PACTE, the action plan for business growth and transformation

Newsletter - April 2019

The Plan d’Action pour la Croissance et la Transformation des Entreprises (PACTE) aims to give businesses the means to innovate, grow, make transformations and create jobs. The PACTE law was finally adopted by Parliament on 11 April 2019 but is undergoing review by the French Constitutional Court. Subject to the outcome of this review, we present some of the new measures introduced by the law’s 220 articles in various areas.

Facilitate employee profit-sharing

The PACTE law includes several provisions to increase employee profit-sharing.

First, the obligation to have a company savings plan in order to set up a collective retirement savings plan (PERCO) is removed to encourage long-term savings products in companies.

Furthermore, the PACS partner of a business manager who has status as collaborating partner or associate may benefit from incentive schemes, profit-sharing and company savings plans as is currently the case when the couple is married.

Finally, the forfait social (corporate social contribution) was abolished on 1 January 2019 on amounts paid under profit-sharing schemes for companies with fewer than 250 employees, and on all company savings plan payments (profit-sharing, incentive schemes and employer contribution to a company savings plan) for companies with fewer than 50 employees.

Limit threshold effects

There are currently 199 obligations spread across 49 thresholds for SMEs. The calculation methods are complex and vary with the specific features of each law. The new law aims to ease and simplify requirements linked to workforce thresholds.

The thresholds are reduced to three levels: 11, 50 and 250 employees. The threshold of 20 employees is removed, except for the duty to employ disabled workers. The thresholds of 10, 25, 100, 150 and 200 employees are abolished. The method of calculating workforce numbers is harmonised by applying the method laid down in the French social security code. The requirements imposed by crossing a threshold will now only take effect when the threshold has been passed for five consecutive calendar years. Therefore, if the company’s workforce is reduced and subsequently falls back below the threshold, it must be reached again for five consecutive years to give rise to the obligations linked to the change of size.

Simplified law on businesses in difficulty

The PACTE law makes the simplified judicial liquidation – a shorter procedure than the usual ones – the general rule. It means a liquidation procedure can be closed within 6 to 9 months for companies with no more than one employee and €300,000 of turnover and within 12 to 15 months for those generating up to €750,000 turnover. It will become the standard procedure for small and medium-sized businesses with fewer than five employees.

Increase company accountability

French law focuses little on the social and environmental utility of a business. The definition of a company in French law does not recognise the notion of corporate interest and does not encourage businesses to reflect upon their raison d’être. The PACTE law defines the notion of “corporate purpose”.
These changes will entail the rewriting of Articles 1833 and 1835 of the Civil Code. A company must be “managed in its corporate interest, while taking the social and environmental challenges relating to its activity into account”. The aim is to lead managers to think beyond financial performance within the framework of their business. Companies will be able to adopt a “raison d’être” in their by-laws if they so wish.

Reinforce staff member presence on boards of directors

The law includes an obligation to have two employee directors instead of one on boards with more than eight members.

We are entirely available if you have any further queries about the issues discussed in this newsletter or about any other accounting, tax, social security or law related topic.

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