French Corporate Law

Sources of French Corporate Law

French corporate law (droit des sociétés) is codified principally in the Commercial Code (Code de commerce), which was substantially reformed in 1966 and again by the law on new economic regulations (loi NRE) of 2001. The Civil Code (Code civil) provides the general law of contracts and obligations applicable to all legal persons. The Monetary and Financial Code (Code monétaire et financier) governs securities issuance and capital market activities. The General Regulation of the Financial Markets Authority (Règlement général de l’Autorité des marchés financiers, AMF) imposes disclosure and conduct requirements on listed companies. French corporate law is characterised by a high degree of statutory prescription, although the société par actions simplifiée (SAS) has introduced significant contractual freedom.

Forms of Business Organisation

The société anonyme (SA) is the traditional form for large enterprises. It requires at least two shareholders (seven for listed companies) and a minimum share capital of €37,000, of which at least half must be paid up at formation. Shares may be listed on a regulated market. The société par actions simplifiée (SAS), introduced in 1994 and simplified in 1999, is the most flexible corporate form, permitting extensive contractual freedom in the articles of association. The SAS requires at least one shareholder, has no minimum capital requirement, and may be governed by rules tailored to the specific needs of the shareholders. It is widely used for joint ventures and subsidiary structures. The société à responsabilité limitée (SARL) is the most common form for small and medium enterprises, requiring at least two and no more than one hundred shareholders, with a minimum capital of €1. Shares in a SARL may not be listed and are subject to transfer restrictions. The société en nom collectif (SNC) is a general partnership in which partners are jointly and severally liable for debts. The société en commandite simple (SCS) is a limited partnership with one or more general partners (commandités) bearing unlimited liability and limited partners (commanditaires) whose liability is limited to their contributions. The entreprise individuelle (EI) is not a separate legal entity but permits a natural person to conduct business with simplified formalities.

Corporate Governance of the SA

The SA may choose between two governance structures. The traditional one-tier structure consists of a board of directors (conseil d’administration) and a president-director general (PDG). The board determines the direction of the company’s business and supervises management. The president-director general serves as both the chair of the board and the chief executive officer, although these functions may be separated. The two-tier structure, consisting of a supervisory board (conseil de surveillance) and a management board (directoire), follows the German model but is less commonly adopted. The management board has the broadest powers to manage the company, while the supervisory board appoints the management board and oversees its activities.

Duties of Directors

Directors owe a duty of loyalty (devoir de loyauté) to the company, which includes a prohibition on exploiting corporate opportunities for personal benefit. The liability of directors for fault in management (faute de gestion) is governed by Article L225-251 of the Commercial Code for SA directors and by Article L223-22 for SARL managers. Directors may be held liable to the company and to third parties for violations of law, breaches of the articles of association, or errors in management. The action sociale exercée par les actionnaires permits shareholders to bring a derivative action on behalf of the company. The action ut singuli permits individual shareholders to seek compensation for damages sustained personally as a result of corporate mismanagement. Criminal liability for directors exists under separate provisions, including for abuse of corporate assets (abus de biens sociaux).

Shareholders’ Rights

Shareholders exercise voting rights at general meetings in proportion to their shareholdings. Preference shares (actions de préférence), governed by Article L228-11 of the Commercial Code, may carry preferential rights to dividends, voting rights, or priority in liquidation. Shareholders have a right to information, including the right to examine corporate books and documents prior to general meetings under Article L225-117. Minority shareholders may challenge corporate decisions for abuse of majority power (abus de majorité), which occurs where a majority resolution is adopted contrary to the corporate interest and for the sole purpose of favouring the majority shareholders at the expense of the minority.

The Rozenblum Doctrine

The law of corporate groups in France is shaped by the Rozenblum doctrine, established by the Criminal Chamber of the Cour de cassation in its 1985 decision. The doctrine permits intragroup financial transfers that would otherwise constitute abuse of corporate assets, provided three conditions are satisfied: there must be a coherent group structure, a common economic policy, and the transfers must not be disproportionate to the benefits received or must be compensated. The doctrine has been extended to civil liability and provides a framework for analysing intragroup transactions that is more flexible than the approach in most civil law jurisdictions.

Winding Up and Insolvency

French insolvency law provides for three principal procedures. Sauvegarde, introduced in 2005 and inspired by Chapter 11 of the United States Bankruptcy Code, is a preventive procedure available to companies that are not yet insolvent but face financial difficulties. The company remains in control of its business under the supervision of an administrator. Redressement judiciaire is the primary insolvency procedure for companies that have ceased payments (cessation des paiements). The court appoints an administrator and a judicial representative, and a plan for continuation or sale is developed. Liquidation judiciaire is the terminal procedure for companies whose situation is irremediably compromised. Directors may be held liable for insufficiency of assets under Article L651-2 of the Commercial Code where their fault in management has contributed to the insufficiency.