Launching your own online store is not something you can improvise, and in particular you need to choose the legal status on which your business will depend.
There are several possibilities.
Depending on whether you’re going it alone or with partners, your options will differ.
Let’s take a look at the legal forms available for an e-commerce site, and see which one is best suited to your situation.
The importance of legal status for an e-commerce business
In short, you have three choices for launching your e-commerce site:
- Auto-enterprise (or micro-enterprise),
- Sole proprietorship,
- The company.
Each option has its advantages and disadvantages, and meets a different need.
Ask yourself the right questions before choosing your e-commerce status
Before choosing a legal status for your e-commerce business, it’s important to ask yourself a few questions.
The answers you provide will help you make your choice.
Are you starting out on your own or with others?
Depending on whether you want to go it alone or launch your e-commerce business with friends or associates, your choice will be different.
If you’re on your own, a micro-enterprise or sole proprietorship is the best choice.
More flexible and easier to set up, it’s the right way to get started.
If, on the other hand, you’re building up a team for your e-commerce site, a company is more appropriate.
Management may be a little more complicated, but you’ll have more room to maneuver in terms of the role each person can play within the company.
What’s the initial investment?
Depending on what you’re going to sell and how you’re going to sell it, you won’t need the same initial investment.
- Would you like to sell your products through wholesalers or middlemen who manage their own inventory and shipping – dropshipping?
- Would you like to sell handcrafted products produced in small quantities?
In both cases, the investment can be minimal.
On the other hand, if you need to manage your own inventory, and build it up from scratch to ship your orders.
You’ll need floor space and logistics.
In this case, you’ll undoubtedly need a larger initial investment.
And a larger investment usually requires the formation of a company.
What are your sales forecasts?
If you’re planning to generate substantial sales, a company is more appropriate.
The legal status of a micro-enterprise includes a sales ceiling.
Above this limit, you’ll need to incorporate anyway.
Do you want to clearly separate your personal assets from your business?
There is no distinction between personal assets and business assets for a micro-business.
This means, for example, that your personal bank accounts, your home and your vehicle can be seized in the event of a problem.
If you want to protect your personal assets, you can still apply to a notary for a declaration of unseizability.
Perhaps the most effective solution would be to opt for another legal status that allows you to differentiate your assets.
How to choose your e-commerce legal status?
We’ve already mentioned a few ways of choosing the legal status of your e-commerce business, so let’s take a closer look at the advantages and disadvantages of the different solutions.
A micro-business to start up or test your business?
Created in 2009, the status of auto-entreprise, since renamed micro-entreprise, enables you to start up your business very quickly.
Registering a micro-enterprise is just a few clicks away, online and completely free of charge.
The status offers many advantages:
- Simplified creation.
- Relatively low social security charges, calculated on your sales.
If you don’t make any sales, you won’t pay any charges.
Ideal when you want to get started, test an idea or concept, while limiting the risks. - No VAT: you don’t charge VAT, so your products will be offered tax-free.
- Very low administrative and accounting costs.
The only legal obligations concern sales declarations, which can be monthly or quarterly, invoicing and keeping a receipts book. - The possibility of combining an e-commerce auto-entreprise with a salaried activity.
This is a very practical way to start developing your own business.
Auto-entrepreneurship also has its drawbacks:
- The annual sales ceiling for a micro-enterprise is 176,200 euros excluding tax.
If this ceiling is exceeded, you must switch to another legal status. - If you don’t charge VAT, you can’t reclaim it on your purchases either.
You therefore pay the tax-inclusive price of the products you buy from your suppliers, without being able to reclaim the tax. - You cannot deduct any expenses from your sales.
- Social charges are calculated on the basis of sales, not profits.
This is a major drawback for e-commerce. - Your assets are not protected against seizure in the event of a problem.
Why not a sole proprietorship?
The sole proprietorship or “EI” has much in common with the auto-entreprise, except that it is a business in its own right.
Nor is there any separation between personal and business assets.
The individual limited liability company, or EIRL, allows you to make a declaration of assignment to separate your private and professional assets.
Your liability in the event of insolvency is limited to your contributions, i.e. the professional assets acquired in the course of your business.
The characteristics of a sole proprietorship are as follows:
- Simplified administrative formalities.
- You’re liable for VAT: you have to invoice it, of course, but you can also deduct it from your business purchases and investments.
- Your sales are not capped.
- Expenses are calculated according to your profits.
- You are subject to income tax, not corporation tax.
However, there is a flat-rate tax base, so you will still be liable for tax even if you make no profit or a loss. - A sole proprietorship can be set up without any capital contribution.
Creating a company for an e-commerce site
There are a number of advantages to setting up a company to launch your e-commerce business:
- You can launch your business with partners.
In this way, you share the profits as well as the risks. - Your personal assets are protected, as they are clearly separated from your business assets.
Your liability for the company’s debts is limited to your contributions. - If you decide to sell your business, this will be easier than with a sole proprietorship.
On the other hand, running a company, whether SARL (Société à Responsabilité Limitée), SAS (Société par Actions Simplifiées) or EURL (Entreprise Unipersonnelle à Responsabilité Limitée), is more complex.
The accounting and administrative formalities are more numerous (drafting of articles of association, advanced accounting, etc.).
To conclude on the legal status of an e-commerce business
Setting up a micro-business to launch your e-commerce activity can be an interesting way of validating your choices, provided you don’t expect sales to exceed the ceiling in the first year.
As your business grows, you’ll certainly need to change your legal status.
A sole proprietorship is an attractive option if you want to launch an e-commerce business on your own, and are aiming for annual sales in excess of 176,200 euros.
A company is more suitable for starting up an e-commerce business with several people, and for bringing in more or less long-term investors.
Need advice on how to start an e-commerce business and develop an online store?
I’ve been an e-commerce developer for over 10 years and would be delighted to help you with your project. Contact me now to discuss!
