Legal professionals practising in the form of ordinary commercial companies in the spotlight
28 September 2023
Under the Macron Act of 6 August 2015, lawyers, notaries, administrators, court-appointed agents and commissaires de justice can group together to practise their profession in any type of company other than one in which the partners are qualified as traders.
This measure opened up the possibility for legal professionals to set up a civil company, a SARL (limited liability company), a SA (public limited company), a SAS (simplified joint stock company) or a SCA (limited partnership with shares) under ordinary law.
However, this flexibility was short-lived.
On 9 February 2023, the government published Order no. 2023-77 in the Journal Officiel, aimed at improving the clarity and consistency of the provisions applicable to the liberal professions.
While there are many contributions to be made from this reform, the ordinance states in particular that SARLs, SAs, SASs and SCAs governed by ordinary law that exist or are newly created to practise the profession in question will also be subject to SEL (société d’exercice libérale) regulations.
However, companies will be able to keep their name without having to add the name of a liberal practice company (SELARL, SELAS, etc.).
Despite this exception, which is perfectly anecdotal, it is clear that aligning the rules in this way would de facto eliminate commercial companies governed by ordinary law and practising a legal or judicial profession.
The reform will take effect on 1st September 2024.
With a year to go, we take a look at these changes.
1 – Increased shareholder liability
The reform will extend the liability of legal professionals who are partners in partnerships governed by ordinary law.
We take a look at the two main types of company: SARLs, to which we will apply the SELARL regime, and SASs, to which we will apply the SELAS regime.
- SARL / SELARL
For both structures, the liability of partners is limited to their share capital contributions.
However, in the event of negligence, the partners of a SELARL are exposed to a higher risk if :
- Only the manager of the SARL may be held personally liable in the event of mismanagement,
- All SELARL partners may be held personally liable in the event of professional misconduct.
As a result of the reform, all the partners in the limited liability company will be liable in the event of negligence.
- SAS / SELAS
The liability of SELAS partners is greater than that of SAS partners:
- The liability of the partners of a SAS is limited to the amount of the contributions made to the share capital, so that their personal assets are fully protected.
- All the assets of the partners of a SELAS, in particular their personal assets, are exposed to the hazards of the business.
As a result of the reform, legal professionals who are partners in a SAS under ordinary law will be liable for the professional acts they perform, as in a SEL, on the basis of their entire patrimony.
2 – Rigidity for the manager of an SAS in social and tax terms
The most important changes will also be on the social and fiscal fronts.
In an SAS, the director may choose either to receive remuneration in his capacity as director, or to be paid solely from the distribution of dividends.
If they receive remuneration, they will have to pay social security contributions.
If, on the other hand, they choose to receive their income solely from dividends, they will be exempt from paying any social security contributions.
In a SELAS, the executive has the same initial choice, but if he opts to distribute dividends only, he will still be liable to pay social security contributions on the portion that exceeds 10% of the following cumulative amount.
From a tax point of view, dividends subject to social security contributions are subject to income tax.
For a legal professional, the SELAS regime may therefore be much less attractive, and at the very least much less flexible, than that of the SAS under ordinary law.
The reform will therefore bring its share of upheavals for legal professionals who thought they could benefit, in the long term, from the ordinary law regime, which is sometimes more favourable to their practice.
As far as liability is concerned, it does not appear possible to circumvent the SEL system that will apply.
On the other hand, from a social and tax point of view, it may be appropriate for the partners of SASs to create a SPFLP (société de participations financières de profession libérale), which would have the status of a holding company.
This type of arrangement makes it possible to avoid paying social security contributions and related taxes, since the dividends between the SAS (subject to the SEL regime) and the SPFLP are not subject to social security contributions, and when the dividends from the SPFPL are distributed to the profits of the legal professionals, there will be no social security contributions to pay either.