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E-library Corporate Law Incorporation of a French company - bylaws

Incorporation of a French company - bylaws

18 Feb 2013

The bylaws (also called articles of association) are the constitutive documents of a French company.

They are binding on all shareholders and directors of the company, both present and future.

Any director or shareholder of the company acting in breach of the company bylaws may incur responsibility and be obliged to indemnify the company and, in certain cases, the remaining shareholders for damage suffered as a result of such breach.

On incorporation of a French company, the bylaws must be drafted with caution as, subject to modifications which generally require a supermajority vote of the shareholders, they will apply throughout the term of the company.

Although the mandatory provisions which must be included in the bylaws are limited in number, the bylaws of a French company generally include a lot of details which relate, inter alia, to the following matters:

Identification of the company

Company form

The bylaws indicate the form of the French company (SAS, SA, SARL, SCI, etc.)

Company name

The bylaws indicate the name of the French company. Prior to choosing a name for a French company, it is advisable to carry out a search to confirm that the name has not already been registered, either as a company name or a trademark.

A preliminary search for registered similar trademarks can be carried out on the database of the Institut National de La Propriété Industrielle (French Patent and Trademark Office), available at the following address: www.inpi.fr or www.icimarque.fr.

A preliminary search for an identical corporate name may be carried out on the site of the centralized commercial courts’ registry (www.infogreffe.fr).

Address of registered office

The address of the company's registered office must be indicated in the bylaws.

The address of the registered office is the legal domicile of the company, which determines which administrative, tax and court authorities will have jurisdiction over the company.

The registered office of a company may be located (i) in premises which are occupied solely by the company, (ii) at the domicile of its director, or (iii) with a domiciliation company.

A company may not use the office of another company as its registered office unless (i) both companies belong to the same group of companies, or (ii) one of them is authorized to act as a domiciliation company.

A proof of address (that is, a lease contract, certificate of ownership, domiciliation contract or utility bill if the registered office is established at the domicile of the director) will be required by the competent commercial court as part of the company registration documents.

The transfer of the registered office is generally decided by the director(s) of the company, if the registered office is transferred within the same département, and by the shareholders’ meeting if it is transferred into another département.

Corporate purpose of the company

The corporate purpose of the company describes the activities which the company may carry.

The provisions of the bylaws relating to the company’s corporate purpose constitute the limitations of the powers of the company directors (who are not authorized to act outside the company’s corporate purpose).

The provisions of the bylaws regarding the corporate purpose of the company must therefore be sufficiently precise, but not too restrictive, in order not to exclude activities which are related to the core business of the company or may favor its development.

The inclusion of any new activities will require a modification of the bylaws.

Duration of the company

French companies are generally incorporated for a term of 99 years, which is the maximum term allowed by French law.

The initial company term may subsequently be renewed.

Amount of registered share capital

The amount of registered share capital must be indicated in the bylaws and subscribed in its entirety by the shareholders.

The shareholders are allowed to pay only a fraction of the company’s registered share capital on incorporation (a minimum of 20% if the company is a French SARL, and a minimum of 50% if the company is a French SA or a French SAS.

The remaining amount of share capital must however be paid within a period of 5 years as from the registration of the company.

Shares, rights attaching to shares, rights and obligations of shareholders on transfer of shares

Number and form of the company shares

The number and form of the company shares (ordinary shares, preferred shares if any) must be described in the bylaws.

The bylaws must also describe the rights which attach to the shares.

Ordinary shares give equal rights to vote and dividends.

Preferred shares may give multiple voting rights, veto rights and/or preferred rights to dividends or liquidation proceeds.

The rights attaching to preferred shares (in particular as regards voting rights) may be defined with greater flexibility in a société par actions simplifiée (SAS) than in a société anonyme (SA).

A société à responsabilité limitée may not issue preferred shares.

Only the shares of a société anonyme may be listed on a stock exchange.

Rights and obligations of shareholders on transfer of shares

The bylaws may detail certain rights and obligations of the shareholders on transfer of shares, such as:

  • Pre-emption rights
  • Right to approve any new shareholder of the company
  • Tag-along rights
  • Drag-along rights
  • Exclusion of a shareholder on the occurrence of certain events (such as change of control to the benefit of a competitor, unfair competition, etc.)

While such rights and obligations may also be detailed in a shareholders’ agreement, their inclusion in the bylaws guarantees their enforceability.

Indeed, pursuant to French law, the transfer of shares in breach of an obligation contained in a shareholders’ agreement may give right to damages but not to an injunction for specific performance, whereas the transfer of shares in breach of a provision contained in the bylaws generally renders such transfer null and void.

While the inclusion of all of the above provisions is possible, and may be customized to a great extent, in the bylaws of a société par actions simplifiée (SAS), the inclusion of some of them in the bylaws of a société à responsabilité limitée (SARL) or société anonyme (SA) should be structured with caution and in compliance with certain mandatory provisions of French law applicable to these corporate forms.

Management of the company

Depending on its corporate form, the management structure of the company will differ.

Thus, a société à responsabilité limitée (SARL) may be managed by one or two directors (called “gérants”) or, more rarely, by a panel of directors (“collège de gérants”). Only natural persons may be appointed as gérants, to the exclusion of corporate or other legal entities.

By contrast, a société par actions simplifiée (SAS), is necessarily managed by one director (called “president”). The bylaws may not institute a co-presidency (that is, two or more presidents), although they may provide for a rotating presidency, or for the appointment of a director-general (“directeur general”) who will assist the president and may have the same powers as the president. The president of a société par actions simplifiée may be a natural person or a corporate or other legal entity. A société par actions simplifiée may freely determine in its bylaws the composition and functions of other corporate organs, such as a supervisory committee, ad hoc committees, etc.

The management structure of a société anonyme (SA) is determined by French law and may not be customized in the bylaws. A société anonyme is however allowed to opt for:

  • a board of directors (called “conseil d’administration”), composed by 3 to 18 directors (called “administrateurs”), chaired by a president (“président”) and a director-general (“directeur général”), or
  • a board of directors (called “directoire”, comprising no more than 5 or, if the company is listed on a stock exchange, 7 directors) and a supervisory board (“conseil de surveillance”, composed of 3 to 18 members), the supervisory board being in charge of the supervision of the board of directors.

In addition to the management structure of the company, the bylaws must also describe the powers of the directors.

Pursuant to French law, the statutory directors of a company are authorized to act on behalf of the company in all circumstances, for as long as they act within the company’s corporate purpose.

Third parties are entitled to ignore the limitations of the powers of the directors which may be included in the bylaws.

Such limitations may require the prior approval of a supervisory board or committee, or of the shareholders’ assembly, for certain material acts, such as the sale of assets, the conclusion of important contracts, material indebtedness of the company, etc.

Consequently, all contracts entered into on behalf of a company by its directors will remain valid, even if such contracts exceed the limitations of the directors’ powers set forth in the bylaws.

Breach by a director of the limitations of its powers may however entitle the shareholders and, in certain cases, the company to seek indemnification for the damage suffered as a result of such breach.

Fiscal year, benefits and distribution of dividends, statutory auditors

The bylaws generally contain provisions regarding the term of the company’s fiscal year, the approval of its financial statements, benefits and statutory reserves, as well as the appointment of statutory auditors.

Most companies are obliged to appoint one or more statutory auditors if they exceed certain thresholds or meet certain conditions, which however vary depending on the corporate form of the company.

Thus, a société à responsabilité limitée must appoint statutory auditors if it meets two of the three following thresholds: (a) net turnover in excess of €3.1 million, (b) total balance sheet in excess of €1.55 million, (c) 50 employees.

A société par actions simplifiée must appoint statutory auditors if:

  • (i) it exceeds two of the three following thresholds: (a) net turnover in excess of €2 million, (b) total balance sheet in excess of €1 million, (c) 20 employees, or if
  • (ii) it controls one or more companies or is under the control of a company in the meaning of article L. 233-6 of the French Commercial Code.

A société anonyme is obliged to appoint statutory auditors regardless of thresholds.

A company may also voluntarily appoint statutory auditors.

The terms and conditions regarding the appointment of the statutory auditors, the term for which they should be appointed and their duties are generally specified in the bylaws, by reference to the applicable provisions of the law.

Shareholders meetings, rights, obligations and powers of shareholders

The bylaws also specify the procedures applicable to the convening of ordinary and extraordinary shareholders’ meetings, and the information which must be provided to the shareholders to pass the resolutions proposed at such meetings.

Resolutions relating to the approval of the company financial statements, as well as the dismissal or appointment of directors, are generally passed at a simple majority vote.

The following matters will, inter alia, require extraordinary quorum and supermajority approval:

  • Share capital increases and reductions
  • Issuance of securities
  • Merger or spin-off, etc.

Whereas French law contains mandatory provisions regarding extraordinary quorum and supermajority approval for sociétés anonymes and sociétés à responsabilité limitée, regarding sociétés par actions simplifiées, most shareholders’ resolutions may be passed at a simple majority vote unless otherwise provided in the bylaws.

Certain decisions, such as an increase of the obligations of the shareholders or the modification of certain provisions included in the bylaws of a société par actions simplifiée, require the unanimous vote of the shareholders.

Winding up, dissolution and liquidation of the company

The bylaws specify the conditions regarding quorum and supermajority vote necessary to proceed to a voluntary liquidation of the company, as well as the conditions relating to the appointment of the liquidator and its duties.

Finally, the bylaws must also specify the identity of the shareholders who have signed the bylaws on incorporation of the French company.

Refusal by a shareholder to pay the amount of unpaid capital
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