When you set up your own business, the risk to your assets is often a major obstacle. Traditionally, entrepreneurs would commit all their assets to their business, including their home. However, changes in the law have gradually introduced a protective shield with the unseizability of the principal residence.
The gradual emergence of heritage protection
The Economic Initiative Act of 1 August 2003 marked the first significant step in this direction. It enabled sole traders to protect their principal residence against legal action by professional creditors by means of a notarised declaration. This formality, which is relatively costly and little-known, was not widely used despite its obvious advantages.
The Macron Act of 6 August 2015 revolutionised the system by making this protection automatic. Article L.526-1 of the French Commercial Code now stipulates that rights in the building that constitutes the principal residence are "automatically exempt from seizure" for sole traders. Gone are the days of taking voluntary steps - every self-employed person now benefits from protection by default.
In 2022, the legislator went further by creating a single status for sole traders, automatically separating personal and business assets. This development is the logical complement to the system of unseizability.
Practical application and scope of protection
The concept of principal residence refers to the place where the entrepreneur actually and habitually resides. In a ruling dated 18 May 2022, the Court of Cassation specified that a dwelling that is no longer inhabited can no longer benefit from this protection, even if it was previously so inhabited.
This protection is not limited by the status of the entrepreneur - shopkeepers, craftsmen, self-employed professionals or farmers can all benefit from it. What's more, if part of the main residence is used for business purposes, the private part remains protected without the need for a legal division of the property.
There are, however, important limits to this freedom from seizure:
- It applies only to professional creditors
- It only applies to claims arising after 8 August 2015 (publication of the Macron law) or after registration for more recent entrepreneurs.
- The tax authorities retain their rights in cases of serious tax fraud
- Entrepreneurs can always waive this right, in particular to obtain bank financing.
Resilience in the face of insolvency proceedings
The real effectiveness of this protection can be measured in the case of company failures. Case law has progressively strengthened its solidity.
In a seminal ruling of 28 June 2011, the Cour de cassation established that the debtor could enforce his declaration of unseizability despite the judicial liquidation and the resulting divestiture. This position was confirmed for automatic unseizability, with a ruling on 13 April 2022 specifying that the liquidator may not act for the licitation-partage of the principal residence if all the creditors do not have claims predating the 2015 Act.
However, complex family situations can undermine this protection. For example, in a ruling handed down on 18 May 2022, it was ruled that when the family court awards enjoyment of the home to the spouse during a divorce, the property is no longer considered to be the entrepreneur's principal residence and may therefore be seized by his business creditors.
The cessation of business activity does not extinguish this protection. On 17 November 2021, the Court of Cassation ruled that the effects of unseizability persist as long as the rights of the creditors concerned have not been extinguished, regardless of whether the business continues.
Complementary strategies
While the main residence is automatically protected, other properties can also be protected by a voluntary notarial declaration. This follows the old procedure: notarial deed published with the Land Registry and the relevant professional register.
Other legal structures may supplement or replace this system depending on the situation:
- Single-member companies (EURL, SASU) offer comparable protection with other advantages
- Trusts can be used to protect large assets
- The choice of matrimonial property regime also influences the protection of the entrepreneur's assets.
The unseizability of the principal residence is now an effective bulwark against entrepreneurial risks. This protection, combined with the new status of sole trader, finally makes it possible to dissociate professional failure from personal disaster, thereby encouraging economic initiative. However, there are still some limitations, which justify a wealth strategy tailored to each individual situation.
Sources
- French Commercial Code, Articles L. 526-1 to L. 526-4
- Law no. 2003-721 of 1 August 2003 on economic initiative
- Law no. 2015-990 of 6 August 2015 for growth, activity and equal economic opportunities
- Law no. 2022-172 of 14 February 2022 to promote self-employed professional activity
- Cass. com. 28 June 2011 (no. 10-15.482)
- Cass. com. 17 November 2021 (no. 20-20.821)
- Cass. com., 13 April 2022 (no. 20-23.165)
- Cass. com., 18 May 2022 (no. 20-22.768)
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