Selling a start-up in France: how to organise assets following an exit

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Selling a start-up in France: how to organise assets following an exit

Joëlle Pacteau - Head of Europe Francophone market

Joëlle Pacteau

Head of Europe Francophone market
Valérie Montel - Wealth planning expert

Valérie Montel

Wealth planning expert

Entrepreneurs often dedicate most of their time to developing their companies. Following an exit, they often have a wide range of projects they want to finance using the sale proceeds. Whether they are interested in becoming business angels, following their passions, or buying a home for their family, they still have to adapt the planning and management of their wealth.

 

What do the entrepreneurs you support do after selling their start-ups?

Most are true entrepreneurs and already have new ideas in mind that they would like to develop. Often, it is because they are “creators” rather than “managers” of companies that they have chosen to bring the great adventure to an end. Now integrated into the entrepreneurial ecosystem, some may become business angels and acquire stakes to help finance other start-ups, or create a new business. However, exiting a business also gives these individuals the chance to secure a portion of their wealth.

 

Are there any significant differences from previous generations of entrepreneurs?

Unlike their predecessors, this generation of entrepreneurs has often benefited little, or not at all, from the fruits of their labour thus far, nor have they accumulated profits over time. For them, an exit is a major opportunity to realise their aspirations – even their dreams. On a personal level, some people spend their money on interests close to their hearts, such as travel, or allow themselves a few months or even years to spend with their families. Some enjoy their hobbies or turn to projects with a strong social or philanthropic impact. This is also something that distinguishes them from their predecessors. Even if this generation is less attached to material possessions, for them, an exit will often be an opportunity to acquire a main residence, something they may have put on the backburner given property prices. In order to benefit as much as possible from all their hard work, they need to organise and plan their wealth. This is all the more pertinent since some founders who exit their businesses are still quite young. 

For this generation of entrepreneurs, an exit is a major opportunity to realise their aspirations – even their dreams.

What are the first steps in managing the wealth of an entrepreneur who has sold their business? Are there any elements that should be put in place before the sale?

Yes absolutely, it is important to anticipate the impact on an entrepreneur’s assets before the exit. Indeed, by carrying out certain preliminary tasks, such as creating a holding company or making donations, the tax payable from the sale can be significantly reduced, which increases the resultant gains for the entrepreneur. In this context, it is important not to focus on immediate tax savings but to conduct a global wealth analysis from the outset. It is about looking ahead to ensure that the decisions made meet the entrepreneur’s aspirations and values over the long term. This process of reflection includes options for future professional projects and personal financial needs, and also a family dimension, with questions relating to the protection of the spouse or partner and children. These reflections must of course take into account the new forms of partnerships (civil unions, civil solidarity pacts, co-habiting couples), the growth of blended families, very young children and increased life expectancies. Some entrepreneurs may also wish to receive support to realise philanthropic projects.

It is important not to focus on immediate tax savings but to conduct a global wealth analysis from the outset. It is about looking ahead to ensure that the decisions made meet the entrepreneur’s aspirations and values over the long term.

How does the evolution of French taxation rules impact on wealth and its management?

With the new flat tax of 30%, including social security contributions, which applies to all financial income and the replacement of the wealth solidarity tax (ISF) by the property wealth tax (IFI), tax on financial investments has improved significantly in France. In addition, financial assets can grow more tax efficiently by using structures that offer income tax deferral (eg life insurance wrappers, ‘PEA’, etc.), with only withdrawals being taxed (and again, only partially).

As for the real estate part of the portfolio, debt financing could be interesting in current market conditions. Entrepreneurs could also consider the use of LMNP (landlord of non-professional furnished real estate) status for rental properties, which gives special tax advantages, or the establishment of an SCI (civil real estate company). In many cases, the capital already held in a holding company following the sale may be reinvested in real estate. In the event of a requirement to reinvest 60% in operational companies as part of an “apport-cession” (capital contribution and subsequent share transfer), at least the remaining 40% will be available to invest.

As French tax rules are constantly evolving, it is important to choose flexible structures and to constantly reassess the situation in the light of any future legislative changes.

As French tax rules are constantly evolving, it is important to choose flexible structures and to constantly reassess the situation in the light of any future legislative changes.

And at the level of investments, how should entrepreneurs organise their assets?

A private banker can help an entrepreneur choose an asset allocation that is appropriate for their personal situation and financial objectives. These decisions are made according to the characteristics of the different asset classes, such as cash, equities, bonds, real estate and other unlisted assets. An entrepreneur’s asset allocation will take into account the fact that some of their wealth may already be invested in unlisted assets. This may either be because they have remained partially invested in their start-up to continue to support its development, because they have created another company, or because they have become a business angel and invested in other start-ups.

For each of these asset classes, and depending on how the liquid assets are held (directly or in a holding company), decisions must be made on the management approach (active/passive), and on the choice of security selection and investment managers. Depending on each individual’s preferences, other criteria can also be taken into account, such as a sustainable investment approach, based on environmental, social and governance criteria, in which today’s entrepreneurs show an increasing interest.  

From a financial perspective, today’s entrepreneurs are much like the previous generation. They are seeking to secure their wealth and obtain stable long-term returns, while having a positive influence on society.

1Lombard Odier (Europe) S.A. Succursale de France does not provide tax advice. Clients requiring tax advice should consult an independent tax advisor.

Official sources specifying the legal texts mentioned:

Loi de Finances pour 2018 (article 31) 
Article 150-0 A of the code général des impôts
Taxation of furnished rental

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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