‘parent company’. Despite the parent company having a controlling interest in the subsidiary, it has its own legal personality and is therefore subject to the laws of the country in which is incorporated and operational.
Some UK companies may prefer to make a stronger move straight away and create a subsidiary in France with its own legal personality. This can be done from the outset, or you can create a branch first and turn it into a subsidiary later. Setting up a subsidiary involves considerably more paperwork and costs more than establishing a branch. You will have to:
- Draft the company’s statutes
- Open a corporate bank account in France
- Enter into a lease agreement
- Appoint an accountant
- Designate managers
- Incorporate your business.
However, it is still a relatively straightforward process and may be more suited to some companies, depending on their size, business model and strategies.
French law offers a wide choice of company types, from a one-shareholder company (Entreprise Unipersonelle à Responsabilité Limitée, or EURL) to a company with no president or board of directors (Société Anonyme Simplifiée, or SAS), to the French equivalents of a limited company and PLC (Société à Responsabilité Limitée, or SARL and Société Anonyme, or SA), to name but a few. You can also choose from a range of different tax regimes.
We can assist you in accomplishing the above steps, with the assistance of a firm of English-speaking French accountants, where needed.
Due to Brexit, many French companies who were previously content to enjoy an informal relationship with British businesses are now keen to formalise their relationship. Many want to sign agreements which are expressly subject to French contract law and under the exclusive jurisdiction of the French Courts in the event of disputes. This likely stems from a certain mistrust and lack of understanding of the UK’s post-Brexit laws.
France has a dualist system, where commercial law has developed separately and in parallel to ordinary civil law. English law, on the other hand, has a single legal system.
Although French law can seem strict and heavily regulated, its commercial system is by contrast flexible, pragmatic and geared towards efficiency. In recent years, it has undergone a series of reforms that have made it more difficult to breach contractual obligations, as well as promoting contractual certainty, fairness, and the ability to suspend contracts in certain circumstances.
For example, French commercial law places emphasis on:
- Duty to inform during negotiations – parties are obliged to disclose information that could be a deciding factor in the other parties’ willingness to enter into a contract. All information is protected by confidentiality clauses or non-disclosure agreements.
- Abuse of dependency – if a contract is deemed unfair because it was only entered into due to a severe imbalance between the parties’ bargaining powers, this could render the contract void.
- Unilateral price setting – with regards to framework contracts, French law now allows for prices to be set unilaterally by one of the parties – although they must be able to justify the price they have set. If the party abuses this power, the contract may be terminated by a Court.
- Imprévision – this is a clause providing for the possibility of contract renegotiation in the event of a drastic or unexpected change of circumstances.
- Unilateral right of termination – contracts with no end date are illegal in French law, so either party has the right to terminate a contract with no completion date at any time, without notice. A party can also terminate the contract if the other party has made a significant breach of contract, without notice in an emergency. A Judge can assess the gravity of the breach or, alternatively, the contract will have a clause listing the types of breach that may result in termination.
- Breach of contract – where a party has breached a contractual obligation it is possible for the other party to demand they perform that obligation rather than accept compensation.
- Suspension of contractual obligations – a party has the right to suspend the performance of its contractual obligations if the other party has failed to perform theirs. It is also possible for one party to unilaterally suspend the performance of its obligations where the other party is likely to fail in the performance of theirs.
- Unilateral price reduction – a party is permitted to reduce the price they have paid for goods or services, without the Court’s permission, if the other party has only partly or insufficiently performed its contractual obligations.
When a dispute cannot be resolved amicably or by way of arbitration, it must be settled in the French Courts. In France, commercial disputes are dealt with by specialised jurisdictions dealing only with commercial cases (called Tribunaux de Commerce), unlike in England where they are dealt with by a specific division of the High Court.
These Courts have their own rules relating to the appointment of Judges (who are themselves business professionals) and procedure - which is based on efficiency, speed and the ability to obtain summary hearings in an emergency – at the Judge’s own home if necessary!
Taking a commercial case to a French Court costs a fraction of the price of the English equivalent, as the justice system is subsidised by the French state. The Paris Commercial Court (or Tribunal de Commerce de Paris) even has an international division comprising 10 English-speaking Judges who specialise in international trade issues. They are able to deal with cases where elements of overseas law may have to be considered.
Brexit has created a new environment to which firms must adapt if they are involved in international trade. This must be done in partnership with legal experts who have a full understanding of French commercial law.
We can guide you through the process of setting up a branch or subsidiary in France in compliance with the relevant laws, ensuring your venture is a success.
Our specialist French Avocat is available to advise you on all matters relating to French commercial law. Call us today.