Buying a business in France
Posted by Admin 12.07.2011 | 5 Comments
For many people, France will be synonymous with holidays. For some, however, moving to France will be a new step in their business career. In a previous article we focused on various structures that can be used to run a business in France and this article is intended to consider the purchasing process itself. You may not want to start everything from scratch, perhaps because you need to have immediate income; thus you are likely not to want to set up a new business but rather buy an existing one.
In France, the goodwill of a business is often legally referred to as a fonds de commerce or a fonds artisanal. For example, a shop selling goods is likely to be known as a fonds de commerce while a builder’s business will be treated as a fonds artisanal. Both refer to an entity including the customers, the lease, the commercial name, the employees, the goods etc. Buying a business is a process that must be well considered if you want it to move smoothly.
Some points need to be addressed even before starting to look for a suitable business. Naturally, this will be the case for financing the purchase. Maybe even more than for the purchase of a house, it is worth taking time to do the maths. Indeed you will have to organise not only the payment of the purchase price but also cash flow, in particular for the first years.
As the owner of a French business you need to be aware of the social contributions and taxes that you will be liable for. In general the first 3 years need to be carefully planned. Seeking assistance regarding the most suitable option to structure the ownership of the business and having an estimated budget is therefore highly advisable.
Some businesses may also require a particular qualification. If you are to be registered at the chambre des métiers et de l’artisanat as running a fonds artisanal you are likely to have to prove that you have the necessary skills and/or diploma. You may also be asked to follow special training as part of the registration process. For instance, according to the French public health code – the code de la santé publique – 3 days of training may now be compulsory for those running a bar with a licence IV, which is the French equivalent of an alcohol licence.
A fonds de commerce or fonds artisanal is legally formed of various parts. Therefore while buying such a business you will not only have to focus on one point but on several which are all of importance.
According to article L141-1 of the French code de commerce, the seller must provide the purchaser with figures for the turnover and the earnings of the business for at least the last 3 years. Do take time to consider these figures and to ask questions. Why is the seller now selling if the turnover is so good? Is there anything that you should be aware of? For instance if you are buying a shop, check with the local mairie that a new supermarket is not about to be opened in the vicinity. If the business is a restaurant it may be worth making enquiries about the possible plans to create a new road that would prevent the customers passing by. You need to be up to date with the facteurs locaux de commercialité, meaning the local factors that can have an impact on a business; they should be taken into account.
Shorter leases
If you do not buy the building where the business is located, you will nearly always buy the business with the droit au bail, meaning the right to benefit from the lease signed by the seller with the landlord. The lease will invariably be a bail commercial. This is one of the main points you will need to consider. The lease will usually have a duration of 9 years although it is possible to find shorter leases. If you are within the last years of the lease, bear in mind that you will have to renew it at the end of the term. Although according to the French code de commerce, the tenant is entitled to the renewal of a bail commercial at its term, this can be a tricky process in particular regarding agreement as to the new rent. Also consider if the lease limits the nature of the businesses that can be run or if it is a lease known as tous commerces meaning that there are no restrictions, the last option being the most suitable.
If there are employees, article L122-12 of the French code du travail provides as a principle that all the work contracts pass on to the buyer, which is broadly in line with the requirements of English employment law on the transfer of a business. Nevertheless, this point needs to be carefully considered, in particular if, as a couple, you are planning to run a business that was previously run by one person only. You may not need all the employees. Even though some of the basic principles of employment law relating to business transfers are similar, it is nevertheless important to seek specialist advice.
The contracts to be signed should include an inventory of the furniture and of the operational equipment. Do pay particular attention to the equipment as at least part of it may need to comply with current French standards; having to update a kitchen in a restaurant after an inspection can be very costly. For a hotel, all the security equipment must be checked in advance by a specialised company; such a business can indeed be closed by the authorities if the security level is too poor. It is usually worth considering the situation before negotiating the price.
You will also buy the commercial name. Whether you want to keep the same name or to use another one, the Institut National de la Propriété Industrielle (INPI), in charge of the protection of brands and commercial names in France, can be contacted to consider your rights and obligations in this respect.
Exclusive supply
The seller may be involved with various goods providers. Some contracts involve an exclusive supply, meaning that you would not be able to decide from whom you can get your stock. The various contracts to be passed on to you with the business should be listed on the compromis de vente.
When the business to be bought sells goods, an inventory must be made. You will appreciate that for some businesses – those selling food for example – particular attention must be paid to this point. It would not be fair to buy products that would shortly be out of date. In most cases the purchase price does not include the price of the stock. Therefore you need to address this point with the seller well in advance in order not to have a bad surprise on completion. Usually the purchaser buys the goods from the seller while signing the final deed. However it is also possible to organise payment in several instalments.
Your registration as the new owner of the business will be done through the centre de formalités des entreprises, usually known as CFE, of the local chambre de commerce et de l’industrie or chambre des métiers et de l’artisanat. Registration fees apply.
Finally, French stamp duty payable when buying a business varies from 0 per cent for the portion of the price up to €23,000 (£30,638) to 3 per cent for the portion of the price between €23,000 (£30,638) and €200,000 (£179,468) and to 5 per cent for the portion of the price over €200,000 (£179,468).
In some areas of France, in particular in areas of lower population, reduced stamp duty can apply in order to encourage the transfer of businesses. On top of the French stamp duty you will be liable for the lawyer’s fees, the agent’s fees if one is involved, the registration fee at the centre de formalités des entreprises etc. The signing process is more or less the same as the one for the purchase of an immoveable property. The first step is the signing of a compromis de vente with a lawyer and after a few months, once all the conditions suspensives have been satisfied, completion takes place.
You will appreciate that in this matter you will need to seek specialised advice. An accountant will be able to provide you with assistance with regard to the figures, while a specialised lawyer will help you with all the French paperwork. Making a mistake in buying a business can have major consequences and could jeopardise your chances of success.
Ashton Graham
www.ashtongraham.co.uk/france
Very interesting, a shame I did not have this info 7 years ago, when I bought my business. But it is useful for future takeovers. I am actually in the middle of selling my ''fond de commerce''.
Alison Hurley
Comment posted 29.12.10 @ 04:30
Buying a business in France can be very cost effective as the prices are often lower than the equivalent business in the UK. Watch out for staff employment costs, and distance management issues. Finance can often be put in place through French banks for the purchase of a "fonds de commerce" (goodwill), and certainly if you are also buying the building.
Joanna REINTJES
Comment posted 4.10.10 @ 12:27