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E-library Corporate Law Exclusion of a shareholder (SAS)

Exclusion of a shareholder (SAS)

20 Feb 2013

The exclusion of a shareholder is possible in an SAS (French société par actions simplifiée), provided however that it has been provided for in the company bylaws.

Indeed, according to article L. 227-16 of the French Commercial Code, a shareholder may be obliged to sell its shares pursuant to the conditions set forth in the bylaws. The sale of shares of such a shareholder results in the departure, that is, the exclusion, of such a shareholder from the company.

In the event that the bylaws provide for the possibility to exclude a shareholder from the company, the bylaws must clearly specify the events upon the occurrence of which a shareholder may be excluded, the corporate body competent to pronounce such an exclusion, the procedure to follow, as well as the consequences of the exclusion regarding the purchase of the shares held by the excluded shareholder.

Events which may trigger the exclusion of a shareholder

The events which may trigger the exclusion of a shareholder from a SAS must be well defined. Such events may consist, inter alia, in:

  • breach of certain undertakings or provisions of the bylaws
  • unfair competition or participation in a competing activity
  • refusal to vote certain decisions which are of crucial importance for the company (such as a share capital increase)
  • change of control of a shareholder (a corporate body) to the benefit of a competitor
  • compromised financial situation
  • etc.

The grounds for exclusion and the procedure to follow must be objective and clear; if this is not the case, the excluded shareholder may have valid grounds to contest and invalidate its exclusion.

Which corporate body has authority to decide upon the exclusion of a shareholder?

The bylaws of the company must specify which corporate body has authority to decide upon the exclusion of a shareholder. Such an exclusion may be decided by the shareholders’ assembly, by one or more specific shareholders, by the directors of the company (President or Director General), another corporate body (such as a supervisory board, if any) or even a third party.

In all events, the rights of defence of the excluded shareholder must be respected. The shareholder whose exclusion is proposed must be informed of his/her proposed exclusion and called upon to provide an explanation for its behaviour, etc. The modalities which apply to the exclusion process must be clearly defined in the bylaws, or else the excluded shareholder may have valid grounds to dispute in court, and eventually invalidate, its exclusion.

Can a shareholder whose exclusion is proposed be deprived from its voting rights?

According to French case law, all shareholders have an absolute right to vote. Therefore, in the event that the corporate body which has authority to decide the exclusion of a shareholder is the shareholders’ assembly, a shareholder may not be deprived from his/her right to vote at the shareholders' meeting called to resolve upon his/her exclusion.

A shareholder may however indirectly be deprived from the right to vote in such case if the corporate body which has authority to decide upon such an exclusion is not the shareholders’ assembly. The authority to exclude a shareholder may be conferred by the bylaws of a SAS to any person (president, director general, one or more shareholders, supervisory committee or board of directors, if any, even to a third party).

Can a majority shareholder be excluded from a SAS?

A majority shareholder can be excluded from a SAS if the decision to exclude such shareholder is not within the authority of the shareholders’ assembly, and provided that the corporate body which has authority to take such a decision (president, director general, supervisory committee, etc.) is not under the control (de jure or de facto) of such majority shareholder.

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