Goodwill, the heart of your business: acquisition, composition and protection

For many craftspeople, their "goodwill" is their most important asset, the real economic engine of their business. More than just a stock of tools or premises, it is a complex set of elements that, when combined, help to attract and retain customers. But what exactly constitutes goodwill? How do you become its owner? And, once acquired, how can it be protected, particularly against the entrepreneur's personal risks? For a complete understanding, it is essential to first grasp the definition and key qualifications of a craftsman.

The aim of this article is to demystify goodwill. We will define its legal nature and its components, explore the different ways of acquiring it (from creation to succession), and look at the forms of ownership, both individual and collective, with particular emphasis on the mechanisms that enable individual craftsmen to protect their personal assets.

What is a fonds artisanal?

Unlike business goodwill, which has long been recognised, craft goodwill only received explicit legal recognition with the law of 5 July 1996. This recognition was achieved mainly through the possibility of pledging it as collateral (Article 22 of Law 96-603).

Legal nature: intangible personal property

In legal terms, a fonds artisanal shares many of the same characteristics as a fonds de commerce. It is a intangible personal property. It is considered a de facto universalityIn other words, a group of assets (tangible and intangible) united by a common purpose (the running of the business), but which does not constitute a distinct asset base integrating assets and liabilities (unlike a "universalité de droit" such as inheritance). This classification has practical consequences, in particular the inapplicability of the rule that "in the case of movables, possession is equivalent to title" (article 2276 of the Civil Code).

The components of the fund

The 1996 law (article 22) gives an indicative list of items that may be included in the business and its pledge:

• L'sign and the professional name.
• Le leasehold rights (the right to occupy the premises where the activity is carried out).
• La customers and thetraffic (often considered to be the essential element, because without a customer base, the business loses its raison d'être, even if the concept is debated).
• Le professional furniture.
• Le equipment or thetools used for operations.
• The rights of industrial, literary or artistic property (patents, trademarks, designs, software, etc.).

This list is not exhaustive. Other items may form part of the goodwill, such as the licences and administrative authorisations required for the business, or specific contracts that are essential for operation (certain employment, insurance or publishing contracts, or even non-competition clauses acquired by the seller).

Items (traditionally) excluded from the fund

Two major categories are traditionally excluded from the fund's composition:

1. Buildings : Even if the artisan owns the premises in which he works, the building itself is not considered to be part of the artisan's business. This historical distinction, linked to the specific nature of the real estate ownership system (land registration), poses practical problems. For example, a craftsman who owns his premises has no "leasehold rights" to value in his business. If the business is sold on its own, or if the business and the building are transferred separately (through inheritance or divorce), the future of the business may be at risk. Solutions do exist (creating a separate SCI to hold the building and enter into a lease with the craft business), but exclusion remains a complex issue.
2. Contracts and debts (in principle) : As the business is a de facto entity, it does not intrinsically include the liabilities (debts) associated with its operation. Similarly, contracts entered into by the operator (suppliers, customers, etc.) are not generally automatically transferred with the business, unless there are legal exceptions (employment contract, business insurance, etc.) or an express clause in the deed of transfer. This exclusion is intended to protect the buyer, who does not wish to take over unknown liabilities.

Methods of acquiring a business

How do you become the owner of a business? There are a number of ways, from setting up a business to passing it on.

Creation ex nihilo

Artisans can create their own business through their work and the development of their activity. The key question is when exactly does the business legally come into being. Is it at the time of registration? When the equipment is purchased? Jurisprudence tends to consider that a business only really exists from the moment when a company is registered. real and certain customers is attached to it, which often coincides with theeffective opening to the public. Determining this date is important, particularly for determining whether the fund is owned or jointly owned in the event of marriage.

Company contributions

A craftsman can contribute his business to a company (which he sets up or joins) in return for shares. This is known as a contribution in kind. While the contribution transfers ownership of the business to the company, it is subject to the general rules for contributions in kind, particularly as regards valuation. It should be noted that, unlike the transfer of a business, there is no specific legal procedure for publicising the transfer and for opposition by creditors, which is a regrettable omission.

Transfer for consideration (purchase)

This is the outright purchase of the business. Legally, it is a sale subject to ordinary law (Civil Code). Unlike the sale of a business, there is no special legal regime imposing compulsory information on the deed of sale for a craft business. Due diligence on the part of the buyer is therefore essential.

There are several points to bear in mind:

• Negotiations and pre-contracts : The negotiation phase is free but must be conducted in good faith. Pre-contracts (unilateral or synallagmatic promise to sell, preference agreement) are often used to secure the transaction while the buyer looks for finance or carries out checks.
• Validity : The standard conditions for the validity of contracts apply (capacity, consent not vitiated by error, fraud or violence, lawful and certain content - in particular a fixed or determinable price). Concealment of part of the price ("counter-letter") is null and void and subject to tax and criminal penalties.
• Local pre-emption rights : Please note that if the business is located within a "perimeter for safeguarding local shops and craft businesses" defined by the local authority, the sale is subject to a right of pre-emption in favour of the local authority (or the intermunicipal authority). The seller must make a prior declaration to the town hall, setting out the price and conditions. The local authority has two months in which to decide whether to pre-empt the sale (or to waive this right, or to challenge the price before the courts). Failure to comply with this procedure will render the sale null and void.
• Information for purchasers : In the absence of specific mandatory information, the purchaser must rely on the general duty to provide pre-contractual information (article 1112-1 of the French Civil Code) and his or her own investigations to ascertain the consistency and value of the business.

The donation

The business may be transferred by simple inter vivos gift. A favourable tax regime (specific allowance) exists for the donation of a craft business to an employee or apprentice of the company (article 790A of the CGI). The donation-partage also makes it possible to anticipate the transfer, including by including third parties who are not heirs if the gift relates to a company (article 1075-2 of the Civil Code).

The estate

If the craftsman dies, the business passes to his heirs in accordance with the rules of law (legal devolution) or the will. To prevent the business from being dismantled when the estate is divided, the Civil Code provides for apreferential allotment (articles 831 et seq.). The surviving spouse or a co-owner heir who participates (or has participated) in the business may apply for priority allocation of the business, subject to payment of financial compensation ("soulte") to the other heirs if the value of the business exceeds their share of the inheritance.

Once acquired, a business opens up new prospects, both in terms of operation and development. To find out more about the different ways of managing, guaranteeing and anticipating the transfer of your business, please see our article on exploiting and enhancing the value of the business.

Forms of ownership

The business may be owned by a single person (natural or legal) or by several people.

Individual ownership: protecting the individual craftsman

When a craftsman runs his own business (sole proprietorship), his personal assets are in principle exposed to business debts (principle of unity of assets). Several protective mechanisms have been put in place to deal with this risk:

1. Choosing a matrimonial property regime : For a married craftsman, opting for a regime of separation of assets protects the personal assets of the non-operating spouse. Under a community property regime, joint assets are committed (except for the spouse's earnings and wages, under certain conditions).
2. The Notarised Declaration of Unseizability (DNI) : (Articles L. 526-1 et seq. of the French Commercial Code) Artisans can declare their real estate assets exempt from seizure by their professional creditors. not for professional use. This declaration, made before a notary and published, protects against business debts arising from after its publication. Its effectiveness is limited, however, because it does not cover previous debts (often the largest debts at the start-up stage) and the craftsman may waive it (under pressure from a banker, for example).
3. The de jure unseizability of the principal residence : Since the Macron law of 2015, the main residence of the individual craftsman is automatically elusive by professional creditors, without the need to make a declaration. The DNI remains useful mainly for protecting other personal property assets (second home, land, etc.).
4. The Sole Proprietor with Limited Liability (EIRL): (Articles L. 526-6 et seq. of the French Commercial Code) This status allows craftspeople to set up their own business. earmarked assets dedicated to his business activity, separate from his personal assets. In theory, business creditors can only seize the assets assigned to the business, and personal creditors can only seize the assets not assigned to the business. In practice, setting up an EIRL requires a specific declaration with a description of the assets affected, a valuation, the opening of a dedicated bank account and separate accounting. The separation of assets is not absolute (personal creditors may seize profits if personal assets are insufficient, and all assets are liable in the event of fraud or serious breaches of EIRL rules). Its complexity and constraints explain its limited success. The Act of 14 February 2022 also created a single status for sole traders, making their personal assets exempt from seizure by professional creditors by default (subject to exceptions and waiver), which tends to make the EIRL less relevant for future start-ups.

As well as protecting their assets, craftsmen also have to consider aspects relating to the environment, health and safety.day-to-day running of the businessThis includes the professional qualifications required and the legal status of close associates, all of which are essential to the long-term future and security of the business.

Collective ownership

The fund may also belong to several people:

1. Joint ownership : Common after a death or divorce (if the property was jointly owned), or when several people acquire a property. Joint ownership is governed by articles 815 et seq. of the French Civil Code. Management requires the agreement of the undivided co-owners (2/3 majority for acts of administration, unanimity for major acts of disposal). Partition may be requested at any time ("no one may be forced to remain in joint ownership"), but mechanisms exist to preserve the company: deferment of partition, maintenance in joint ownership (in particular to protect a surviving spouse or minor children), or eliminatory attribution (allowing those who wish to remain in joint ownership to buy out the share of the person who wishes to leave).
2. Community between spouses : If the business is created or acquired during the marriage under a community regime, it is a joint asset. Its management then depends on the matrimonial property regime and the involvement of the spouses (exclusive management by the artisan spouse, concurrent management, or co-management for the most important acts such as the sale of the business). Winding up the business on dissolution of the marriage (divorce, death) involves dividing it up, with the potential difficulties associated with valuation and allocation (preferential allocation possible). Specific clauses in the marriage contract (withdrawal clause in return for compensation, commercial clause) can anticipate these difficulties.

The acquisition or ownership of a business raises complex legal issues, particularly in terms of ownership structuring and asset protection. A poor initial choice or a lack of knowledge of the protection mechanisms can have significant financial consequences. Our firm is at your disposal to analyse your situation and advise you on the strategies best suited to your objectives and your personal and professional circumstances, including through our commercial law skills.

Sources

• Law no. 96-603 of 5 July 1996 (Art. 22)
• Civil Code (Art. 515-5-1, 815 et seq., 831 et seq., 883, 893 et seq., 1075 et seq., 1112-1, 1128 et seq., 1321-1, 1387-1, 1401 et seq., 1536 et seq., 1582 et seq., 1832, 1843-3, 2276, 2284, 2285)
• French Commercial Code (Art. L.121-5, L.141-1 et seq., L.526-1 et seq., R.121-5)
• Town Planning Code (Art. L.214-1 et seq., R.214-1 et seq.)
• General Tax Code (Art. 719, 726, 790A)
• Law no. 2010-658 of 15 June 2010 (EIRL)
• Law no. 2015-990 of 6 August 2015 (Macron Law)
• Law no. 2022-172 of 14 February 2022 to promote self-employed professional activity