Would you like to participate in a concrete way in the development of the French economy? This can be achieved through an investment in an SME or Small and Medium Entreprise. This is a medium or long-term investment (5 years minimum), often eligible for a tax exemption system (income tax reductions).
Indeed, SMEs attract a good number of investors, thanks to their performance in terms of profitability. But how to invest in an SME? Discover in this article the answers with the conditions.
The objectives of an investment in an SME
An investment in an SME gives you the status of shareholder, which confers certain rights, such as the right to speak and vote at general meetings, the right to see and decide on the company’s life, the right to dividends.
Each investment has its objectives. There is the will to support and promote the SMEs of one’s country or region, make a long-term investment, optimize one’s taxation, and disregard the financial markets.
Moreover, each investor has their own subjective perception of their investment because the amount allocated, the desired profitability, the duration of the investment, among others, differ from one investor to another.
How to invest in an SME
Investing in an SME consists in putting your money into the company of your choice, accompanying it in its development, and getting the maximum profit. However, this investment presents risks of capital loss.
It can be carried out according to 2 modalities. On the one hand, if the chosen company is listed, the investor buys a share on the stock market. On the other hand, if the SME is unlisted, the investor participates in “crowdfunding” or participatory financing.
Furthermore, it is currently possible to make investments online via Internet platforms. For this, either these platforms raise funds on behalf of the company by describing their project, objectives, and the estimated profitability of the investments. Or online brokers offer you products, analyze your investment capacities and assist you during the project.
The right time to invest
The investment in the capital of an SME is made either at its creation or during the increase of its capital during its life.
Minimum amounts required
For crowdfunding, the minimum amount is 100 dollars. The minimum amount for shares in specific innovation mutual funds is 1,000 dollars.
The different types of investments
Although cash contributions (money transferred to the company’s capital) are the most common, investors can make other possible contributions to the company. First, there is the contribution in kind, which refers to movable and immovable goods. These represent a volume of shares in the share capital calculated according to the value of the assets.
Secondly, there is the industry’s contribution, which consists of bringing know-how. In practice, its implementation is very complex.
The conditions relating to the investment in an SME
These conditions are:
- The subscribed securities must be kept at least 5 years after the subscription.
- They must not carry out a holding activity.
- To be attached to a State of the European Union.
- Be subject to the Corporate Income Tax.
- Carry out one of the following activities: commercial, industrial, craft, liberal or agricultural
- The number of employees must be at least 2 (at the end of its first fiscal year) and at most 250
- The turnover must be less than 50 million dollars per year, or its annual balance sheet total must be less than 43 million dollars.
Necessary precautions related to the investment
Before making any investment, whether you are an investor or an entrepreneur, it is essential to analyze the situation carefully.
For the investor, find out about the SME: the nature of its activities, the scope of its market, its business model, its financial and accounting situation, and its growth prospects. It is possible to invest in several SMEs and start-ups simultaneously, provided your portfolio allows it. But the more you invest, the greater the risks. Therefore, it is strongly advised to diversify your investments to limit them.
For the entrepreneur, know how to persuade your potential investors by guaranteeing high profitability and large market shares. To do so, you should estimate the amount of money you are asking for, the expected profitability, the future growth rates, and the return on previous investments.
After the investment has been made, you can enhance the value of your investment projects and closely monitor their implementation and progress through a dashboard.
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