What legal status should you choose as an online seller?

Before launching as an online seller, you need to set up a business, since all your income has to be declared. Choosing a legal status is not a trivial decision — it determines how your business is structured (you can run it alone or with partners), as well as your accounting obligations. The status also sets your business’s tax regime and social security contributions. Here is our guide to help you choose the best legal status for your project.

The EI – Sole Proprietorship

The EI — or “Entreprise Individuelle” (sole proprietorship) — is the ideal legal status for starting out alone and quickly. The EI is a category that groups together all forms of business tied to the name of a single owner, with no other members. In this case, you trade under your own name.

The EI comes with as few constraints as possible and is simple to manage. You don’t need share capital, and the mandatory declarations to the tax authorities are limited. You also don’t need an accountant, which saves you significant fees. That said, you must still keep proper books, which means choosing accounting software built for online sellers.

As a self-employed worker (TNS — Travailleur Non Salarié), you are affiliated with the self-employed social security scheme.

The only caveat with this status is the exposure of your personal assets, should you launch a business that requires large-scale investment. Since your personal and business assets are merged, your personal belongings would be at risk if your business ran into trouble.

The micro-entrepreneur (sole trader) case

The micro-entreprise is a sole proprietorship whose management has been simplified to the extreme. You become a micro-entrepreneur (sole trader) in a few clicks online, and above all, taxes are charged on your actual income rather than on a flat-rate basis. If you generate no revenue, you owe no charges.

The sole trader status is the most popular choice for online sellers just starting out. It lets you launch quickly with no upfront investment and, since it’s designed to grow with you, it doesn’t cap your ambitions.

Sole traders are exempt from VAT up to a certain threshold, which means you don’t have to charge it, declare it, or pay it to the state. Once you cross the VAT exemption threshold, you automatically switch to the VAT-liable EI status.

If you choose the sole trader status, you need accounting software that tracks these thresholds and automatically switches you over, including VAT, when you cross them. That’s the case with Bizyness, which is specifically calibrated to help you start out as a sole trader and then migrate to a more conventional business structure.

The thresholds for the sole trader status are:

• up to €176,200 in annual revenue (excl. VAT) for the sale of goods;
• up to €72,600 (excl. VAT) per year for services.

Once you cross these thresholds, you are required to change your legal status.

The EIRL – Sole Proprietorship with Limited Liability

The EIRL lets you operate as a sole trader while shielding your personal assets from creditors if your online store runs into difficulty. You can also still benefit from the micro-entrepreneur regime.

When you set up your EIRL, you file an asset allocation declaration with the RCS (Trade and Companies Register). It defines which assets are considered part of your business assets. These will be the only ones creditors can claim against.

The declaration includes:

• your business name, including the mention “EIRL”;
• the professional activity to which the assets are allocated;
• your marital status;
• the place where the asset allocation declaration was filed.

Budget for registration fees with the official publicity register. If your EIRL application is not filed at the same time as the creation of a sole proprietorship, registration fees will apply.

The sole trader with limited liability is treated as a self-employed worker under the self-employed social security scheme. Your social security contributions are calculated based on your online store’s taxable profit.

The EIRL is traditionally subject to personal income tax. However, you can opt for corporate tax instead. Be aware that this option is irrevocable and must be requested within three months of the start of the financial year from which it is to apply.

Profits are taxed under corporate tax (IS) as follows:

• 15% up to €38,120 in revenue;
• 28% between €38,121 and €500,000;
• 31% beyond that.

The EURL and the SARL

The EURL (single-member limited liability company) and the SARL (limited liability company) work the same way. The former is run by a single person, while the latter has at least two partners.

To set up either of these companies, you need to draft articles of association and follow an administrative process that includes filing your articles and officially registering your company. The cost averages around €400.

With an EURL or SARL, your online business is subject to actual expenses, which means keeping precise accounts of your costs and revenue. You will also need to charge VAT and remit it to the relevant authorities.

If you are self-employed, you are subject to social security contributions of around 42% of your income. You are also liable for a flat-rate annual contribution, even with no income. Under the SARL, you are subject to a minimum tax of around €1,500, regardless of the salaries paid. Profits are taxed under corporate tax, on the same scale as the EIRL. You must also add social security levies on top of that.

The EURL and SARL are attractive statuses for an online seller, but only once you’ve reached a significant profitability threshold, since the minimum taxes and high running costs weigh heavily on your income.

On the plus side, you benefit from liability limited to your contributions, easy access to outside capital, and a smoother transfer of your online store.

The SAS

The SAS (simplified joint-stock company) is aimed at ambitious online sellers who intend to scale their store aggressively and open it up to shareholders. Its simplified structure makes it particularly attractive.

The articles of association of an SAS can be customized to an extreme degree, unlike those of the SARL. This lets you better organize your relationships with shareholders. You also control the terms for opening up capital and reselling shares. That said, unless you’re trained in the field yourself, you’ll need to call on a corporate law expert. Setting up an SAS costs around €400.

The SAS has only one official officer, holding the title of president. It is up to the president to appoint the managing directors who assist with the day-to-day running of the online business.

As president, you fall under the SAS’s employee-like social security regime. This gives you high-end social coverage, but it comes at a cost to the business. Tax on SAS profits is the same as for the SARL and EURL.

It’s advisable to favor the SAS over the SARL if you plan to bring in a large number of investors while keeping close control over them.

The SASU — Single-Member Simplified Joint-Stock Company

The SASU has the same features as the SAS, but you remain the sole shareholder. This gives you much more freedom to make decisions.

Look ahead to determine where your online business is headed. By picturing its future shape, you’ll have a better idea of which status suits you best. In any case, it’s always possible to change status — and it’s even mandatory for a sole trader who exceeds the thresholds. Your decision is therefore never final, but it’s more comfortable to start your business with a legal status that’s already compatible with your ambitions.