Negotiating and Drafting Your French SAS Bylaws

French SAS bylaws for founders and investors: what the negotiation is about

The bylaws of a French SAS are the company's constitution. Almost every default rule of governance, decision-making, and share transfers can be rewritten in the bylaws — and once written, the bylaws bind the company, its officers, and every present and future shareholder — and their transfer restrictions are opposable even to outside buyers.

Beyond a short set of mandatory mentions — covered in our guide to what to include in your SAS articles of association — the SAS gives the founders a blank canvas. Ten clauses are the ones founders and investors negotiate hardest, because they shape control of the cap table, the rights of incoming investors, and the protections each shareholder gets at exit. This guide covers each of the ten — what it does, what the default looks like when the bylaws are silent, and what each side typically negotiates for — plus the two questions that frame every negotiation: which document each clause belongs in, and what a financing round does to everyone's percentage.

Bylaws or shareholders' agreement: where each clause goes — and what to sign first

Founders and investors work with two instruments. The bylaws (statuts) are the company's public charter: filed at the registry, binding on the company, its officers, every shareholder present and future, and enforceable with structural remedies — a share transfer made in breach of the bylaws is null by operation of law (Art. L 227-15 of the Commercial Code). The shareholders' agreement (pacte d'associés) is a private contract: confidential, binding only its signatories, amendable by their unanimous consent alone, and enforced through contract remedies — damages, sometimes specific performance.

The allocation follows from those two properties. Anything that must hold against the company, against a buyer, or against a future shareholder belongs in the bylaws. Anything the parties want to keep off the public file — economics, side arrangements, sponsor-specific rights — belongs in the pacte. Larger cap tables often add a third layer drawn from venture practice: a simplified "mini-pacte" signed by small shareholders and option holders, giving the core investors pre-emption and forced-exit coverage across the whole register without dragging every minority holder through the full agreement.

What to sign first. The bylaws come first, at incorporation — and they should be drafted as if the future investor round had already happened: the clause skeletons for transfer control, exclusion and change of control installed from day one. The timing point is legal, not cosmetic: adding or amending an inalienability or change-of-control clause later requires the unanimous consent of all shareholders (Art. L 227-19), which any single investor can withhold. Approval and exclusion clauses, by contrast, follow whatever adoption rule the bylaws themselves set since the 2017 and 2019 reforms. The pacte comes second, typically negotiated and signed at the first outside round, layering the confidential terms over a statutory structure that already works. Founders who sign a rich pacte over thin bylaws discover the difference the first time a transfer happens in breach: the pacte pays damages; the bylaws would have cancelled the transfer.

Bylaws or pacte: place your clause

Pick what matters most for the clause you are negotiating and see which document it belongs in — and why.

The 10 clauses that matter in French SAS bylaws

1 — Corporate purpose: wide enough to grow, precise enough to read

The corporate purpose defines what the company may do; acts outside it can be challenged internally, though the company remains bound toward third parties in good faith. The founder's risk is drafting too narrowly — every new line of business then needs a collective decision, a registry filing and a legal notice. The counterparty's risk is a purpose so broad the company reads as unfocused. The negotiated solution is a three-part clause: a precise core activity, an adjacent-activities paragraph (related services, stakes in complementary businesses), and a general-powers closing covering operations connected to the purpose. Regulated activities constrain the drafting: the purpose must match the regulatory perimeter.

2 — President and officers: who runs the company, and who can remove them

An SAS must have a president; every other organ — general manager (directeur général), deputies, board, committees — exists only if the bylaws create it. The negotiation covers who can hold the presidency (a shareholder, a third party, a legal entity French or foreign — impossible for the executive offices of an SA), the term, and above all removal: the bylaws freely set the regime, from removal at any time without cause — which then carries no indemnity unless the bylaws provide one — to a just-cause standard with a defined indemnity; silence on the point is a drafting failure, not a safe default. Investors, for their part, negotiate reserved matters — a list of material decisions requiring shareholder or board approval before the president signs. The carve-out binds internally; toward third parties the president still commits the company (Art. L 227-6).

3 — Collective decisions: the clause that carries the power balance

The law reserves a short list to the shareholders — capital changes, mergers, transformation, dissolution, account approval, auditor appointment (Art. L 227-9). Everything else is allocated by the bylaws, which makes this clause the structural power map between founders and investors. The negotiation runs over the list of reserved matters (acquisitions, debt, capex and hires above thresholds), the consultation methods (written consent and video for cross-border cap tables), quorum and majorities per category of decision — the courts have barred majorities below a simple majority of votes cast — and the voting weight of each class, since the SAS permits multiple and double voting rights and class vetoes.

4 — Share classes: preference shares as the investor's toolbox

The bylaws can create classes of shares with differentiated rights — preference shares (actions de préférence, Arts. L 228-11 et seq.) carrying priority dividends, liquidation preferences, conversion rights, anti-dilution mechanics, reinforced or reduced voting, and exit rights. Investor-grade structures typically layer ordinary founder shares, a founder class with double voting, and one preferred class per round. The clause also governs the machinery of future issues: the pre-emptive subscription right of existing shareholders (droit préférentiel de souscription) and the instruments giving access to capital — warrants, convertibles, founder options — with delegated authority so each issuance does not require a fresh full vote.

5 — Transfer approval (agrément): who gets to join the cap table

Silence means total transferability. An approval clause (Art. L 227-14) subjects transfers — all of them, or a defined subset — to the consent of a designated body, with a buy-out path when approval is refused: the company, a shareholder or a designated third party acquires at a price agreed or set by an expert (C. civ. Art. 1843-4). The negotiation covers scope (transfers between shareholders? to affiliates? by inheritance?), the deciding body, the threshold (sometimes with a named-founder veto), and — hardest of all — the refusal-price formula, which can operate as a deterrent or as an exit ramp depending on who drafted it. Breach is sanctioned by nullity of the transfer (Art. L 227-15), the SAS's structural advantage over every contract-based equivalent.

6 — Pre-emption: first call for existing shareholders

Pre-emption gives existing shareholders the right to buy shares offered for sale before a third party does, at the third party's price. It is distinct from approval — approval filters the buyer, pre-emption substitutes one — and the two usually run in sequence: pre-emption first, approval on whatever survives. The negotiation covers scope, the notification content (buyer, price, terms), the exercise window (fifteen to sixty days in practice), and the pro-rata and re-allocation rules where several shareholders exercise. Priced at the buyer's terms it deters little; priced by expert it deters every third-party offer — which is why buyer-price clauses dominate.

7 — Founder lock-up: inalienability with a ten-year ceiling

An inalienability clause freezes transfers for a defined period, up to the statutory ceiling of ten years (Art. L 227-13). Investors use it to keep founders committed through the build years — typically two to four years, often mirroring a vesting schedule with leaver mechanics for the founder who departs early; some investors accept a short lock-up on their own shares as a signal. The negotiation is about carve-outs: transfers to controlled affiliates, family estate-planning vehicles, death and invalidity, court-ordered transfers. Because the clause sits in the bylaws, a breaching transfer is void — the lock-up is structural, not a promise.

8 — Exclusion: the only way to force a shareholder out

Without an exclusion clause (Art. L 227-16), no shareholder can be forced out. The clause defines triggers (material breach, criminal conviction touching the business, sustained competition, loss of a qualifying authorisation, failure to perform a services contribution), the deciding body, the procedure, and the buy-out price — often split between good-leaver and bad-leaver formulas. Two limits are non-negotiable: the affected shareholder keeps the right to be heard and to vote on his own exclusion — clauses stripping that vote are struck down — and the price falls back to expert valuation where the bylaws are silent (C. civ. Art. 1843-4). Since 2019 the clause follows the adoption rule the bylaws set (Art. L 227-19), so it can be installed by majority — but installing it at incorporation, before interests diverge, remains the clean path.

9 — Change of control: watching who owns your corporate shareholder

A corporate shareholder can change hands silently — a parent sold, a fund exited — leaving the company with a partner nobody chose. The change-of-control clause (Art. L 227-17) obliges a corporate shareholder to disclose a change of its own control within a defined window and can attach the consequences the bylaws provide: suspension of the shareholder's voting rights and a forced exit on exclusion-style terms — drafting can add further consequences, such as a priority purchase right for the other shareholders. The negotiation covers the definition of control — the bylaws can adopt the general definition of Art. L 233-3 (majority of voting rights, de facto control, 40 % presumption) or write their own threshold — the disclosure deadline, and the carve-outs for intra-group reorganisations where ultimate control does not move. Adding or amending this clause later takes unanimity (Art. L 227-19): day-one drafting again.

10 — Drag-along and tag-along: engineering the exit

Neither exists by default. Drag-along lets a defined majority force the minority to sell on the same terms — the clause that delivers 100 % of a cap table to an acquirer; tag-along is the mirror: the minority may join a majority sale on the same terms rather than stay behind under a new controller. The negotiation covers the drag threshold (50 % is permissive, 75 % protects minority blocks), the drag price and its allocation between classes (liquidation preferences first), the tag scope (full or pro-rata), and the carve-outs for reorganisations. Housed in the bylaws, a sale concluded in disregard of a tag right faces the Art. L 227-15 nullity sanction — for the drag, which compels a sale rather than prohibiting one, the bylaws' contribution is enforceability against every present and future shareholder; put and call options, by contrast, stay in the pacte — personal mechanics between named shareholders, enforced as contract claims.

Dilution and relution: what a round does to your French SAS cap table

Every clause above is negotiated in the shadow of one mechanism: the capital increase. When new shares are issued, every existing shareholder who does not subscribe sees his percentage fall — dilution. That much is arithmetic, and it is the price of taking money: the founders are diluted at every round by construction. The negotiation is not about whether the slice shrinks; it is about the sharing of value (partage de la valeur) — what the shrinking slice is worth, which is set by the price per share, and who else gets a piece of the pie, which is set by the instruments the bylaws authorise.

A worked example, used throughout this section. The founders incorporate with 8,000 shares of €10 (capital €80,000). A seed investor puts in €1 million at €500 per share — €10 of nominal and €490 of share premium (prime d'émission) — taking 2,000 new shares. The founders fall to 80 %, but the price the investor paid values their 8,000 shares at €4 million. A Series A prices at €750: €3 million buys 4,000 shares, the founders fall to 57.1 % — of a company in which their stake is now worth €6 million. Percentage is not value:

That is the bargain when rounds price upward — and it is why the real negotiation at every round is the price per share, not the dilution itself: at a higher price, the same money buys fewer new shares, and the founders keep more of a pie the round itself has just revalued. The protections below deal with the other scenario — when the next round prices below the last one.

The shareholder's first shield: the pre-emptive subscription right

The baseline protection is the pre-emptive subscription right (droit préférentiel de souscription): in a cash capital increase, each shareholder may subscribe new shares in proportion to his existing holding, so a shareholder who follows his money is not diluted at all. The right can be waived individually or suppressed for a named investor by the collective decision that opens the round — which is precisely what happens at every priced round, making the negotiated protections below matter.

The investor's shield: anti-dilution ratchets

Anti-dilution clauses protect earlier investors when a later round prices lower than theirs. Suppose the round after the seed is not the €750 Series A but a down round: €1 million at €250 per share, 4,000 new shares. Without protection the cap table lands at founders 57.1 %, seed investor 14.3 %, new investor 28.6 % — and this time the founders' 8,000 shares are marked at €2 million, not €6 million. Two ratchet formulas dominate practice. Under a full ratchet, the earlier investor's price per share is reset to the new round's price — the seed investor's €500 becomes €250, entitling him to 4,000 shares for his €1 million instead of 2,000. Under a weighted average ratchet, the reset price is the average of the old and new prices weighted by the amounts invested — here €333, entitling him to 3,000 shares. The difference lands on the founders:

Founders negotiate the formula (weighted average is the founder-friendly standard; full ratchet is aggressive), the trigger window (only the next round, all future rounds, or only rounds below a price floor), the carve-outs (employee-plan issuances, conversions of existing instruments), and increasingly a pay-to-play condition: the protected investor keeps his ratchet only if he participates pro rata in the new round.

Three legal routes to the same adjustment

French practice implements a ratchet through three mechanisms, and the bylaws-versus-pacte question returns with each:

• Founder retrocession. The founders grant sale promises over their own shares to the protected investors, annexed to the round documentation — simple, no new shares created, a symbolic price, but a promise that must be performed at the worst possible moment of the relationship. Home: the pacte and its annexes.
• Conversion of preference shares. The protected investor's preference shares convert into a larger number of shares of the same class, under the conversion mechanics written into the resolutions creating the class — no fresh payment in principle, but the conversion parity is capped by the requirement that the investor's original subscription at least cover the nominal value of all his post-conversion shares. Home: the bylaws, through the preference-share procedure (Arts. L 228-11 et seq.).
• Ratchet warrants (BSA). Anti-dilution warrants issued to the investors at the original round, exercisable on a qualifying down round against payment of at least the nominal value of the new shares — self-held from day one, but single-use, and the nominal payment can be material where the par value is not negligible. Home: created by the shareholders' decision at the closing.

Conversion and warrants create new shares, so the new round's price is negotiated to deliver the incoming investor his agreed percentage after the ratchet has played out — the post-money valuation holds, and the adjustment is absorbed by the price per share. Whatever the route, the drafting practice points the same way: define every term, verify the formula against numbers, and write a worked example into the documentation itself.

Partage de la valeur: sharing the pie with the team — planned dilution

Investors are not the only ones the pie is shared with. French practice — encouraged by a statutory value-sharing (partage de la valeur) policy that has repeatedly widened the instruments — gives the SAS three equity tools for employees and executives, each of which dilutes the cap table by design and therefore belongs in the same negotiation as the round itself:

• Founder share warrants (BSPCE) — subscription warrants reserved to young companies: less than fifteen years old, subject to company tax, with at least 25 % of the capital held by individuals (CGI Art. 163 bis G). The favoured start-up instrument, exercisable at a price fixed on grant.
• Free shares (actions gratuites) — granted under Art. L 225-197-1 of the Commercial Code within statutory ceilings: 10 % of the capital per holder, and a global envelope running from 15 % up to 40 % where the whole workforce benefits, with a minimum one-year vesting and a combined vesting-plus-holding period of at least two years. The 2023 value-sharing reform loosened the individual cap by counting only shares held for less than seven years.
• Stock options (Arts. L 225-177 et seq.) — the classic instrument, open to executives including a president holding no more than 10 % of the capital.

Two negotiation points follow. First, the option pool: investors routinely require a reserved envelope of team equity — commonly negotiated as a percentage of the post-round capital — and whether that pool is carved out of the pre-money (diluting the founders alone) or created post-money (diluting everyone) moves real value between the parties; the pool's size and timing belong in the term sheet arithmetic, not in a footnote. Second, the ratchet carve-out: employee-plan issuances price low by design, so every anti-dilution clause should exclude them from its triggers — otherwise each vesting event technically fires the investors' protection. Team equity grows the pie the founders and investors are sharing; the bylaws' job is to make its dilution planned, capped and excluded from the down-round machinery.

Dilution simulator for your French SAS round

Enter your position and the planned issue, and see your stake before and after the round — and what subscribing pro rata would preserve.

Frequently asked questions about negotiating French SAS bylaws

This article is for general information only and states French law as published in the sources available at the date shown above. Anti-dilution structures and market practice evolve, the worked examples are simplified, and the widgets are orientation tools. It is not legal advice and does not create an attorney-client relationship. Always seek qualified legal advice before finalising SAS bylaws or a shareholders' agreement.