An article in French on corporations under French law by one of our French lawyers.




1. General observations

2. The Societe en Nom Collectif - S.N.C.

3. Important clauses in the Statuts common to the S.A.R.L. and the S.A.

4 Selecting the form of the company


1. Members and capital

2. The Parts Sociales

3. Management

4. Collective decisions by the members



1. Capital


3. Management of an S.A.

A - The S.A. a Conseil d'Administration (S.A. with a Board of Directors)

a) The Directors

b) The Chairman of the Board of Directors

c) The General Manager (Directeur General)


B - The S.A. a Directoire et Conseil de Surveillance

a) The Directoire

b) The Supervisory Board

C - Advantages of the S.A. a Directoire

4. General Meetings

5. The Societe par actions simplifiee - S.A.S.






Various provisions have been incorporated into French company law as a result of the application of the Treaty of Rome (Article 54, paragraph 3g) and the process of bringing closer together the legislation of the Member States,. These provisions relate particularly to the checks to be carried out prior to incorporation, the powers of the company management, the structure and content of the annual accounts, the management report and public access to these documents, etc...

In spite of this effort at harmonisation, French companies retain certain specific characteristics and foreign investors should not assume that the statutory rules governing French companies are similar to the laws applying to companies in their country of origin. Indeed, there are several major differences, all of which could have far-reaching consequences.

French law provides for a number of different types of commercial company, including the societe a responsabilite limitee S.A.R.L.[private limited company], the societe anonyme S.A. [limited liability company], the societe en nom collectif [unlimited partnership], the societe en commandite simple [limited partnership] or the societe en commandite par actions [partnership limited by shares] (1) all of which are commercial companies.

Because of the necessarily limited nature of this survey, we will briefly consider the societes en nom collectif -S.N.C. [partnerships] and then concentrate exclusively on the S.A.R.L. and S.A., which are by far the most widespread type of company.

Leaving aside the choice of the form in which the company is to be incorporated - S.A.R.L. or S.A. - and the legal, tax and other consequences of that choice, great care must be taken when drafting the Statuts [memorandum and articles of association] and determining which clauses are to be included. These decisions could have serious consequences in the future.

Consequently, it would be very dangerous to reduce the setting up of a company simply to filling in a pre-printed set of Statuts and completing the various formalities - which in any case are far from straightforward.

After setting out the rules applicable to both S.A.R.L.s and S.A.s and assessing the respective advantages and disadvantages of both forms, we shall examine each form of company separately and then go on to consider the problems raised by the clauses peculiar to the Statuts of the S.A.R.L. and the S.A..


The Societe en Nom Collectif or S.N.C. [partnership] is always a commercial company, irrespective of its objects. The partners are all traders and share joint unlimited liability for the company's debts.

The S.N.C. must comprise at least two partners. The law imposes neither a minimum amount of capital nor a deadline for the paying up of this capital.

Unless otherwise specified in the Statuts, all of the partners are gerants [managers] and each enjoys extensive powers of management in the interest of the company.

Their terms of removal differ depending on whether the gerants are partners, and whether they are recognised by the Statuts as gerants. Generally speaking S.N.C.s offer a greater guarantee of stability than an S.A.R.L.. Only a gerant who is not a partner may have a contract of employment.

Partner-gerants are considered for tax and social security purposes to be individual traders. Only gerants who are not partners come under the tax and social security arrangements applicable to employees.

The rules of majority applicable to the partners' collective decisions may be freely determined by the Statuts. Only a few decisions require unanimity (the transfer of shares, the removal of a partner-gerant under certain conditions, the decision to continue trading as a company).

The appointment of a statutory auditor (and a deputy) is optional and only becomes compulsory when certain thresholds are reached (the same as those fixed for the S.A.R.L.; see note 4).

It is possible to transform an S.N.C. into an S.A.R.L. or an S.A. provided certain material and formal conditions are met. The rules governing the company in its new form must of course be observed.


Comments :

- partners with the status of traders must meet the company's debts from their own assets and are liable to be subject to administration by the court and personal bankruptcy if the company fails to honour its payments.

- since share transfers must be authorised unanimously, a partner may become a "prisoner of his shares"

Because of the liabilities assumed by each partner, the legal personality of the partners is a decisive factor both when the company is being set up and in its day-to-day operation. The S.N.C. option will only suit companies involving a small number of partners who know one another and have sufficient trust in each other.

This form of company is now only used in very particular circumstances. The S.A.R.L. and S.A. offer the considerable advantage of limiting the liability of the partners to the amount they invest.


a) Name

Both the S.A.R.L. and the S.A. are known by a company name which may indicate the objects of the company, include the name of one or more partners, or may be pure invention. The choice of name is particularly important for the company both for legal and commercial reasons. In order to guarantee the free use and protection of the name, a search must be conducted to make sure the chosen company name is not already in use and does not conflict with existing registered trade marks.

b) Objects

The objects of the company will define the activities the company may pursue. In addition to the effect of this choice on the company's activities, the objects have direct consequences as regards :

- the validity of the company name, in that two companies carrying out the same activities may not have the same or a similar name;

- the extent of the powers of company officers with respect to third parties, since the company is liable for every act an officer undertakes, providing it is in accordance with the objects of the company.

Of course, the objects must be licit. There are certain activities which may be pursued by an S.A.R.L. and not by an S.A. and vice-versa. Finally, the company's principal activity determines its APE code and the collective agreement applicable to its employees.

c) Registered office

Any company whose actual registered office is located on French territory is governed by French law.

The location of the registered office will determine which courts are competent to deal with disputes between the company and the local tax and social security offices.

f) Duration

The life of an S.A.R.L. and an S.A. is usually set at 99 years, which is the maximum authorised by law. The period commences on registration of the company with the Registrar of Companies.

e) Capital

Whatever form the company takes, it may be in the founders' interest not to restrict the amount of capital to the legal minimum, but to set the capital in line with the financing required for the initial investments and for carrying on the company's business.

When fixing the capital, it should be recalled that if the equity falls to less than half of the company capital as a result of losses, the company is under an obligation to make an announcement to draw the public's attention to the situation.

f) Members'/shareholders' liability

The liability of members of an S.A.R.L. [private limited company] and of shareholders in an S.A. [limited liability company] is limited to the amount of capital they have invested. However, their liability may be extended in the following cases :

In the case of S.A.R.L.s and S.A.s whose capital is relatively small, banks and credit institutions may be obliged to call for personal guarantees from the company management, and sometimes even of the principal members or shareholders, in order to protect advances granted to the company.

Furthermore, in the case of administration or winding up of the company by the court, the liability of the de jure and de facto management, and in some cases, of the main shareholders, may be invoked.

g) Scope of the officers' powers

The management bodies (gerant of an S.A.R.L., Chairman, General Manager, directors of an S.A.) enjoy extensive powers with respect to third parties when carrying out duties relating to the objects of the company. The Statuts may limit these powers by requiring prior authorisation by the members S.A.R.L. or their representatives (Board of Directors or Supervisory Board in an S.A.).

However, these limitations are only valid within the company and are of no consequence as regards relations with third parties.

The clauses restricting the powers of the management must therefore be worded very carefully.

h) Auditors

S.A.s and S.A.R.L.s which fulfil certain criteria (2) are subject to scrutiny by one or more Auditors (statutory auditor and deputies) who are selected from a special list and appointed for a period of six financial years.

The task of the auditors, who have wide powers of investigation, is an ongoing one involving a number of obligations. They must:

- check and supervise the company, in particular by verifying the figures and accounting documents to ensure that they agree with the annual accounts which it is their duty to certify;

- inform the company management of their observations and the conclusions of their audits, inform shareholders, to whom they must submit a general report on the accounts of the previous financial year at the annual meeting and prepare a special report on any agreements concluded between the company and the directors and management;

- alert the company management and shareholders to any development likely to jeopardise the functioning of the company;

- notify the Public Prosecutor of any unlawful act which comes to their attention.

i) Regulated agreements

Agreements which managers and agents of the company may wish to conclude with the company could give rise to some confusion between the personal interests of the individuals involved and the interests of the company.

Certain types of agreements are not permitted, whilst those involving everyday operations concluded under normal conditions may be freely made. Other direct or indirect agreements are closely regulated.

Agreements between an S.A. and one of its directors or general managers are subject to the prior approval of the Board of Directors and are then put to a vote at the general meeting of shareholders, following a special report by the auditor.

A similar procedure exists in the S.A. a Directoire [S.A. with a directorate structure] to cover agreements between the company and one of the members of the Directoire [directorate]or Conseil de Surveillance [Supervisory Board], whereby prior approval must be given by the Supervisory Board.

In an S.A.R.L., no prior authorisation is required and agreements are scrutinised a posteriori by all of the members on the basis of a special report from the gerant and auditor, if there is one. Checks are carried out on agreements made with the gerant or one of the gerants, and also on agreements with one or other of the members or with a company in which a member is a manager or agent.

j) Transforming an S.A.R.L. into an S.A. and vice versa

The process of transforming an S.A.R.L. into an S.A. and vice versa involves amending the Statuts without creating a new legal person. Such a process is subject to certain conditions of substance and form :

- the legal requirements governing the company in its new form must be complied with (minimum capital, nominal amount of shares, minimum number of members, etc...);

- transformation of an S.A.R.L. into an S.A. requires prior reports by a registered auditor on the assessment made by another auditor of the value of the various elements constituting the company assets and on the situation of the company.

- transformation of an S.A. into an S.A.R.L. requires a report by the auditor certifying that the amount of own capital is at least equal to the company capital.

For S.A.R.L.s and S.A.s alike, altering the form of the company requires a decision to that effect to be taken at an extraordinary general meeting by a majority representing 3/4 of the company capital.

In neither case does the change in form have any effect on the company's tax situation. However if a company is transformed into an S.A.R.L., the tax and social security arrangements applicable to its officers may be altered under certain circumstances.

4. Selecting the form of the company

A - S.A.R.L. or S.A. ?

The first problem facing investors who have decided to set up in business in France is selecting the legal form of the company to be created.

In practice, this choice will more often than not be between an S.A.R.L. or an S.A. (3).

The final choice will primarily be dictated by the de facto economic, financial, commercial or industrial characteristics of the company to be set up and, more specifically, the amount of the capital required - and available - for achieving the desired objectives, together with the respective weight of the founders, if there are more than one.

Small companies wishing to maintain close links between members, which do not have or do not require large amounts of capital, will tend to opt for the S.A.R.L. form.

Large companies whose objectives call for very large amounts of capital will have no choice but to opt for the S.A. form, irrespective of whether they intend to offer their shares to the public.

In practice, it is the medium-sized companies which will have most difficulty in choosing. Their decision will basically be dictated by the legal or tax considerations characteristic of the two forms of companies.


In S.A.R.L.s, as in S.A.s,, the members (S.A.R.L.) or shareholders (S.A.)

- are not traders,

- have their liability restricted to the amount of their investment, with certain de facto and de jure exceptions,

- express their opinion on the company accounts at the annual meeting.

In both forms of company :

- the Statuts may be drawn up in the form of a private agreement or certified by a notary.- - the tax rules applicable to profits and their distribution are the same. Only the tax and social security arrangements applicable to the officers is different.



S.A.R.L. :

At least two members (and only one for an E.U.R.L.) with minimum capital of 50,000 F fully paid up at subscription.


S.A. :

At least seven shareholders with a minimum capital of 250,000 F. Only one quarter of the cash investment need be paid up on subscription, but the balance must be paid within five years.


Comments :

- the minimum amount of capital should not decide the form of the company, since it will frequently be insufficient in practice to provide the company with adequate own funds,

- the loss of more than half of the company capital results in unpleasant procedures for drawing the public's attention to the situation. This is another good reason for not opting for too small an amount of company capital, particularly in the case of an S.A.R.L..

- the distribution of capital between the members and shareholders may be unequal, thus making it possible, for instance, for six shareholders in an S.A. to hold one share each and for the seventh shareholder to hold the balance of the capital.



a) Method of transfer

S.A.R.L. at a disadvantage : no negotiable securities but registered parts sociales which may only be transferred by PRIVATE AGREEMENT or by a notarised act. They are consequently subject to various formalities including registration (4.80% duty).


S.A. more advantageous : the transfer of shares, which may only be issued in registered form, is carried out by a simple transfer from one account to another without the payment of duty.

c) Transferability

The principle is that of free transferability of rights in the company between members of an S.A.R.L. and between shareholders and non-shareholders of an S.A.. However, this free transferability may be restricted by clauses in the Statuts whose scope may differ depending on the form of the company.

Regarding the possibilities for restricting free transferability :


S.A.R.L. more advantageous : since it is possible to "close" the company to all intents and purposes by making subject to authorisation any transfers to third parties who are not members, transfers between members, transfers in favour of a member's spouse, ascendant or descendant relative, as well as in cases of devolution on death or the liquidation of property jointly held by a husband and wife.


S.A. at a slight disadvantage : since the scope of authorisation clauses is more limited than in an S.A.R.L. and they are never applicable in the event of transfers between shareholders or transfers in favour of their spouses, ascendants, descendants or in cases of devolution on death or the liquidation of property jointly held by a husband and wife.


Comments : when authorisation of the proposed transferee is withheld, both in S.A.R.L.s and in S.A.s, members or shareholders are obliged to buy back or arrange for the purchase of the rights or shares whose transfer was envisaged.


a) Management Bodies

S.A.R.L. : straightforward, one or several gerants, who must be natural persons, but not necessarily members.

Comments : if the members have the power to appoint the gerant(s) by collective decision, they may only dismiss him/them with just cause.


S.A. (4) : more complex management arrangements, but better suited to medium-sized and large companies. It enables the founders and, in particular, legal persons, to have a seat on the Board of Directors. The Chairman of the Board (President Directeur General), selected from among the directors who are natural persons, may be assisted by one or more General Managers (Directeurs Generaux), who may or may not be directors. This makes it much easier to choose these Managers and permits the number of officers to be tailored to the company's needs.

Comments : the shareholders exercise direct power (in the meeting) over the appointment and removal (for which no justification need be given) of directors as well as over their period of office. They exercise indirect power (via the Board of Directors) over the appointment and removal of the Chairmen and General Managers.

b) Possibilities of combining a function within the company with a contract of employment

S.A.R.L. less advantageous: combining the two is only possible for a gerant with a minority holding or one who is not a member and even then, only under certain strict conditions relating to the technical nature of the paid duties and the existence of a position of subordination towards the company.


S.A. more advantageous : it is possible for directors and company officers to combine the two, but only in certain strictly regulated cases:

- absolute ban on a director obtaining paid employment in the company. However, an employee may become a director if his employment contract pre-dates the appointment.

- in addition to the requirements to be observed generally by directors, combining the functions of the Chairman of the Board or General Manager with an employment contract is subject to further extremely strict conditions relating to the technical nature of the duties and the existence of a position of subordination vis-a-vis the company, which may raise certain difficulties in practice.

c) Tax and social security arrangements for company officers

S.A.R.L. at a disadvantage : only a gerant with a minority holding or one who is not a member may benefit from the same tax and social security arrangements as employees.


Advantage for the S.A. : Irrespective of the size of their share in the company capital, the Chairman of the Board and the General Manager(s) are always covered by the same tax and social security arrangements as employees.



- the appointment of a statutory auditor (Commissaire aux Comptes titulaire) (and a deputy) is optional. It becomes mandatory only when the company attains or exceeds certain thresholds relating to the balance sheet total, the turnover and the average number of employees.

- having no auditor means a saving for the company. On the other hand, it means that the accounts are not subject to external control.


- the appointment of at least one statutory auditor (and one deputy) is always mandatory.

- supervision of the company by a statutory auditor ensures better management control and certification of the annual accounts. It safeguards shareholders and is appreciated by banking institutions.


A comparison of the main characteristics of each of the two forms of company - the S.A.R.L. and S.A. - confirm the opinion stated at the beginning of this chapter that the S.A.R.L. - the Societe a Responsabilite Limitee - is much more suitable for small companies, while the S.A. - the Societe Anonyme - is to be preferred for medium-sized and large companies.

Nevertheless, the above does not constitute a hard and fast rule, since it is essential to bear in mind :

- the de facto circumstances particular to each company, which are sometimes as important, if not more important, than the legal considerations,

- that the fact of being an S.A. confers upon a company a certain standing in some quarters. Some customer firms may prefer to deal with this form of company,

- considerations relating to the tax and social security aspects connected with the remuneration of company officers. This has persuaded some companies to adopt the form of an S.A., despite the formalities and complexities, whereas the S.A.R.L. form might have been thought more appropriate in view of the company's size.

- that it is always possible, subject to certain conditions of time and form, to transform an S.A.R.L. into an S.A. and vice versa. Some companies start up in business as S.A.R.L.s and subsequently switch to become S.A.s when developments in company business make it necessary.



This form, which is by far the most widespread in France, enables the members to be chosen for their personal merits and, with a small amount of capital, to start up a company which is easy to run and involves relatively few formalities.

We have already considered those provisions in the Statuts which are common to both the S.A.R.L. and the S.A. (name, objects, duration, registered office, members' liabilities, powers of the gerants, control, transformation) (see page ...)

Therefore, this section concentrates exclusively on those important clauses of the Statuts which are specific to the S.A.R.L. and whose drafting might raise problems, given the potential consequences.

1. Members and capital

The number of members must be at least 2 natural or legal persons, but may not exceed 50.

The minimum capital is 50,000 F (5) with no limit on the maximum amount. The capital may be in the form of cash investment or contributions in kind (goodwill, equipment, patents, buildings, etc...). It must always be fully subscribed and paid up in full on subscription.


Comment : much attention should be paid to the distribution of the parts sociales ["shares"] among the members, both when the company is set up and when the parts sociales are subsequently transferred, since this distribution will determine the majority thresholds for ordinary and extraordinary decisions, i.e. the control of the company (appointment and removal of the gerant, approval of the annual accounts, authorisation of transfers of parts sociales, etc...).

2. Parts Sociales

The capital is divided into fully paid up parts sociales of equal nominal value as freely defined in the Statuts. These parts sociales are registered and may not be represented by negotiable securities. Under French law, there are no securities embodying the parts sociales, nor is there a "Registre des Associes" ["Register of Members"].

Transfer to third parties outside the company must be authorised by a majority of "shareholders" representing at least 3/4 of the parts sociales.


Parts sociales may be freely transferred between members, spouses, ascendants and descendants. They may be freely passed on by succession or as a result of the division of jointly owned property.


Comment : the Statuts may stipulate that authorisation is required either for a transfer of any kind, or simply in respect of certain categories of persons. This makes it possible to modulate the degree of "openness" of the company.

A member may never remain "a prisoner of his shares". If a transfer is refused, any member who has held his parts sociales for at least two years may arrange for them to be purchased by members, or by the company at a price fixed by an expert or by joint agreement.

When the transfer results in all the parts sociales being held by one member, the company automatically becomes an E.U.R.L. (Entreprise Unipersonnelle a Responsabilite limitee)[one-man limited company] (see page ..) with the consequences that this form entails as regards tax.

3. Management

An S.A.R.L. is managed by one or more natural persons, who may or may not be members. They may be appointed in the Statuts or by an ordinary decision of the members (i.e. representing more than half of the capital) for an unspecified or limited period. They may be removed for proper cause by an ordinary decision of the members or by a court for lawful cause. Removal without proper cause may open the way to a claim for compensation.

The gerant or gerants have extensive powers for carrying out management duties in the interest of the company : clauses in the Statuts which limit their powers are valid only within the company and have no effect on relations with third parties.


Comment : It is permissible to combine the post of gerant with an employment contract, but only in so far as :

- the employment contract relates to a real function and has not been concluded with a view to sidestepping the liability rules applicable to gerants,

- there is a clear distinction between the technical duties specified in the contract of employment and the management duties deriving from the office of gerant,

- the contract of employment provides for separate remuneration,

- the person in question can prove that he is subordinate to the company, which implies that he is either a member having a minority holding or a non-member and that his powers as gerant are restricted.

In practice, every precaution must be taken to ensure that the validity of the employment contract is recognised, particularly by the social security administration.

It is not permitted for the gerant and members (unless they are legal persons) to contract a loan from the company, either directly or via an intermediary, to secure an overdraft from the company, or to arrange for the company to guarantee or stand security for their liabilities to third parties. All contractual agreements between the company and its gerants or members are subject to stringent rules.

4. Collective decisions by the members

The gerant of an S.A.R.L. manages the company and represents it; his prerogatives are limited by the powers devolved by law to the members assembled in the general meeting.


Responsibilities of meetings

The responsibilities of the ordinary general meeting include:

- the appointment and removal of the gerant(s) and the fixing of their remuneration,

- the approval of the annual accounts and the apportionment of the profits during the annual general meeting which must meet, not on a fixed date mentioned in the Statuts, but within the six months following the end of the business year,

- the approval of operations exceeding the powers of the gerant,

- approval of agreements subject to regulation (conventions reglementees)

The responsibilities of extraordinary general meetings include :

- decisions amending the Statuts,

- decisions relating to the transfer of parts sociales where authorisation is required.


Majority rules

Each part sociale entitles the holder to one vote at meetings. Decisions are taken on the basis of the following majorities :


In the case of ordinary general meetings : more than half of the parts sociales,


In the case of extraordinary general meetings :

- amending the Statuts : three quarters or more of the parts sociales

- ruling on a proposal relating to the parts sociales and subject to authorisation : majority of the total number of members representing at least three quarters of the parts sociales,


Comments :

If one or more members holds the following amounts of parts sociales :

- more than three quarters - they have absolute control over ordinary and extraordinary decisions,

- more than half - they only have control over ordinary decisions, i.e. more specifically, the appointment and removal of gerants and approval of the annual accounts,

- more than a quarter - they have a minority blocking vote in extraordinary decisions,

- less than a quarter - they can oppose neither ordinary nor extraordinary decisions.

The distribution of parts sociales which determines majority thresholds during meetings must be closely studied when the company is set up and when parts sociales are subsequently transferred.

5. The Entreprise Unipersonnelle a Responsabilite Limite (E.U.R.L.)

The Entreprise Unipersonnelle a Responsabilite Limite (E.U.R.L.) [one-man limited company] is not a separate form of company, but an S.A.R.L. with a single member. An E.U.R.L. may be set up as such or come about as the result of one sole member ultimately holding all the parts in an S.A.R.L.. The sole member may be a natural or legal person, but :

- an E.U.R.L. may not be the sole member in another E.U.R.L.

The rules applicable to an S.A.R.L. apply to an E.U.R.L., subject to the modifications made necessary by the existence of a sole member who alone exercises the powers shared by all of the members in an S.A.R.L. with more than one member.




The Societe Anonyme is a type of company with share capital, with participation in the company being based more on the capital invested than on the status of the shareholders. We have already examined the provisions of the Statuts common to the S.A. and the S.A.R.L. (name, objects, duration, registered office, shareholders' liabilities, powers of the officers, control, transformation).

Therefore, this section concentrates exclusively on those important clauses of the Statuts which are specific to the S.A. and whose drafting might raise problems, given the potential consequences.

1. Capital

The minimum capital is two hundred and fifty thousand Francs (250,000) (6) for companies whose shares are not offered to the public (appel public a l'epargne). As in the case of the S.A.R.L. contributions to the capital may be in cash or in kind.

Cash shares need only be paid up by a quarter on subscription, though the balance must be paid up within a period of five years. Founders' shares must be fully paid up on subscription.

The capital is divided into shares whose nominal value is freely fixed by the Statuts. French law does not recognise shares without a nominal value.

Shares in S.A.s not quoted on the Stock Exchange must be registered. Non-quoted companies may therefore not issue bearer shares and are thus "anonyme" or impersonal in name only.

Share transactions are carried out simply by transfer from one account to another on the signed instructions of the account holder. The transfer fee of 1% (with a ceiling of 20,000 F) is only payable if the transfer is placed on record.


The number of shareholders in the form of natural or legal persons may not be less than seven. In theory, the shares are freely transferable, but the Statuts may contain clauses - authorisation clauses, pre-emption clauses - restricting the free transfer of shares.


Comment :

Unlike the S.A.R.L., the authorisation clauses in the Statuts of the S.A. do not apply to transfers between shareholders, to spouses, ascendants and descendants, or to transfers on succession or the liquidation of jointly-owned property.

- a shareholder never becomes a "prisoner of his shares". If authorisation for a transfer is refused, the shareholder wishing to sell his shares may arrange for the shares to be purchased by other shareholders, or by the company at a price fixed by an expert or by mutual agreement.

3. Management of an S.A.

The law makes provision for two kinds of Societe Anonyme which differ in terms of their mode of operation :

- the typical companies which have a Board of Directors and Chairman of the Board.

- companies in which the Board of Directors is replaced by a Directoire ("Directorate") which runs the company and a Supervisory Board which oversees the management of the Directoire.

A - The S.A. a Conseil d'Administration (S.A. with a Board of Directors)

The S.A. a Conseil d'Administration is by far the most common form of S.A. The S.A. a Directoire, with its "Directorate" and Supervisory Board is used very rarely.

a) The Directors

In its traditional form, the S.A. is administered by a Board of no less than three and no more than twenty-four natural or legal persons appointed for a maximum of three years when the company is set up and a maximum of six years thereafter (appointment for one year on a renewable basis is possible). The directors may be re-appointed and removed by an ordinary meeting of shareholders. A legal person may be appointed to the Board, but must choose a natural person as its permanent representative on the Board.

Directors must personally own shares . The minimum number is stipulated in the Statuts.

The Board of Directors enjoys extensive powers for acting under all circumstances on behalf of the company, They are limited only by the objects of the company and the powers vested by law in the meetings of shareholders.

- Directors may only act jointly and have no powers to act individually or to sign documents on behalf of the company.

The Board of Directors is able to form a quorum only if at least half of its members are present or represented. A larger majority may be stipulated in the Statuts.

- combining the duties of director with an employment contract.

An employee of the company may not be appointed to the Board unless his contract of employment relates to a specific function within the company. Subsequent appointment to the board does entail termination of the employment contract.

The number of directors linked to the company by a contract of employment may not exceed one third of the serving members.

A serving director cannot obtain a contract of employment with the company.

b) The Chairman of the Board of Directors

The Board of Directors elects a Chairman, who must be a natural person, from amongst its members for a period which cannot exceed his term of office as a director. He may be re-elected and may be removed by the Board at any time without cause, notice or compensation.

The Chairman is responsible for the general management of the company and represents it. He enjoys the widest powers for acting on behalf of the company under all circumstances. The provisions of the Statuts, or decisions by the Board restricting these powers are of no relevance in relations between the company and third parties.

c) The General Manager (Directeur General)


The Board of Directors, acting on the basis of a proposal by the Chairman, may appoint a General Manager to assist him. The General Manager must be a natural person, although not necessarily a director, and may be removed at any time (without cause, notice or compensation) by the Board of Directors. The General Manager has the same powers with respect to third parties as the Chairman. Companies may now have up to two General Managers if their capital is equal to or in excess of 500,000 F and up to five (at least three of whom must be directors) if their capital is equal to or in excess of 10 million Francs.

B - The S.A. a Directoire et Conseil de Surveillance

This form of Societe Anonyme may be adopted when the company is incorporated, or at any time during its lifetime. Its main characteristics are the division of the functions of the Board of Directors between two bodies :

- The Directoire ("Directorate") which manages the company

- The Conseil de Surveillance (Supervisory Board) which appoints the members and Chairman of the Directoire and supervises them.

This form of company only differs from the conventional S.A. in its management bodies. All the other rules applicable to the conventional S.A. apply without exception to this form of company.

a) The Directoire


The Directoire, a collegiate body responsible for managing the company, is made up of one to five members. These natural persons, who may or may not be shareholders, are appointed by the Supervisory Board which nominates one of them as Chairman. The term of office for members of the Directoire is between two and six years, depending on the terms laid down in the Statuts.

Members of the Directoire may be removed by the ordinary meeting on the basis of a proposal from the Supervisory Board.

In S.A.s with capital of less than one million Francs, the duties entrusted to the Directoire may be performed by a single General Manager.

A member of the Directoire may become an employee of the company and vice versa.



The Directoire enjoys the widest powers to act under all circumstances on behalf of the company, within the limits of the company objects and the powers vested by law in the Supervisory Board and the meetings of shareholders.

The Chairman of the Directoire represents the company.

Management duties may be divided among the members of the Directoire, subject to the approval of the Supervisory Board. In this case, however, the entire Directoire remains responsible for the individual actions of each member.

b) The Supervisory Board



The Supervisory Board is made up of from three to twenty-four members. They may be natural or legal persons, but they must be shareholders. They are appointed for a maximum of three years when the company is incorporated or for up to six years thereafter. They may be re-appointed or removed by the general meeting. No member of the Supervisory Board may subsequently be a member of the Directoire. Any legal person appointed to the Board must nominate a permanent representative. Members of the Board may not acquire a contract of employment with the company.

Employees covered by an employment contract relating to a specific function within the company may be appointed to the Supervisory Board whilst retaining their contract of employment, provided their number does not exceed one third of the serving members.



The Supervisory Board elects a Chairman and Vice-Chairman, who must both be natural persons and whose task is to convene the meetings of the Board and direct discussions.

The Supervisory Board has permanent control over the running of the company's affairs via the Directoire.

The Statuts may make certain operations subject to the prior authorisation of the Board.

The Directoire must submit a report to the Board at least once a quarter and the Board must present its comments on that report as well as on the accounts for the previous year to the annual general meeting.

c) Advantages of the S.A. a Directoire

This form of S.A. permits in particular :

- the separation of management and supervisory functions

- the choice of qualified but non-shareholder officers,

- the combination of the duties of member of the Directoire or Supervisory Board with a contract of employment,

- the position of the members of the Directoire to be safeguarded in that, although they are appointed by the Board, they may only be removed by the general meeting of shareholders.

This form of company has not been as successful as the legislators had anticipated. Its functioning is often distorted, either with the Directoire ranked against an ineffectual Supervisory Board and acting in reality like a Board of Directors, or else with the Supervisory Board exceeding its remit by dictating management policy and reducing the Directoire to an executive function.

This form of S.A. is mostly only used by very large companies, or by the subsidiaries of multinational and particularly foreign companies.

4. General Meetings

The Board of Directors (or the Directoire) and officers are responsible for the day-to-day management of the company, but their prerogatives are restricted by the powers devolved by law to the shareholders' general meetings.


Prerogatives of general meetings

Ordinary meetings have responsibility for the following areas in particular :

- the appointment and removal of directors (or members of the Supervisory Board)

- the approval of the annual accounts and distribution of the profits at the annual general meeting which is held, not on a fixed date stipulated in the Statuts, but within six months of the closure of the financial year,

- the approval of regulated agreements

- the appointment of the Auditor

- granting authorisation for, or taking decisions regarding certain operations.

Extraordinary meetings have responsibility for amendments to the Statuts.


Majority rules

Each share entitles the holder to one vote, unless the Statuts restrict the number of votes a single shareholder is entitled to cast, or assign double voting rights to paid up shares which can be proved to have been registered for at least two years in the name of the same shareholder.

Decisions taken at meetings are deemed valid only if a certain minimum number of shareholders is present or represented (quorum). The minimum number may vary depending on the nature of the meeting,


Ordinary general meetings


at the first convening : a quarter of shares with voting rights

at the second convening : no quorum

Decisions are taken on a majority basis.


Extraordinary general meetings


at the first convening : half of the shares with voting rights

at the second convening : a quarter of shares with voting rights

Decisions are taken on a majority basis.


Comments : if, in a closed company with a small number of shareholders, a shareholder holds :

- two-thirds or more of the shares, he can control ordinary and extraordinary meetings,

- more than half, but less than two-thirds, he can control ordinary meetings, i.e. meetings relating to the management of the company, but not extraordinary meetings,

- more than one third of shares, he has a blocking minority in extraordinary meetings,

- less than one third of the shares, he cannot oppose the decisions of either ordinary or extraordinary meetings.

The distribution of shares, which determines majority thresholds in meetings, should be carefully considered when setting up the company and when shares are subsequently transferred. Hence the advisability of authorisation clauses.

5. The Societe par actions simplifiee - S.A.S.

A recent law has brought into being the Societe par actions simplifiee - a simplified joint-stock company. This new form of company dispenses with the rigidity and legal formalities associated with the traditional Societe Anonyme, by leaving considerable scope for contractual freedom in the drafting of the Statuts.

The minimum number of shareholders is two. They must be companies with a minimum paid up capital of 1,500,000 Francs (or the equivalent value in French Francs).

The amount of capital of the S.A.S. must be at least 250,000 Francs, fully paid up on subscription.

The conditions governing the appointment and removal of the company officers, their number, term of office and their powers are fixed by the Statuts.

The only "management body" required by law is the Chairman, who may be a legal person, and who may manage the company single-handedly or on a collegiate basis.

The Statuts set out the conditions for and manner in which the collective decisions of shareholders are taken.

The S.A.S. is subject to the control of one or several Auditors appointed by the collective decision of the shareholders.

The advantage of this new form of company is that non-transferability of shares, authorisation even in the event of transfers between shareholders, the exclusion of shareholders who have become undesirable, etc... can all be provided for in the Statuts.

It offers companies a legal instrument to foster better co-operation with other French companies or foreign firms.


The Groupement d'Interet Economique (G.I.E.) or Economic Interest Grouping is not a company as such, but a special legal instrument. The G.I.E. is not a vehicle for running an independent business concern, but for enabling companies to pool their efforts in areas of mutual interest whilst still retaining their independence.

A Grouping may be envisaged whenever companies (legal or natural persons) wish to create joint services, in particular in order to cut costs, whilst safeguarding their individual status and their complete autonomy.

The aim of the G.I.E. is not to make a profit for itself, but solely for the benefit of its members.

It may be set up with or without capital.

The members are liable for the debts of the Grouping from their own assets. They are jointly and severally liable for such debts unless there is an agreement to the contrary.

The key feature of the G.I.E.'s operation is it high degree of flexibility. Although the founders may draft the rules governing its management as they wish, management responsibilities must be entrusted to a natural person or persons.

Foreign companies wishing to carry out an activity in France within the framework of an G.I.E. now have the choice between the French G.I.E., which may include foreign members, and the Groupement Europeen d'Interet Economique (G.E.I.E.) [European Economic Interest Grouping or E.E.I.G.], which has the same aim and characteristics as the French G.I.E., but offers the advantage of presenting a European image.

Notes on Chapter II - Concept of commercial companies under French law

(1) law of 24 July 1966, Decree of 23 March 1967

(2) S.A.R.L.s are obliged to appoint at least one auditor if they exceed at least two of the following three thresholds at the end of the financial year :

- balance sheet total : 10 million Francs

- turnover before tax : 20 million Francs

- average number of employees : 50

(3) It is not possible in a limited survey like this to review the other types of commercial company, such as the societe en nom collectif [partnership], en commandite simple [limited partnership] and en commandite par actions [partnership limited by shares], which are little used and are designed to meet specific requirements.

(4) This survey concentrates on the conventional form, with a Board of Directors and a Chairman of the Board.

The pros and cons of the S.A. a Directoire et Conseil de Surveillance are considered on page ...

(5) In the case of certain regulated activities, the minimum capital fixed by law may be lower (2,000 F for printing and co-operative companies) or higher (2,500,000 F to 30 million Francs) for certain financial institutions, depending on the nature of their activities.

(6) In the case of certain regulated activities, the legal minimum capital may be lower (2,000 F) or higher (up to 50 million Francs) depending on the nature of the company's activities.

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© 2001 Lex Fori International Lawyers