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New social enterprise law comes into effect in France – February 2016

For the first time in French history, all legal forms are grouped under one social enterprise legal status

By ESELA Posted 23/02/2016

The French law n. 2014-856 on the Social and Solidarity Economy entered into force on 31 July 2014 (“ESS Law”). The ESS law revolutionized French social enterprise law by defining the values of a social and solidarity economy enterprise regardless of its legal form (non-profit, charity, commercial company, cooperative, foundation, mutual…). For the past two years, the ESS law stayed relatively dormant as social enterprises anxiously waited for the government to publish the decrees that would provide guidelines for how to implement the law. It wasn’t until the summer of 2015 that the government finally started publishing the decrees according to which, as of 1 January 2016, all legal forms are able to apply to receive the ESS Enterprise status.

According to article 1 of the ESS law, a “Social and Solidarity Economy Enterprise” (“ESS Enterprise”) must have a democratic governance, must pursue a purpose other than sharing profits, and must devote the majority of its profits to the objective of maintaining or developing the enterprise’s social mission. The law also created a new legal status whereby any legal form may apply for the title “Entreprise Solidaire d’Utilité Sociale” (ESUS). In order to become a ESUS, the ESS Enterprise and must satisfy two additional requirements: 1) the compensation for managers and employees must be capped (the average of the salary for the 5 highest paid employees and managers cannot exceed 7x the minimum wage (123,198€/yr) and the salary for the highest paid employee or manager cannot exceed 10x the minimum wage (175,998€/yr); and 2) the social mission must significantly impact the profits of the company (i.e., at least 66% of the business expenses are dedicated to the social mission or the rate of return on investment is less than 5,96%).

What is even more interesting is the fact that the ESS law seems to mirror the characteristics of a European Social Enterprise: 1. the organisation must engage in economic activity; 2. it must pursue an explicit and primary social aim that benefits society; 3. it must have limits on distribution of profits or assets to prioritise the social aim; 4, it must be independent from the State or other for-profit organisations; and 5. it must have inclusive governance. An ESS enterprise does not require an enterprise to engage in economic activity or be independent from the State but in practice, most commercial companies satisfy these two criteria.

To find out more information about the law, please visit the following website: http://www.economie.gouv.fr/ess-economie-sociale-solidaire

Alissa Pelatan

Board Member, ESELA

Partner, AMP AVOCAT

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