25.10.2018

The Essential Corporate Law in France

These are the highlights if you want to know more about the essential Corporate Law in France. This entry was drafted by PECH DE LACLAUSE, BATHMANABANE & ASSOCIÉS. Link to E-Iure network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case PECH DE LACLAUSE, BATHMANABANE & ASSOCIÉS is an excellent option in France.

Legislative trends in French corporations law

Generally speaking, corporate law in France has become more consumer- and citizen- oriented while still trying to improve the country’s attractiveness to businesses. For the past two years, French corporate law is therefore governed by two main trends: modernization and simplification on the one hand, and fight against corruption and fraud on the other hand. Two fundamental statutes have been passed in this respect:

Ordinance n°2016-131 dated February 11, 2016 reforming French Contract law ; and
Law n°2016-1691 dated December 9, 2016.

Ordinance n°2016-131 dated February 11, 2016 reforming French Contract law

The purpose of this Ordinance is to modernize French contract law by reaffirming and clarifying some key principles among which: the good faith principle, the obligation to provide pre-contractual information, a statutory hardship theory (théorie de l’imprévision), the exemption for non-performance theory, contractual effects and enforceability vis-à-vis third parties, etc.

Law n°2016-1691 dated December 9, 2016 (“Loi Sapin 2”)

Loi Sapin 2 aims at rendering corporation law more business-friendly. For example, specific provisions simplify (a) the set of rules governing the change of corporate form and mergers or (b) the operation of sole-partnership companies.

It also enforces measures relating to transparency and to fight against fraud and corruption such as the filing of the identity of companies’ beneficial owners with a public register or the approval of corporate executives and officers’ compensation by the general shareholders meeting. In fact, as of April 1, 2018, all companies registered in France will have to disclose to the Commerce Register the identity of the ultimate beneficial owners of the capital.

Main corporate structures

Traditionally, French corporate structures are divided between (i) limited liability companies, where the liability of the shareholders are limited to their capital contributions and (ii) unlimited liability companies.

Type of company	Nature	Legal Requirements	Tax status	Notes
Sole proprietorship (Entreprise individuelle, Commerçant)	Not a legal entity, but the registration of an individual undertaking a commercial activity	None except individual capacity to do business (majority, no prior bankruptcy-related prohibition)	Personal income tax	– Unlimited liability vis-à-vis creditors and third parties – Common among small businesses
Limited liability company (Société à responsabilité limitée, or “SARL”)	Limited liability entity governed by the French Commercial Code	– No minimum share capital – 100 shareholders maximum	Corporate income tax with option for personal income tax	– Most common corporate form – Very common for small and family businesses – “Turnkey” type of company with well-developed case law – Limited formalism except when the SARL meets certain criteria in terms of turnover and number of employees – The Management Body of an SARL may comprise 1 or more Managers that must be individuals – The Manager(s) is(are) vested with the broadest powers to represent the company
Public limited company (Société anonyme, or “SA”)	Limited liability entity governed by the French Commercial Code	– Minimum share capital of €37,000 – Minimum 2 shareholders – Mandatory appointment of statutory auditors	Corporate income tax	– Suitable for big companies – Able to market is capital on stock capital markets and raise funds from the general public – Heavy formalism with (i) either a Board of Directors and an Executive Officer, or (ii) a Supervisory Board and a Management Board
Joint-stock company (Société par actions simplifiée, or “SAS”)	Limited liability governed by the French Commercial Code	– No minimum share capital – Statutory auditor required under certain conditions relating to turnover, number of employees and balance sheet total	Corporate income tax	– Very common and flexible corporate form – The by-laws set forth the conditions under which the company is governed and organized, with limited imperative rules – The company is represented vis-à-vis third parties by a President who is vested with the broadest powers to act – The President of a SAS may be a legal entity
Commercial Partnerships (Société en nom collectif, or “SNC”)	– Unlimited and joint liability of the shareholders	– No minimum share capital – Minimum 2 shareholders – Statutory auditor required under certain conditions relating to turnover, number of employees and balance sheet total	Personal income tax with option for corporate income tax	– The management SNC may be run by a legal entity or individuals – Limited rules of governance, mostly left to the articles of organization

Rules governing all corporations and partnerships

Incorporation

The incorporation process in France requires several mandatory steps, failing which the registration will not be recorded by the Commercial Court Registry (Greffe du Tribunal de Commerce) and the entity will not have any legal existence.

Those steps usually include the filing of the by-laws (statuts), documentation relating to the directors and officers, a certificate of deposit for the initial share capital, the justification of the right to use the designated headquarters or the identity of the statutory auditors (if applicable). Incorporation process also requires certain publicity in a legal gazette in the jurisdiction of incorporation.

All these are requisites for the registration with the Commercial and Companies Register (“RCS”), which is now freely accessible from publicly available databases (Infogreffe, Société.com).

Evidence of registration is given through an excerpt of the RCS for a given entity; such document is called a “K-bis”.

Obviously, supplying false information to the RCS is a criminal offense.

Corporate Disclosure and Filings

Under French law, third parties rely on the information provided by the K-bis for any given entity, in particular in determining which officers are legally empowered to bind the company.

Any change affecting the information mentioned in the K-bis must be notified to the Commercial Court for an update. Any change that is not reflected in the K-bis is deemed not to be binding to third parties. Some changes such as a change of the location of headquarters must absolutely be notified to the RCS since notifications sent to the address indicated in the K-bis will be deemed valid, even if the company has effectively moved to another location.

In addition, all commercial entities must file their annual financial statements with the RCS so that third parties may be aware of the financial situation of a company.

Since 2016, small business have the option of requesting the confidentiality of their profit and loss statement (small businesses) and/or their balance sheet (micro businesses).

Mergers, spin-offs, and other specific operations affecting the assets or liabilities of an entity, such as the transfer of a business as a going concern (cession de fonds de commerce) require the filing of draft documents before the decision is submitted to the shareholders, and are subject to a waiting period in order for any interest party to be informed of any potential risk relating to his interests and to have a legal opportunity to obtain guarantees.

Directors and Officers

Directors and officers can be revoked at any time, subject to minimum process. However, revoking general managers in SARLs and SNCs, and members of the directorate in SAs without due cause may result in a legal action for damages.

Foreign individuals who are not citizens of the EU or of the EEE and who are not residents in France must make a specific filing with the local authorities. Those who wish to reside in France may be required to apply for a resident visa.

Directors and officers of a company are personally liable vis-à-vis the company or its shareholders for any negligence in the management; individual directors may not be held liable if they opposed the reprehensible action during a vote of the board. Directors and officers are liable vis-à-vis third parties if they act in a manner which is not compatible with their duties, but also for willful misconduct, breach of any applicable law or regulation, or a breach of the by-laws of the company.

Directors and officers of all companies are criminally liable for breaches of safety and labor laws and regulations (such as negligence in a work accident) unless they have duly transferred their responsibility under delegations of authorities for the delegates to comply with the relevant regulations.

Directors and officers that have been negligent in the management of the company’s affairs and that subsequently filed for bankruptcy may be held liable for part or all of the company’s liabilities.

Corporate assets

French law severely punishes the divestment by directors and officers of the company’s assets for personal gain and/or for a use that is contrary to the entity’s interest insofar as such behavior is considered as a breach of duty to the entity involved. Such divestments, called “abus de biens sociaux” or “abus de confiance” include, for example, unjustified discounted sales, transfers of the company’s assets to directors or shareholders without corporate approval, personal use of the company’s assets, inappropriate compensation, corporate guarantee given to comfort the director’s personal loans or liabilities, etc.