The number of business creations increased in 2009 in France; but so did the number of business bankruptcies.

Business creations grew

According to French statistical agency INSEE, 580 193 new businesses were set up in France during 2009. By comparison, 327 000 new businesses were created in 2008.

What accounts for this 75% jump in one year? Mostly a new measure in favor of self-employed business people –who in French are oddly termed “auto-entrepreneurs“– which spurred 320 000 new business start-ups in 2009. (Auto-entrepreneurs can have employees, but most don’t.)

What did the French do to spark self-employment? They reduced the paperwork burden for new business creation. They also permitted small businesses to pay flat taxes and social security contributions, which represents a huge advance over an otherwise opaque system. (The opacity results from having to deal with many institutions –none of which seem to have heard of the Internet– and from a lag between filing returns and making payments.)

From data collected by APCE (the French association for business creation), some sectors saw growth of more than 100% over the prior year: arts and recreation, education, communications, and personal services. Five regions generated new-business creation growth in excess of 85% over the prior year: Poitou-Charentes, Basse Normandie, Centre, Bourgogne, and Franche-Comté.

Bankruptcies also increased

According to Altares, a Dun & Bradstreet group company, 63 000 French businesses declared bankruptcy in 2009, an increase of 11.4% over 2008.

The Altares report counted as “bankruptcies” court decisions to begin bankruptcy proceedings: reorganizations and liquidations.

This is a good sign of insolvency –inability to make payments as they come due– but does not explain what ultimately happens to the business. Are distressed French businesses reorganizing, then rebounding? The evidence is not encouraging: the proportion of businesses that filed for liquidation grew relative to those that sought reorganization. In all, 68% of new proceedings were for liquidations. French debtors apparently believe their businesses cannot be salvaged, either because circumstances are too grim or because court protection is sought as a last resort, after a business has substantially failed.

Some French regions suffer more business bankruptcies than others: the west of France, Alsace, and the Rhône-Alpes. Basse-Normandie and Poitou-Charentes are alike in that both regions have high growth in business creation and business bankruptcy.