The sole proprietorship is the most popular form for young entrepreneurs. According to recent INSEE data on business creation, more than two out of three creations are made under the status of individual business (the vast majority of which are under the micro-enterprise regime), confirming its massive appeal among new self-employed people. Although it presents significant risks, it remains one of the most advantageous and easiest to manage among the different forms of business. The following development makes it possible to determine the attractions and constraints linked to the individual enterprise.
Some principles
The sole proprietorship can carry out a commercial, artisanal, agricultural or civil activity. Its status therefore depends on the nature of the activity carried out, whether liberal, commercial or other.
Since the reform, the law automatically separates two assets: professional assets and personal assets. Thus, the entrepreneur no longer makes all of his personal property available to his activity and limits, in principle, the risks linked to his business.
However, this protection has certain limits. Indeed, the entrepreneur can incur personal liability if he commits a management error or an offense in the context of his professional activity. Likewise, he may expose certain personal assets when he grants a personal guarantee, for example by providing security with a bank.
Advantages of sole proprietorship
Simple operation
Unlike other forms of business, the sole proprietorship constitutes an entity in which decision-making power belongs solely to the entrepreneur. In some companies, making an important decision requires a meeting of the partners or the board of directors. Since professional assets are separated without requiring the creation of a separate legal entity, the company does not risk being subject to abuse of corporate assets. It does not require any minimum share capital.
Reduced costs and relaxed tax regime
Given the simplicity of the formalities relating to the creation of a sole proprietorship, its cost remains very low. It does not require legal statutes to be drawn up, and the entrepreneur must only complete a single centralized online procedure with the INPI Single Window. Also, during its life, the company is not subject to any heavy legal formalities (no general meeting or approval of accounts). From a tax perspective, the entrepreneur can benefit from the micro-enterprise regime and benefit from the micro-social regime as well as the withholding tax on income.
Disadvantages of sole proprietorship
Disadvantages related to risks and financial commitments
Although personal assets are automatically separated from professional assets, the risk is not completely zero. In the event of a financing request, a creditor or a bank may require the entrepreneur to waive this protection on a specific property or to provide a personal guarantee. According to the Banque de France’s monitoring studies of young businesses, access to medium and long-term bank credit remains one of the main obstacles perceived by individual entrepreneurs. The consequences on one’s private assets can then become more serious. Declarations of exemption from seizure also remain possible to strengthen the protection of certain non-professional real estate assets.
Other disadvantages of sole proprietorship
From a social point of view, the individual entrepreneur falls under the regime of self-employed workers (TNS). It therefore does not benefit from coverage as extensive as that of employees. Moreover, recent barometers on the morale of the self-employed highlight increased vulnerability in terms of welfare and retirement. Furthermore, in the event of cessation of activity, the entrepreneur does not automatically benefit from unemployment insurance under the general system. However, he can access the Self-Employed Workers’ Allowance (ATI) under certain conditions.
From a tax perspective, when income exceeds the thresholds of the micro regime, the individual entrepreneur switches to the real regime or can opt for corporate tax (IS). This development then leads to greater accounting obligations and can also increase the tax burden.
Certainly, the sole proprietorship remains one of the simplest forms to create and manage. However, it is not necessarily suitable for all projects, particularly when the entrepreneur wishes to join forces or seek investors. So, before getting started, it is better to carefully study the different legal forms in order to choose the one that really corresponds to the objectives and needs of the future business.
