Characterising a business correctly: criteria, uses and practical implications

Updated March 2026 - Characterising a business is not simply about assigning it a sector code or a legal label. It means reading the entity in terms of its economic nature, its actual activity, its size, its degree of autonomy and its legal framework — because those dimensions determine which rules apply, which comparisons are valid and what kind of support is genuinely relevant.

French law defines a business through several complementary texts. Article L123-1 of the French Commercial Code requires registration in the Trade and Companies Register (Registre du Commerce et des Societes) for any natural person with the status of merchant and for any legal entity subject to this formality. INSEE, France's national statistics office, adopts an economic definition: a business is a legal unit that is personalised, autonomous and carries out a productive activity on a market.

This dual reading — legal and economic — is essential. A single legal unit may comprise multiple establishments, spread across different sites, with distinct activities. Conversely, multiple legal units may belong to the same group and be treated as a single economic entity for certain statistical analyses. Decree No. 2008-1354, implementing the Law on the Modernisation of the Economy, defines four categories of businesses for statistical and economic analysis purposes: micro-enterprises, SMEs, intermediate-sized enterprises (ETI) and large enterprises.

The APE code (Activite Principale Exercée), also known as the NAF code (Nomenclature d'Activites Francaise), is assigned by INSEE at the time of business creation. It is based on the current activity nomenclature and reflects the activity that generates the most revenue or employs the most staff.

This code serves several practical functions. It determines the applicable collective bargaining agreement, identifies the competent vocational training body, and influences the calculation of certain social contribution rates — notably those related to workplace accidents and occupational diseases, managed by the regional Carsat. It also conditions access to certain sector-specific aid or financing schemes.

It is important to understand that the APE code is an administrative indicator, not an exhaustive description of actual business activity. A company may carry out several complementary activities without its APE code reflecting all of them. In the event of a change in main activity, it is possible to request a modification of the APE code from INSEE via the single window for business formalities.

The legal form is arguably the most visible criterion for characterising a business. It determines the liability regime of the director(s), governance rules, the default tax regime, social obligations and legal publicity requirements.

The main forms encountered in France are:

• ▸sole proprietorship (entreprise individuelle, EI): the default regime since the reform that came into force in May 2022, with automatic separation of personal and professional assets without any additional formality;
• ▸micro-enterprise (micro-fiscal regime): a simplified regime available to sole traders whose revenue does not exceed certain thresholds. As of 2026, the thresholds stand at €203,100 excluding tax for sales of goods and accommodation activities, and €83,600 excluding tax for service activities;
• ▸EURL (single-member SARL): a single-member limited liability company offering a structured legal framework while maintaining management simplicity;
• ▸SARL: a limited liability company with two to one hundred members, the classic form for small and medium-sized family or partnership businesses;
• ▸SAS: a simplified joint-stock company, highly flexible in its internal organisation, now the preferred form for startups and group subsidiaries;
• ▸SA: a public limited company, reserved for larger projects with a minimum capital of €37,000 and formalised governance structures;
• ▸SCI: a real estate investment company, dedicated to the management and enhancement of property assets.

Each legal form carries distinct tax consequences: income tax by default for sole proprietorships and certain partnerships, corporation tax for commercial structures, with the possibility of opting for one or the other regime in certain cases.

The European classification of businesses, adopted by INSEE and Decree No. 2008-1354, distinguishes four categories based on headcount, revenue and total balance sheet:

• ▸micro-enterprise: fewer than 10 employees and revenue or balance sheet total not exceeding €2 million;
• ▸SME: fewer than 250 employees and revenue not exceeding €50 million or balance sheet total not exceeding €43 million;
• ▸ETI (intermediate-sized enterprise): between 250 and 4,999 employees, with revenue not exceeding €1.5 billion or a balance sheet total not exceeding €2 billion;
• ▸large enterprise: beyond these thresholds.

These categories are not merely statistical labels. They open or close access to concrete mechanisms: public aid reserved for SMEs, extra-financial reporting obligations for ETIs and large enterprises, simplified consolidated accounting rules for micro-enterprises, and more.

In France, SMEs represent the vast majority of the economic fabric. According to the latest INSEE data, they account for approximately 48% of value added and 47% of salaried employment in the non-agricultural market sector.

Characterising a business must also take into account its degree of independence. A company is considered autonomous when no other company holds more than 25% of its capital or voting rights. Beyond this threshold, it is considered linked to one or more other companies, which modifies the perimeter for calculating headcount and revenue thresholds.

This distinction is critical. To determine whether a company crosses the 50-employee threshold — triggering, for example, the obligation to set up a Social and Economic Committee (CSE) — it is necessary to take into account not only the company's own headcount, but also that of linked companies and, where applicable, a proportional share of the headcount of partner companies. The same reasoning applies to tax thresholds, including the tax regime or transfer pricing obligations.

Group membership also entails specific accounting obligations: preparation of consolidated accounts, regulated agreements between group companies, and for groups exceeding certain thresholds, the publication of a consolidated management report.

A rigorous characterisation of a business serves several practical purposes:

• ▸applying the right rules: many legal obligations depend on the company's category. The statutory audit obligation, for example, is triggered by exceeding thresholds defined by the Commercial Code. Incorrect characterisation can lead to missing an obligation or, conversely, over-investing in unnecessary formalities;
• ▸choosing the right frame of comparison: comparing the profitability of a micro-enterprise with that of a 200-employee SAS makes no sense without adjusting indicators.

Relevant ratios vary by category, sector and business model;

• ▸reading a file or valuation more accurately: whether you are analysing a client's accounts, an acquisition target or a competitor, characterisation determines which data points are meaningful. The revenue of a holding company does not mean the same thing as that of an operating company;
• ▸targeting the right advisory support: the needs of a sole trader crossing the revenue threshold are not those of a growing SME considering a fundraising round, nor those of an ETI preparing for a business transfer.

Hayot Expertise advice: a business is rarely fully understood from a single angle. Legal form, sector, size and degree of autonomy must be read together. It is the combination of these four dimensions that gives an accurate picture of the economic and legal reality of the structure.

What is the difference between a legal unit and an establishment?

The legal unit is the legal entity — natural or legal — that exists independently of its places of operation. An establishment is a geographical division of this legal unit: a registered office, a factory, a branch. A single legal unit can therefore have multiple establishments, each with its own SIRET number, while the legal unit has a single SIREN number.

How do I find a company's APE code?

The APE code is visible on the company's Kbis extract, on the SIRENE status notice available on sirene.fr, or on free platforms such as Pappers.fr. It consists of four digits and a letter (for example, 6920Z for accounting activities).

Can you change legal form after creation?

Yes, it is possible to transform a company from one legal form to another without creating a new entity. The transformation of a SARL into an SAS, for example, is a common operation that does not break the legal continuity of the company. It does, however, require a collective decision by the members, an amendment to the articles of association and legal publicity.

Are business size thresholds the same in France and Europe?

The categories of micro-enterprises, SMEs, ETIs and large enterprises are defined by a European recommendation (2003/361/EC) transposed into French law by Decree No. 2008-1354. The thresholds are therefore harmonised at European level, which facilitates comparisons and access to EU programmes.

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In 2026, correctly characterising a business is a practical skill that goes well beyond simply reading a Kbis extract. The APE code, legal form, size category and degree of autonomy form a coherent system that determines the obligations, rights and opportunities of each structure. Taking the time to read these criteria correctly gives you the means to make better decisions — whether for compliance, financing, growth or business transfer.

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