When it comes to protecting a company director's property, the first thing to do is to define the risks to which that property is exposed. These risks vary depending on the legal structure chosen by the company director to run his business. Of course, property assets will be subject to the same rules as the company director's other personal assets, and will incur the same risks.
When setting up a business, any professional has a choice of different structures for carrying on his or her activity. This choice will have consequences for the company's internal organisation, taxation and social security arrangements for managers, as well as for the risks to the manager's personal private assets.
Sole traders
Working as asole trader, the professional has no protection at all. Their personal and professional assets are combined into a single estate, which is a pledge to all creditors, both personal and professional. As a result, their liability for the company's debts will be personal and indefinite, based on their own assets. Private real estate assets acquired by the entrepreneur will therefore form part of the creditors' pledge and, in the event of difficulties, creditors will be able to seize them.
However, it should be noted that Act no. 94-126 of 11 February 1994, known as the Madelin Act, limits the rights of creditors in respect of the business debts of a sole trader to the assets of the business. Under this law, the entrepreneur is given the benefit of discussion in the event of enforcement proceedings against his or her personal assets by the holder of a contractual debt arising from the debtor's professional activity. The sole proprietor may, "if he establishes that the assets necessary for the operation of the business are of sufficient value to guarantee payment of the claim, request that the creditor give priority to enforcement against them". According to the same standard, however, the creditor may oppose the request if he can establish that the debtor's proposal jeopardises the recovery of the debt.
The individual entrepreneur with limited liability: EIRL
The EIRL, which came into force on 1 January 2011, enables all sole traders to create a special-purpose estate to which their business assets and liabilities will be allocated. This means that the sole trader can have two separate assets without creating a company (a new legal personality): assets for private use and assets for business use. The aim is that business creditors will only be able to claim on the assets allocated to the business activity. This enables entrepreneurs to protect their real estate assets. However, the formalities of this type of status are fairly complex and there are still areas of uncertainty, to ensure that the protection afforded is as effective as that afforded by a limited-risk company such as a EURL.
Companies
The risk incurred by the entrepreneur, or even by the partners, when operating as part of a company will depend on the corporate structure chosen. There are two main types of company: unlimited risk companies and limited risk companies.
Unlimited-risk companies
In unlimited-risk companies, where the affectio societatis is strong, the partners commit all their personal assets to the company's creditors, including their real estate assets for private use. This is the case in particular with sociétés en nom collectif (SNC), where the partners, all of whom are businessmen, are indefinitely and jointly and severally liable for the company's debts. This liability is quite restrictive, as each partner is liable for all debts not paid by the company, regardless of his or her stake in the share capital. Creditors may approach any partner to claim the full amount of their debt. The shareholder can then be reimbursed by the other debtors, with the risk that some of them may become insolvent.
This unlimited liability is also present in professional partnerships, but to a lesser extent. In such a structure, creditors can only take action against a partner after having unsuccessfully sued the legal entity (the partnership). What's more, liability is not joint and several, so partners cannot be sued for the whole of the company's debt, but only in proportion to their share in the share capital.
These companies are attractive to creditors, who will find it easier to provide financing. At the same time, the risk to shareholders is increased.
Limited-risk companies
In limited-risk companies, the liability of the partners is limited to the amount of their contributions. This means that the partners' real estate assets for private use, if not contributed, are in principle protected. This is the case with SARLs (Société à responsabilité limitée), EURLs (entreprise unipersonnelle à responsabilité limitée), SASs (Société par actions simplifiés) and SAs (Société anonymes). This means that, in the event of problems, the partners are only liable for part of their assets - at least in theory.
Creditors, faced with the limitation of their right of pledge, retaliate by means of real and personal securities such as sureties or mortgages, and thus effectively re-establish the unlimited commitment of the company director and the partners.
In addition, the management of the company director (manager or chairman) must be beyond reproach if he does not wish, in the event of insolvency proceedings being brought against his company, to suffer the wrath of the action to make good the company's liabilities (article L 651-2 of the Commercial Code) in the event of mismanagement that has contributed to the shortfall in assets, as well as theobligation to pay the company's debts (article L 652-1 of the Commercial Code) in the event of mismanagement that has contributed to the cessation of payments. His personal assets may then suffer the consequences, regardless of whether the company has limited or unlimited liability.