FRANCE Law and Practice Contributed by: Elodie Mulon, Jennifer Tervil, Romane Lemaitre and Emmanuelle Bonboire-Barthélémy, Chauveau Mulon & Associés
4. Family Business Planning 4.1 Asset Protection
3.4 Exercising Control Over Irrevocable Planning Vehicles A trust is deemed irrevocable when the settlor perma - nently relinquishes control over the assets or rights transferred. If this relinquishment is not effective, the assets are deemed to remain within the settlor’s estate for tax purposes, even if the trust deed character - ises the trust as irrevocable and discretionary (French Supreme Court, Criminal Chamber, 6 January 2021, case no 18-84.570). Case law increasingly tends to assimilate irrevocable trusts to gifts, a trend that has been criticised in legal scholarship. Some scholars argue that trusts do not meet the classical definition of a donation, and should instead be seen as a distinct form of gratuitous transfer. For a transfer to qualify as a donation under French law, it must involve both the settlor’s irrevocable divestment, a donative intent, and the formal acceptance by the done (French Civil Code, Articles 894 and 932). Donative intent can be inferred from the identification of the beneficiary in the trust deed. However, in certain types of trusts, the trustee may unilaterally alter the beneficiary, undermining the settlor’s donative intent. Furthermore, since the beneficiary does not sign the trust instrument, formal acceptance is problematic. To address this, the French Supreme Court (Cour de cassation) has ruled that acceptance can be implied, even without the beneficiary’s signature (Commercial Chamber, 6 November 2019, case no 17-26.985). The 2011 reform of the French trust taxation regime aims to address and reduce these qualification issues. Still, as previously discussed, the recognition of trusts by French courts remains exceptional and subject to stringent conditions, which often make their use legally uncertain in France. It is therefore more prudent to rely on the fiducie con - tract, despite its current limitations in gratuitous trans - fers. Under existing law, the fiducie is revocable by the settlor if the beneficiary has not accepted it. After acceptance, it may only be amended or revoked with the beneficiary’s consent or by court order. However, it automatically terminates upon the settlor’s death and cannot be extended beyond this point, even by agreement.
In a family business, protecting the assets of the busi - ness owner is a key issue. Risks related to business creditors, family disputes or separation/divorce can jeopardise the long-term viability of the business if they are not anticipated. Several legal tools are avail - able to protect both personal assets and business assets. Protecting Assets From Professional Creditors Under French law, there are various mechanisms for limiting the exposure of personal assets to profes - sional debts. • Separation of personal and professional assets: the Law of 14 February 2022 introduced a single status for sole traders, abolishing the EIRL regime and establishing an automatic separation between personal and professional assets. This separation, provided for in Article L. 526-22 of the Commercial Code, protects the entrepreneur’s personal assets from professional creditors, except in the event of voluntary assignment or if the assets are necessary for professional activity. • Creation of a corporate structure: the use of a lim - ited liability company (SARL, SAS, etc) remains an effective tool for protecting the personal assets of the director. The director’s liability is limited to the amount of their contributions, except in the event of mismanagement engaging their personal liability. Protection of Assets in the Event of Family Disputes In the event of separation or divorce, there are sev - eral legal levers that can be used to protect the family business and the director’s professional assets. • Choice of matrimonial regime: the separate prop - erty regime is the most suitable for ensuring that the spouses’ assets remain separate. However, for couples who have opted for a community property regime, specific clauses in the marriage contract may also offer protection: (a) a clause stipulating separate property ( stipula- tion de propres ), allowing company shares to remain part of the personal estate; and
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