Share Buy-Backs in a French SAS: The Prohibition and Its Exceptions

Buying back your own shares: a prohibition with useful exceptions

A French SAS cannot, as a rule, own itself. The Commercial Code prohibits a société par actions from subscribing its own shares, directly or through a person acting for its account (Art. L 225-206, I), and authorises acquisitions only in the cases it lists (L 225-206, II). The logic is structural — a company's capital cannot be backed by the company's own assets, and a buy-back at the wrong price quietly moves value between shareholders. But the listed exceptions are exactly the tools a closely held SAS needs: retiring a departing shareholder through a capital reduction, feeding employee share plans, paying for an acquisition in paper, and organising liquidity windows on a table with no market.

This guide maps the whole regime for the non-listed SAS: the three prohibitions that frame everything (subscription, pledge, financial assistance), the buy-back routes — the capital-reduction route with its immediate cancellation, the employee route and its one-year clock, the Sapin II menu of Art. L 225-209-2 with its three finalities, caps and windows, plus the agrément-refusal and universal-transmission cases — the treasury-share discipline (the 10 % cap, the reserves conditions, suspended votes and dividends), and the use of the buy-back as an exit when no third-party buyer exists. The refusal-of-approval buy-back has its own procedural guide, and the tax on any transfer its own companion; this article is the corporate machinery.

The three prohibitions that frame every operation

No subscribing your own shares. The company cannot subscribe its own shares at issuance, directly or through a front (Art. L 225-206, I). Shares held in violation must be sold within one year of subscription; past the deadline, they must be cancelled (Art. L 225-214).

No taking your own shares in pledge. The company cannot take its own shares as security, directly or through an intermediary acting for its account (Art. L 225-215). Shares pledged in breach must be returned to their owner within one year — two years where the pledge reached the company through a universal transmission or a court decision — failing which the pledge contract is void by operation of law.

No financing the purchase of your own shares. The company cannot advance funds, grant loans or give security with a view to the subscription or purchase of its own shares by a third party — or by a shareholder (Art. L 225-216). SAS officers who breach the ban face a €150,000 fine (Art. L 242-24, al. 2, applied through L 244-1); the company's assets cannot be pledged to a bank financing a buyer of its shares, an ordre public prohibition read strictly. Two carve-outs exist: the ordinary operations of credit institutions and financing companies, and operations aimed at employees acquiring shares of the company, a subsidiary or a group savings-plan company.

These three walls stand whatever route a buy-back later takes — an LBO structured against the target's own credit, a « friendly » pledge of treasury stock, a subscription warehoused with a nominee all fail against them before any buy-back analysis begins.

The classic routes: reduction, employees, refusal, transmissions

The capital-reduction route (Art. L 225-207). The company buys back shares to implement a capital reduction not motivated by losses — on the condition that the purchased shares are immediately cancelled. The treatise calls the purchase ephemeral: the shares disappear as the operation completes, so there is no treasury phase, and the ANSA considers the reserve conditions of L 225-210 inapplicable — the buy-back is the accessory of a capital-reduction decision that follows its own rules (ANSA n° 09-060), including the shareholders' decision at the bylaws' capital-amendment majority and the creditors' opposition machinery of the reduction regime. This is the workhorse of shareholder exits in closely held companies: reserves fund the price, the capital falls, the remaining shareholders' percentages rise.

The employee route (Art. L 225-208). The company buys back shares to attribute them to employees or officers under profit-sharing, free-share plans (AGA) or stock-options — with a hard clock: the shares must be attributed, or the options granted, within one year of the acquisition. Shares held in breach of the route must be sold within a year or cancelled (L 225-214), and officers who divert employee-route shares to any other use face the €150,000 fine (L 242-24, al. 1). The typical modern use: funding a free-share plan without diluting the table, the bought-back shares vesting to employees instead of new shares being issued.

The agrément-refusal route. Where the bylaws' approval clause leads to a refusal and the company itself buys the seller's shares, the acquisition is a lawful exception with its own discipline: the SAS must transfer or cancel the shares within six months (Art. L 227-18) — the procedure, and the case law on offers for the self-held shares, are covered in our approval-procedure guide.

Universal transmissions and court decisions (Art. L 225-213). Shares of the company reaching it through a merger-type transmission or a judicial decision follow their own rule: where the holding exceeds 10 % of the capital, the shares must be sold within two years, failing which they are cancelled.

Which buy-back route fits your objective?

Pick your goal — the check shows the route, its cap and its clock.

The Sapin II menu (Art. L 225-209-2): three finalities, one procedure

For non-listed companies, Art. L 225-209-2 organises three distinct buy-back finalities, each with its own cap and window:

• Employees — one year, 10 %: transfer, within the year of the buy-back, to employees benefiting from free-share attributions, stock-options or a company savings plan, within 10 % of the capital;
• External growth — two years, 5 %: delivery, within two years of the buy-back, in payment or exchange for assets acquired in an external-growth operation, a merger, a demerger or a contribution, within 5 % of the capital;
• Shareholder liquidity — five years, 10 %: transfer, within five years, to shareholders who express to the company the intention to acquire them in a sale procedure the company organises within the three months following each annual collective decision on the accounts, within 10 % of the capital.

The procedure is common to the three. The collective decision states which finality the buy-back serves — with a post-2019 flexibility: the deciding assembly can authorise the president to redeploy the repurchased shares to another of the finalities (al. 8, loi 2019-744). The decision is taken on two reports: an independent expert's report — the expert designated by unanimous agreement of the shareholders or, failing that, by the president of the commercial court on request, chosen among serving auditors or court-listed experts, whose report states the shares covered, the valuation methods and the minimum and maximum repurchase values, deposited at the registered office at least fifteen days before the decision — and the auditor's special report on the price-setting conditions (an auditor being designated for the purpose where the company has none). Purchase and sale registers are kept (L 225-211). And a 2019 simplification matters for closely held tables: the former requirement to offer every buy-back to all shareholders equally has been repealed — offers can be addressed to a restricted number of shareholders.

Holding your own shares: the 10 % cap and the discipline behind it

Where a route leaves the company actually holding its own shares — for cancellation later, or for the period a text allows — the discipline of Art. L 225-210 applies. The cap: no more than 10 % of the total of its own shares, and, where classes of shares exist, no more than 10 % of each class — counting shares held through nominees, with the authorities divided on subsidiaries (the ANSA reading the for-the-account prohibition strictly by respect for subsidiaries' autonomy; the market authority counting parent shares held through subsidiaries toward the 10 %). The two financial conditions: the acquisition cannot bring shareholders' equity below capital plus non-distributable reserves; and the company must hold reserves — other than the legal reserve — at least equal to the value of all the shares it holds, booked to a special reserve account and locked: neither distributable nor usable to absorb losses while the self-holding lasts. Where either condition fails — losses arrive, reserves shrink — the irregularly held shares must be sold within one year or cancelled (L 225-214).

The rights attached go quiet. Self-held shares carry no voting rights, and they are counted out of any quorum the bylaws provide; they receive no dividends. At a cash capital increase the company cannot exercise the preferential subscription right on its own shares — the collectivity either disregards the self-held shares in computing the rights or redistributes their rights pro rata among the other shareholders (L 225-210, al. 5). In the accounts, own shares sit among immobilised securities; those destined for cancellation stay at cost without depreciation, their inscription treated as equivalent to a reduction of shareholders' equity (CNC opinion). One governance footnote from the treatise: a buy-back from a related party — a subsidiary's shares, an officer-shareholder's — should be run with the related-party-agreements discipline in mind, even though the collective decision and the auditor's report already frame the operation.

Test it: can your SAS hold what it plans to buy back?

Enter the figures — the calculator tests the 10 % cap and the reserves condition on a holding-type buy-back.

The buy-back as an exit: when the company is the only buyer

On a closely held table, the buy-back is often the exit of last — or first — resort: a founder taking partial liquidity without admitting outside capital, a minority holder leaving a deadlocked table, the fallback after an agrément refusal. The reduction route carries most of these: reserves fund the price, the shares are cancelled at once, the remaining holders' percentages rise, and the offer can go to the exiting shareholder alone, with that shareholder's consent (the 2019 restricted-offer rule concerns the L 225-209-2 route). Three disciplines make it defensible.

Funding. The price comes out of the company's distributable position, and the reduction machinery protects creditors through their opposition right. A company without the reserves does not have a buy-back problem — it has a valuation or a vendor-financing conversation, or no exit at all.

Valuation. The non-selling shareholders bear the cost of an overpriced exit, and an inflated price is attackable as a disguised distribution; an underpriced forced exit is attackable by the seller. The Sapin II procedure institutionalises the answer — independent expert plus auditor's report on the price — and even where the reduction route does not formally require it, the same evidentiary discipline (an expert opinion, a stated method, the C. civ. 1843-4 route on disagreement) is what carries the operation through a later challenge.

Taxes. The transfer to the company is a share cession: registration duty applies on the price (the 0.1 % regime, with its narrow exemptions — buy-backs destined for savings-plan employees among them — and the 5 % real-estate-rich override), and the selling shareholder's proceeds are taxed under the capital-gains regime, the flat tax for resident individuals and the participation regime for corporate sellers. Our transfer-tax guide runs the grids; the point here is sequencing — the tax analysis belongs before the collective decision fixes the price, not after.

Frequently asked questions about French SAS share buy-backs

This article is for general information only and states French law as published in the sources available at the date shown above. It does not constitute legal or tax advice. Every buy-back turns on the company's figures, its bylaws and the route chosen. Always seek qualified legal advice before deciding, executing or challenging a share buy-back in a French company.