What Is a Fonds de Commerce? France's Business Asset Explained

What is a fonds de commerce? The short answer

The fonds de commerce is the business as an asset: the set of means a trader has assembled to attract and serve a clientele - the goods in stock, the trade name, the right to the commercial lease, the equipment, the operating licences and the intellectual-property rights. French law treats that set as one thing. It can be sold as a whole under a dedicated statutory regime (Commercial Code, Arts. L 141-2 to L 141-22), contributed to a company, given away, leased out to a manager, or pledged to a creditor - separately from the company that operates it and separately from the walls it trades from.

The concept has no exact equivalent in common-law systems, which is why "goodwill", "business" and "going concern" all translate it imperfectly. What defines it is not a list of assets but a test: without a clientele, there is no fonds de commerce - and French courts apply that test to the substance of a deal, whatever the parties called it. This guide sets out the legal definition, the elements, the clientele test, the line with the craft business, the difference with buying the operating company, and everything a fonds can be used for besides a sale.

The legal definition of the fonds de commerce

The fonds de commerce comprises the whole of the means, goods, trade name, lease right, equipment, licences or operating authorisations, industrial-property rights, that a trader dedicates to an operation in order to serve a clientele. For a sale to be a sale of a fonds de commerce within the meaning of Articles L 141-2 to L 141-22 of the Commercial Code, the essential elements of the fonds, and above all the clientele, must be transferred.

The sale obeys two layers of law at once: the general law of sale, and the mandatory rules first enacted by the laws of 17 March 1909 and 29 June 1935, today codified at Articles L 141-2 et seq. and R 141-1 et seq. of the Commercial Code - the rules on publication, creditor oppositions and the blocked price that makes a French business sale run on its own calendar.

Legally, the fonds is a movable universality: one asset made of many. Two consequences follow. In principle it cannot be sold partially - though the sale of a branch of activity which by itself forms a distinct and autonomous fonds, with its own clientele, is a sale of a fonds (the courts have said so of the café-bar branch of a café-bar-stationery business). And the sale of an isolated element, the equipment, the stock, even the lease, is not, in principle, a sale of the fonds; on the tax side, though, successive sales of different elements to the same person can be treated as a disguised sale of the whole.

Labels do not decide any of this. Parties sometimes qualify their agreement wrongly, to escape a constraint, or by mistake, and the judge has express power to restore the true characterisation (CPC Art. 12). Whether a deal is "a sale of a fonds de commerce" is a question of substance the parties cannot settle by choosing a title.

The elements of a fonds de commerce

The deed of sale generally lists the elements sold - necessary drafting, because the price must in principle be broken down between certain of them. Where the deed says nothing, the elements included by default are the shop sign, the trade name, the right to the lease, the clientele and the passing trade (C. com. Art. L 141-5, al. 2). The usual components:

• The clientele and passing trade - the customers attached to the trader and the custom drawn by the location. This is the element without which there is no fonds at all; the next section takes it separately.
• The trade name and the sign - the identifiers under which the clientele knows the business.
• The right to the lease - the tenant's rights over the premises where the business trades. Often the most valuable element; the premises themselves belong to the landlord and are not part of the fonds.
• Equipment and stock - the material means of the operation. A fonds can be sold without its stock: the courts do not require the goods to follow.
• Licences and authorisations - where the activity requires one, the licence is a component of the fonds and can determine its value.
• Industrial-property rights - trademarks, and the rights that identify the products. Their treatment can decide the whole qualification: an contribution that named the clientele but excluded the trademarks, the very element that determined the clientele, was held not to transfer a fonds.

Just as telling is what the fonds does not include. The trader's receivables and debts are not elements of the fonds: unless the deed provides otherwise they stay with the seller, a receivable binding the debtor only once notified (C. civ. Art. 1324) and a debt moving only with the creditor's consent (C. civ. Art. 1327). The premises are not in the fonds - only the lease over them is. And the fonds is distinct from the company that operates it, a distinction the next sections develop.

The clientele: the element that makes the fonds de commerce

Without a clientele, the fonds de commerce does not exist - a rule fixed by the Cour de cassation at its most solemn level (Cass. ass. plén. 24 April 1970) and applied ever since. A sale only qualifies as a sale of a fonds if it carries the clientele, which generally means carrying the elements that retain it; what those are varies with the activity. The courts have refined the test in three directions.

The clientele must be real and certain, not potential. A pharmacy's clientele exists from the day the dispensary opens to the public - not from the administrative authorisation to create it, when the clientele is only potential (Cass. 1re civ. 4 December 2013).

The clientele must be the trader's own. A cooperative running a restaurant reserved to its own members has no clientele of its own, and therefore no fonds; operators whose customers really belong to another business fail the same test.

The clientele must pass in fact. The cases where a "sale of a fonds de commerce" failed the test and was requalified:

• an assignment of the lease with no transfer of clientele - a cession of the lease right, not of a fonds;
• a transfer of the trade name and the lease where the deed expressly excluded the clientele - however strong the location's passing trade;
• a "computer-equipment business" with no custom, no goods and no activity for the year before the deal, where the buyer installed a radically new activity on taking possession;
• a seller who had ceased trading long before the transfer, leaving only the lease to convey.

Against that, the sale by a baker of his outlet with the equipment, the lease and the clientele to another baker is a sale of a fonds; and the sale of a pressing and dry-cleaning business remained one even though the deed did not itemise the clientele of every deposit point and the business had closed temporarily - a temporary closure does not necessarily destroy the clientele. The lesson for both sides of a deal: the qualification follows the customers, and the deed should show they are part of what changes hands.

Is your deal really about a fonds de commerce?

Pick the situation closest to yours - the check shows the likely qualification, and what it changes.

Fonds de commerce or fonds artisanal: where the craft line runs

A craftsman's activity is in principle civil; a trader's is commercial. The distinction sounds academic and is anything but: the sale of a craft business (fonds artisanal) is not subject to the fonds de commerce statute, no mandatory publication regime, no statutory opposition procedure, although where the nature of the activity is uncertain, the prudent course is to comply with it anyway. Fiscally the two sales are in principle treated the same, and the municipal right of pre-emption applies to craft businesses in the same conditions as to commercial ones.

What decides the qualification is how the income is earned, not the paperwork:

• Source of the income. The craftsman earns mainly from personal manual work - the mason buying materials as needed, the saddler living from his hands even with a shop, the taxi driver with a single vehicle, the plumber whose resales of materials were 5 % of his result. The trader earns mainly from speculation on employed labour, machines and materials - the manufacturer buying supplies in quantity, the pasta maker whose profit came from machines and investment.
• Independence. The craftsman works without subordination to a third party.
• Headcount is not decisive. Registration at the craft register is reserved to those employing fewer than eleven (with statutory exceptions letting a registered business keep its inscription above that), but the number alone does not settle the legal nature - an entrepreneur with nine employees has been refused the craft qualification because the scale of the operation exceeded the craft frame.
• Registers create presumptions, not statuses. Registration at the trade and companies register only presumes trader status, absence of craft-register inscription is only an indication, and a business can have to register at both.

The fonds de commerce and the company that operates it

The fonds and the company are two different assets, and French law refuses to blur them. The sale of the majority, or the totality, of the shares of a company is not a sale of the fonds de commerce on that company's balance sheet. To treat a massive share transfer as a transfer of the fonds would negate the company's own legal personality and confuse the shareholder's rights with the company's assets. The consequence for deal-making is the asset-vs-share fork: buy the shares and the company keeps everything, including its debts and its history; buy the fonds and you take the listed elements through the statutory sale procedure.

The separation has one limit: substance. Where the circumstances show that the acquirer of a controlling block in reality appropriated the company's fonds, the courts will act on it - as in the case of a clinic company whose new controlling shareholder had the authorisation to operate all the clinic's surgical beds transferred to its own establishment, stripping the company of the essential element of its fonds; the acquiring company was ordered to compensate a surgeon whose practice contract was destroyed in the process. The screen between fonds and company protects deals done in form and in substance - not asset-stripping dressed as a share sale.

What else you can do with a fonds de commerce

The sale is only one of the operations the fonds supports. The others make it a working tool of structuring and succession:

• Contribute it to a company. A contribution in ownership makes the company, not the shareholders, the owner of the fonds, against shares in return. A contribution in enjoyment only (the contributor keeps ownership, the company uses the fonds for a set time) operates like a location-gérance.
• Transmit it for free. The fonds passes by succession, or by gift - the rules on sales for value do not apply to gratuitous transfers, and the municipal pre-emption right does not reach them either.
• Lease it out. Under a location-gérance (C. com. Arts. L 144-1 to L 144-13, a public-order regime), the owner rents the fonds to a manager who operates it at their own risk and peril - the classic structure for a staged exit or a transmission.
• Pledge it. The fonds can be given in security (nantissement): the unpaid creditor can have the fonds sold at auction (C. com. Art. L 143-5) but can never take its ownership (C. com. Art. L 142-1). For a later buyer, registered pledges and liens matter through the creditors' right of pursuit: buy without purging the inscriptions and the registered creditors can still have the fonds auctioned - the purge procedure exists precisely to clear the title.

When tax treats your deal as a fonds de commerce sale anyway

The tax net is wider than the legal definition. The "successor agreement" (CGI Art. 720) covers any agreement for value whose effect is to let one person step into a profession, function or position occupied by a predecessor - and charges it the same registration duties as a sale of a fonds de commerce, even where no clientele passes and whether the activity transferred is civil or commercial. The case-law and administrative examples:

• agreements between doctors, veterinarians or dentists with a non-re-establishment undertaking and presentation of the successor to the patients;
• transfers of an insurance agent's portfolio;
• transfers of taxi authorisations and of drinks licences;
• deals limited to equipment where the position passes with it - automatic gaming machines, a fairground carousel.

Two rates frame the cost: the duty runs on the scale of CGI Art. 719, nothing below €23,000, 3 % from €23,000 to €200,000, 5 % above, and, as noted, successive transfers of separate elements to the same person can be recharacterised as a disguised sale of the whole. The practical point for foreign buyers of practices, portfolios and licensed positions: the absence of the word "fonds de commerce" in your contract does not keep you out of its tax regime.

What do you want to do with your fonds de commerce?

Pick the operation - the selector names the regime that governs it and the point to settle first.

Frequently Asked Questions

This article is for general information only and states French law as published in the sources available at the date shown above. It does not constitute legal or tax advice. Whether a given deal involves a fonds de commerce, and what follows from that, depends on its facts. Always seek qualified legal advice before signing.