PACTE : Simplify Business Operations

Enacted on May 22, 2019, the Law on the Action Plan for Business Growth and Transformation aims to simplify the legal framework for economic activities.

Its goal is to release productive forces by removing unnecessary regulations and restricting useful regulations to the strict minimum.

Business Financing

In order to improve access to credit, the Law facilitates the provision of collateral through a reform of Property Security Law to complement previous simplification efforts dating back to a 2006 Order and a 200 Law.

Simplification of the deadlines for registering Treasury, Customs and Social Security privileges (Articles 61 and 62) - The PACTE replaces the deadlines for registering such privileges with a fixed term at the end of each calendar semester, which will facilitate the work of public accountants.

Government authority to simplify the Property Security Law by Order (Article 60) – The prerogative runs for 24 months ather the entry into force of the Law. Its two main objectives are the clarification and simplification of the property security regime, making it more readable and efficient while preserving the balance of interests between creditors and debtors.

The preliminary draft reform aims to reduce the complexity of Suretyship Law by abolishing the special regimes of the Consumer Code or the Monetary and Financial Code and by adding specific provisions on suretyship granted to a natural person to the Civil Code, which include the specific features relating to handwritten statements, information obligations and the sanction of manifest disproportion.

The government is also authorized to remove privileges that have become obsolete; whether general or special, movable or immovable. The Law specifies that special personal property rights fallen into disuse or become useless may be revoked and thus referred to the common law of guarantee.

As for other personal property rights, their regime could be simplified and modernized. Here again, the idea is to abolish as many special regimes as possible in favor of a general regime that is better defined within the Civil Code.

With this in mind, the preliminary draft reform extends the simplified terms of the commercial guarantee to all guarantees constituted between professionals in a new provision of the Civil Code, which replaces the old provisions of the Commercial Code.

Government authorization includes, among other things:

  • The harmonization of the rules on disclosure of personal property security interests; this suggests the creation of a centralized registry;

  • The facilitation of the use of real or personal security interests by electronic means; and thus bringing the Law of security interests closer to Contract Law;

  • The clarification, modernization and simplification of the rules on security interests and creditor holders in collective proceedings.

Business Management

Simplification of workforce thresholds (Article 11) – The obligations of entrepreneurs differ according to the number of their employees. The more numerous the latter are, the more important the former are. Until then, French Law included 199 workforce thresholds spread over 49 levels.

Their basis of calculation varied according to the legislative field from which they proceeded (Commercial Law, Tax Law, Social Security Law, Labour Law). The profusion of thresholds and the scattering of provisions defining them made the regulation of companies so complex that it hindered the development of some. The PACTE simplifies this regime in three parts :

  • The harmonization of calculation methods with that of the Social Security Code, since it would be of the greatest benefit to companies and would be best adapted to the diversity of their obligations. This is the “annual number of employees”, which corresponds to “the average number of persons employed during each month of the year” preceding the application of the said threshold (Article L130-1 of the Social Security Code);

  • the reduction to 3 levels of 11, 50 and 250 employees of all the workforce thresholds, which equates to abolishing the thresholds of 10, 20 (except for the obligation to employ disabled workers), 25, 100, 150 and 200 employees (except for the provision of a union office). The thresholds of 10 increase to 11 employees, those of 20 to 50 employees and those of 200 to 250 employees;

  • the limitation of threshold effects, as soon as a threshold must be reached or crossed for 5 consecutive years before the corresponding regime becomes effective. All companies will benefit from a significant delay in adapting to their new obligations.

Harmonization and increase of the thresholds for the legal certification of accounts (Article 20) – Until now, the French companies obliged to certify their accounts each year were as follows :

  • all public limited and limited stock partnership companies;

  • limited liability, partnerships and limited partnerships which exceeded two of the following three thresholds for the year in question : a balance of sheet of 1.2 million euros; a turnover of 6.1 million euros excluding tax and 50 employees;

  • simplified joint stock companies that have exceeded two of the three thresholds above, reduced to a balance sheet of 1 million euros, a turnover of 2 million euros excluding tax and 20 employees.

Based on the fact that the thresholds applied in France were lower than the reference thresholds provided for by European regulations, i.e. a balance sheet of 4 million euros or more, a turnover of 8 million euros or more excluding tax and 50 employees or more, the legislator decided to transpose the latter to all companies, regardless of their legal nature.

From now on, the obligation of legal certification of accounts applies to any company that exceeds two of the three reference thresholds provided for by the European regulations. The increase introduced by the French legislator has led to a significant reduction in the number of companies subject to certification. Those who will not carry out optional certification will save an average of 5,500 euros per year.

In order to prevent companies that exceed these new thresholds from becoming “subsidiaries” to avoid the obligation of certification, the law requires parent companies to certify their accounts as soon as the new reference thresholds are reached or exceeded by all controlled entities (parent company + subsidiaries).

Automatic deregistration of the self-employed worker (Article 38) – The PACTE automates the deregistration of the self-employed worker with regard to the social security system, but also the files (in particular tax files) and administrative registers relating to his status, provided that he does not generate any turnover, income or declare any turnover or income “during a period of at least two consecutive calendar years” (Article L613-4 of the Social Security Code).

As a result, the individual entrepreneur will no longer be required to declare the cessation of his activity. However, he will have a period of time in which to object, if he so wished, to the automatic deregistration.

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