Mini Legal Guide To Starting a Business in Francesynkro-consulting.comtransatlantic-lawyer.comRSC-avocats.com

1© 2016 Synkro Consulting & Stéphane Grynwajc. Tous droits réservés

“Synkro Consulting assists startups to expand internationally. Our activities lead us to meet on daily basis passionate founders who enquire about the best

approach for doing business in foreign countries. In order to help entrepreneurs and startups think through the right questions in connection with their international development plans we have produced this mini legal guide.

We hope you will enjoy reading this document and that you will, as a result, gain a clearer vision of what issues to consider before starting a business in France.

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Introduction

With over 500 million consumers, the E.U. and its 28 Member States is the world's largest market economy. France’s economy is itself the 5th largest economy in the world and represents around ⅕ of the Eurozone’s GDP. France is ranked #1 among European countries for venture capital investments. Its pivotal location on the European continent also makes it a perfect springboard for companies looking to expand in other countries of the E.U.

Are you a startup looking to expand into France and the E.U.? Our lawyer, Stephan Grynwajc, a U.S.-based member of the French bar who specializes in advising U.S. and Canada-based startups and SMEs in their European operations, outlines some of the key differentiators of the French market for startups, and deciphers the legal and regulatory landscape associated with doing business in France.

The objective of this mini-guide, which was produced in cooperation with Caroline Sandler-Rosental, a Paris-based lawyer and business partner, is to assists foreign-based entrepreneurs and startups in preparing their strategy for expanding into the French and European market. It outlines in an objective and practical manner some of the challenges and the many opportunities associated with doing business in France, helping its readers adapt their growth strategy to minimize risk while optimizing their business prospects.

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The French TechOver the past 3 to 5 years, France has put considerable energy and made substantial financial investment in cultivating and growing a strong national and regional startup ecosystem. This focused and high paced initiative, fueled by the combined efforts of industry accelerators, national and regional incubators, and public and private, sector-specific, investors, capitalizes on the creativity of a new generation of savvy entrepreneurs.

In each of the last 2 years more than 1,000 new startups have emerged, mostly in the technology sector - the renowned "French Tech". This unprecedented growth has benefited from the government accreditation granted to French cities particularly active in the promotion of a startup-friendly environment.

Under the “French Tech” label, French technology startups have built a common brand and gained a strong reputation in France and overseas.

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The biggest infrastructures hosting innovative enterprises

Paris is a breeding ground for startups. Station F, scheduled to open in the beginning of 2017, will be the biggest startup campus in the world, serving as home to 1,000 startups. It will surpass the current record holder, the French giant Le Cargo, currently the biggest incubator in Europe with 161,459 sq. ft of business and industrial space.

An R&D friendly environment

The French R&D ecosystem benefits from strong French public institutions for research, which are ranked among the most innovative public institutions for research in the world. In addition, there is a broad network of 71 innovation clusters based all over the country, where large and small businesses can collaborate with research bodies to develop innovative projects in a highly stimulating environment; and let’s not forget the unrivaled R&D and innovation-related tax breaks!

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The first country in the E.U for venture capital investment

France is ranked #1 in the E.U. for venture capital investments (data Business France); and, according to the EY French venture capital Barometer for 2015, slightly more than € 1.8 billion were invested in 484 start-ups, more than double the amount invested in 2014.

Innovative enterprises are also bolstered by strong public investments. Bpi France, France’s public investment bank, assists French companies of all sizes by providing diverse loans and loan guarantees to banks lending money to startups. The French Tech Ticket and the Yei (Young Enterprise Initiative) Start in France, two programs created in partnership with the government, support international startups. Yei Start in France is an accelerator program organized by the French Embassy in the U.S. It helps innovative entrepreneurs expand their business in France and in Europe.

The French Tech ticket is a six-month program organized by the French Tech and offering financial support and training to foreign entrepreneurs, from creation to growth. It helps entrepreneurs from all over the world by granting €45,000 per winning team, a fast-track procedure to obtain French resident permits and by providing a number of additional benefits for companies looking to set up business in France.

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3 WAYS OF DOING BUSINESS IN FRANCE

There are many ways for a foreign entrepreneur to enter the market in France. Much depends on your goals and the degree of maturity of your business. You can enter the market without a physical presence, through the use of intermediaries or via the creation of a new business.

If you have little or no experience of the French market, a first and more cautious approach would be to leverage your company's website to advertise, market and promote your products and services to a French clientele, or to enlist the help of an intermediary who would serve as a point of contact for you in the French market.

The intermediary could demo your products or services, and contact initial client prospects. After having "tested the waters" and having developed a number of "reference" clients in the market, you could then make an informed decision to set up a local branch or a subsidiary of your company.

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Option 1: Enter the French market without a physical presence

Small to medium-sized companies seeking a cost effective option to enter the French market may consider targeting France-based customers through their website, purchasing a new domain name in France or setting up a subdomain within a main website. The subdomain operates like a second website and can feature different content than the main site.

Your website can be an excellent tool for the purposes of commercial intelligence and advertising provided that it complies with the specific rules that prevent untruthful or deceptive advertising and protect customers by informing them of the names of the website owner and hosting provider, and describing the essential characteristics of your products and services.

Using web analytics, such as Google Analytics, may also allow you to obtain site visit statistics and measure the attractiveness of your business to French customers.

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Option 2: Enter the French market through the use of intermediariesSeveral options are available depending on whether you want to simply test the market for future business opportunities or whether you wish to develop a commercial operation from the outset.

Setting up a representative office can be an excellent preliminary option. Even though the representative office has no legal entity and is not entitled to participate in any type of commercial activities, it can be used to promote your business, seek potential clients and collect information about the French market.

Please note that the individual representing the foreign entrepreneur through the representative office must be a national from the E.U. or from a member state of the OECD or any other country having a reciprocity agreement with France.

Another way of doing business without setting up a physical presence in your own name in France is to leverage the services of a business referrer to seek intermediaries or discover potential customers and connect them to you. If you decide to go down that route make sure you enter into a written agreement that specifies the referrer's role and the scope of his engagement on a temporary and non-exclusive basis, and which is drafted in such way as to avoid a situation in which the relationship would be treated as a commercial principal-agent relationship, which is highly regulated under French and European law.

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Option 3: Setting up a business

Entrepreneurs with more experience in the French market or whose business model in their country of origin is more mature, may consider setting up a branch or a subsidiary company as a vehicle to conduct commercial operations in France.

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1.CORPORATE LAW

Immigration rules

Please note that a non-EU national cannot operate a business in France unless they have first obtained a business permit.

On a personal level, foreign company directors or entrepreneurs who wish to relocate to France can choose between two main categories of residence permits: the “Skills and Talent” card or the “Exceptional Economic Contribution” residence permit.

People who are likely to make a significant contribution to France's economic development or prestige may be eligible for a three-year "Skills and Talent" card visa. Family members will be issued a "Vie privée et familiale" card allowing them to legally work in France.

People who plan to create or save at least 50 jobs in France or wish to invest over €10 million in France can obtain a ten-year “Exceptional Economic Contribution” residence permit.

Spouses are also granted a 10-year residence permit.

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Choice of a legal structure

It is important to choose the legal structure that is most appropriate to your business strategy. The most common legal entity structures in France are limited liability companies, in which the shareholders' liability is limited to the amount of their contribution to the capital of the company.

The main types of limited liability companies are:

The SA ("Société Anonyme");The SAS ("Société par Actions Simplifiée") ;The SARL ("Société à Responsabilité Limitée").

SAS and SARL entities can be formed with a single partner and there is no minimum capital requirement, whereas 7 partners are required for an SA with a minimum capital requirement of € 37.000. The bylaws of SARL and SA entities must strictly adhere to the provisions of the French Commercial Code, whereas the SAS offers greater flexibility in terms of internal organization.

Regardless of the chosen form of legal entity, a non-EEA national must obtain a specific authorization to serve as managing director.

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Focus on the S.A.S

The SAS is the most convenient and therefore the most common form of legal structure for innovative companies in that it gives the greatest freedom to the shareholders in determining the company's rules of internal organization and in drafting the articles of incorporation in such way as to facilitate onboarding new investors.

Shareholders are free to determine the rules governing the internal organization of the company, e.g., the decision-making process, the convening of shareholders’ meetings, the power of the managing bodies, the transfer of shares etc. The SAS also offers some tax benefits: within the first 5 years of the company the shareholders can elect to be subject to income tax, which can be an attractive alternative to corporate tax when the company operates at a loss.

But this doesn't mean shareholders have an absolute freedom in drafting the articles of incorporation. The French Commercial Code also contains a number of mandatory rules for SAS entities. It is therefore advisable that you seek out the advice of corporate counsel in connection with the drafting of your articles of incorporation.

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2. Labor and Employment Law

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Immigration rules

You don't need to have a legal entity in France to be able to hire non-E.U. or non-E.E.A. nationals, provided these employees can demonstrate having a work/residence permit.

There are 3 main categories of residence permit for employees:

The "European Union blue card", which is a EU-wide residence permit for highly skilled employees. The employee's employment contract must be for a minimum period of 1 and a half years and the individual must earn a salary of at least 1.5 times the average gross annual salary of the company's employees.

The "Employee on assignment resident permit", which is a 3-year residence permit for employees benefiting from intra-group transfers.

The long-stay visas authorizing paid employment.

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The New French Labor Law

A new labor law was adopted in August 2016, with the objective of improving French companies’ competitiveness in the marketplace and encouraging and facilitating employment.

The main changes brought in by the new labor law include the possibility of increasing the number of work hours by mutual consent of the employer and the employee and a relaxation of the criteria allowing an employer to dismiss employees for economic reasons.

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Employment Contracts

There are 2 main categories of employment contracts under French law:

The open-ended contract, or CDI ("Contrat à Durée Indeterminée")The fixed-term contract, or CDD ("Contrat à Durée Déterminée")

As a general rule, there is a fair amount of flexibility allowed in determining the content of employment contracts, provided they do not violate the French Labor Code or any collective bargaining agreements.

Employment contracts in France are, by default, open-ended contracts. In strictly limited cases specifically enumerated by law (replacement of an employee, employees hired for seasonal work, temporary increase of activity) an employment contract may be signed for a fixed term. Fixed-term contracts cannot be used on a long-term basis for jobs related to the company’s regular activity.

Although French law only requires fixed-term contract to be in writing, open-ended contracts are usually in writing as well. Please note that employments contracts must, by law, be in the French language. Although you can always provide a bilingual version of the contract, the French version shall be deemed to prevail in case of a dispute.

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Termination

It isn't a legend. Despite some recent amendments in the law intended to facilitate the dismissal of employees, French labor law does provide a fair amount of protection for employees.

There is no such thing as "at will" employment in France. Employees cannot be dismissed by an employer at any time and for any reason. To dismiss an employee the employer must establish genuine and serious reasons for the termination, based on a limited list of "legal" grounds for dismissal.

The dismissal can be for a personal or an economic reason.

Conversely, as long as they respect the notice period under the contract, employees can resign without having to provide any explanation.

The employment relationship may also be terminated by mutual consent.

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Declaration of Employment

Employers in France must declare their employees to the competent authority - namely URSSAF - through a declaration of employment ("Déclaration unique d’embauche").

This declaration must be submitted no later than 8 days before the employee is due to start work. URSSAF also collects the social security contributions paid by employees and employers in order to finance the French social security system.

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3. TAX & CREDIT DEDUCTIONS

The French tax system provides a wide range of tax credits and deductions to promote competitiveness and investment. Foreign investors who need information about taxation can refer to Tax4Business, a tax helpdesk providing multilingual tax-related information directly tailored to investors' needs.

R&D and innovation tax credits, and the Young Innovative Company status

If you decide to set up a legal entity in France, you may become eligible for a number of important subsidies and tax refunds on account of expenses incurred to fund your investment in R&D and innovation.

The Research Tax Credit (RTC) is the touchstone of the R&D ecosystem. Any company, whether or not it is subject to corporate or income tax in France, is eligible for the RTC for its R&D-related expenses in science, technology or software and computing.

The RTC takes the form of a tax break covering 30% of annual R&D expenses up to € 100 million, and 5% above this threshold, whether these are amortization expenses, operating expenditures, expenses related to intellectual property protection or R&D staff-related expenditures.

Another mechanism benefiting SMEs (i.e. companies with less than 250 employees and an annual turnover of less than € 50 million or balance sheet totaling less than € 43 million) is the Innovation Tax Credit for innovation-related expenses outside R&D, such as prototype design activities and pilot plants for new products. The Innovation Tax Credit provides for a tax break covering 20% of annual innovation expenses, up to € 400.000.

In addition, young innovative companies ("Jeunes Entreprises Innovantes", or JEIs) are eligible to receive a tax credit on corporate taxes, local taxes and social security contributions for the first 8 years of operation. Eligible companies are small and medium-sized enterprises under 8 years old with a minimal amount of research expenditures, totally independent from another company and created from scratch.

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Other tax credits and deductions

Just to name a few:

The "Crédit d'impôt pour la compétitivité et l'emploi" (competitiveness and employment tax credit) (CICE) provides for tax savings worth 6% of gross payroll costs in 2016. However, salaries greater than 2.5 times the national minimum wages are excluded;

Revenues from the exploitation of intellectual property rights benefit from a reduced corporate tax rate of 15%.

Beginning in 2017, the French corporation tax rate will be lowered from 33% to 28% by 2020 for SMEs.

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1. Droit des Sociétés

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4. Intellectual Property

Intellectual Property rights are territorial

Before you make the decision to do business in France it is advisable that you ensure you have the necessary IP rights and licenses to operate in the market.

IP rights are territorial by nature, which means that patents, trademarks, copyright and licenses you may have acquired in your country of origin will not protect you for your operations in France unless you have secured the right to exploit your IP in France by way of international filings or by national extensions of your foreign rights. In France, the process for registering your rights is centralized and can be done online with the INPI ("Institut National de la Propriété Intellectuelle"), the French patent and trademark office.

Please note that if you seek to obtain protection in several member states of the E.U. you need not apply for protection in each country, as member states of the E.U, including France, have adopted a legal framework that facilitates the protection of Intellectual Property rights within the E.U.

Although software is explicitly excluded from patentability in France, it can be protected by copyright. Furthermore, you can register your software with the Agency for the Protection of Computer Programs, or APP, which can be useful as a proof of ownership to enforce any alleged violation of your rights. The same applies to databases, which attract a specific additional protection under French and E.U. law.

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Intellectual Property agreements

If you consider hiring software developers in France, you should be aware that the general rule under French law which states that absent a contractual provision to the contrary, IP rights in copyrighted work created by employees vest in employees, does not apply to software development personnel. In these cases, the employer is the rightful owner of the IP rights in any software developed by his employees.

Therefore you do not need to obtain the IP rights by way of an IP assignment clause in your employment contracts with software development staff.

However, you will need to include the IP assignment clause in any agreements with independent contractors you hire to perform development work.

Please note that warranties of IP non-infringement are, under French law, a matter of statutory law. They cannot be excluded by contract and any such exclusion clauses would be deemed unenforceable in case of a dispute.

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5. THE FRENCH LEGISLATION

Requires the use of the French languageIt may seem like stating the obvious but doing business in France, with or without a physical presence in the country, implies complying with French laws and regulations.

If you are operating a website from which you make your products and services accessible to French consumers, even if this website is hosted outside of France and you don't have any entity or personnel in France, the expectation is nonetheless that you comply with French laws.

Complying with the law means your contracts and online terms of use, privacy policies, and product and services documentation need to be translated into French and localized to French legal requirements.

As odd as this may sound, as of 1994 there is a law in force on the use of the French language in business, which law requires legal notices, advertising and presentation of goods and services to be translated in French, and therefore all the commercial and legal materials related to your business should (particularly if you’re targeting consumers) be translated into and be available in French.

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Ensures strong protection for consumers

If you operate a commercial website that is to be accessible by consumers from France, your website terms and conditions of sale and/or terms of use will need to be adapted to comply with the French law on consumer protection, and in particular be in the French language

For example, your terms of sale will need to include a cancellation period that cannot be less than 14 days, state the latest possible delivery or performance date and specify the repayment deadline be should the consumer cancel their purchase.

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Provides for specific rules regarding electronic communications

Your website terms of use cannot exclude or limit your liability with respect to illegal contents. The French "law on confidence in the digital economy" provides for 2 different liability regimes for website publishers and hosting providers. Website publishers, who have prior control over the contents that are published, are fully and entirely responsible for the information posted on their website, whereas hosting providers, who do not have prior control over the contents hosted, enjoy a limited responsibility. Hosting providers will not be liable for illegal contents unless they had been given notice of these contents and did not act promptly to remove or disable access to such information.

Under the same law, website publishers also have an obligation to publish a legal notice on their website with their name, address, etc., in order for visitors to be able to identify who is responsible for the contents posted on the website.

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Protects personal data

This should not come as a surprise, but data protection laws in France and in Europe in general are particularly stringent. France has some of the oldest and most comprehensive pieces of legislation in this area. This legislation overseen by the CNIL, the French privacy watchdog, requires a complicated system of declarations to be made or authorizations to be obtained prior to any collection of personal data of individuals.

In addition, notice and consent ("opt in") from individuals whose data is being collected and used is also required. IP addresses are considered personal data under the law and as such, most if not all, websites that are accessible from France will engage in some form of processing of personal data of French residents thereby requiring the website operator to comply with the French law on data protection.

It is therefore essential to obtain the assistance of French privacy counsel in connection with the operation of your website for the purposes of promoting, marketing and selling your products and services in the French market. If your website is hosted on a server located in the U.S. or even to some extent in Canada, you will also need to comply with the law regarding transfers of personal data of E.U. residents to a location outside the European Economic Area.

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Conclusion :

France's pivotal positioning on the European continent makes it a perfect springboard for companies looking to establish a footprint on the E.U.'s 500 million consumer market. In addition, the country's dedication to create a legal, regulatory and tax environment that benefits innovation and investment continues to bolster the emergence and development of a leading startup ecosystem that not only attracts an increasing number of foreign investors but also foreign startups looking to establish a first European presence. We feel confident that this guide will convince you of the real benefits associated with selecting France as your gateway to the European market, and we look forward to accompanying you on that journey!

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THANK YOU YOU ROCK !

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READY TO FLY TO FRANCE

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Please feel free to contact Stéphane Grynwajc, Caroline Sandler-Rosenthal or Sara Sebban

to discuss your project.

stephan@transatlantic-lawyer.com +1 347 543 3035 - transatlantic-lawyer.com

caroline.sandler@rscavocat.com+33 1 45 00 60 00 - rscavocat.com

sara.sebban@synkro-consulting.com+33 6 09 20 58 21 - synkro-consulting.com

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WARNING!This mini-guide does not constitute legal advice and does

not establish an attorney-client relationship. You should always seek professional advice from a lawyer,

an accountant or a taxation expert.

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