Auto-entrepreneurs and micro enterprises in France will soon be required to add a new tag to their name identifying their entreprises individual status. Here’s how it works and why.
Starting 15th May, all entreprises individuel, or individual companies with sole proprietorship, including auto-entrepreneurs and micro enterprises, will need to include the letters ‘EI’ or ‘Entrepreneur Individuel’ before or after their name on any documents pertaining to their business or the promotion of their business.
This small addition could mean the difference between personal finances being protected from professional debts or not.
In the past, only a person’s primary residence was protected from professional debts incurred. From 15thMay, this has been altered to include all personal assets, giving an added layer of security to people who are forging career paths on their own.
For example, a person is running a mobile car wash business from home. This person owns her home, has a personal bank account and has a collection of vintage cars. For her company, she has a business bank account, a mobile car wash van and all the equipment needed to perform her job, such as high-pressure hoses, sponges, and vacuum cleaners.
The person takes out a loan to expand the company, but defaults on the loan. Before this new law, her creditors could go after everything except her home to recoup their funds. Now, they can only go after things pertaining to her business, namely, the business bank account, the mobile van and the equipment. Her home, personal bank account, and her vintage car collection are safe.
As the system is very new, and there is still a lack of formal requirements laid out in order to benefit from this protection, creditors need a way to discern between which assets are personal and which are business-related.
The suggested way is incredibly simple. Business owners must add EI or Entrepreneur Individuel, either before or after their given names on all documents and paperwork relating to the company. It should be added to all invoices, receipts, quotes, order forms and on all publicity.
The law is not retroactive and does not include debts incurred before 15th May 2022, nor does it exempt the EI from debtors seizing income tax and social charges, which are considered personal assets. Finally, there is a hefty €750 maximum fine associated if the EI fails to use the new moniker after the 15th.
The alternative before was to set up as an entreprise individuelle à responsabilité limitée (EIRL), or sole proprietorship with limited liability, but this process was infinitely more complicated, required a lot of paperwork, and offered fairly limited protection.
This new status is meant to phase out EIRLs and streamline the system to offer protection in a simple way that everyone can implement immediately. The text of the new law was enforced on 15th February, disallowing new EIRLs to be formed, effectively making EIs the new gold standard for the self-employed.