EIRL (Entreprise Individuelle à Responsabilité Limitée)

In a recent French Supreme Court case (Arrêt n° 179 du 7 février 2018 - 16-24.481) the court allowed a liquidator to seize all an entrepreneur’s personal as well as his business assets because he made an incomplete declaration when he registered his business as an EIRL.

EIRL

This is a business structure which allows a small businessman to limit his liability to creditors to his business assets and means that his personal assets such as his home are not at risk from business creditors. You have to file a form declaring your business assets. An EIRL allows you to be a sole trader but limit your third party liability and saves the costs of forming a company.

Facts

The entrepreneur ran a mobile drink vending business. He set the business up as an EIRL. When he registered the business he failed to complete the necessary declaration properly by disclosing any assets which had been transferred from his personal name into the EIRL’s name which is required by law. The van he used was however shown as an asset in his accounts.

The judgment does not say why the entrepreneur did this. It may be that he thought by not declaring any business assets there would be nothing for creditors to seize.

The judgment also does not say why this registration was accepted by the French administration when they registered him as an EIRL as it made no sense to create a business with no assets.

Liquidation

The EIRL went into liquidation and the liquidator sought to seize the personal assets of the entrepreneur. In other words the liquidator claimed the failure by the entrepreneur to declare his business assets meant that everything he owned was at risk.

Supreme Court

The Supreme Court decided that the liquidator could do this. The failure by the entrepreneur to disclose any of the businesses assets in the form when setting up the EIRL was serious. It did not matter that Companies House had accepted the form and registered the EIRL.

Conclusion

Choosing the right business structure in France is important. The trader here would probably have been better off setting up a SARL. Whichever structure you choose strict compliance with the rules is advisable. The French courts are likely to be less understanding of oversights than the English ones.

March 2018
David Anderson
Solicitor-Advocate and Chartered Tax Adviser