Shareholder Decisions in a SARL: Meetings, Votes and Majorities

Shareholder decisions in a SARL are taken in one of three ways: in a meeting, by written consultation, or by the consent of all the shareholders recorded in a deed. Only the first is available for approving the annual accounts - that decision must go to a meeting, and no clause can change it. The other two exist only if the articles provide for them, which is why so many SARLs end up convening meetings they could have avoided. This guide covers each mode, who can convene, the fifteen-day notice and the agenda rules, how votes and proxies work, the ordinary and extraordinary majorities (which differ by the company's date of formation), and what happens when the procedure is not followed.

The three modes of SARL shareholder decisions

In principle, decisions are taken in a meeting (C. com. Art. L. 223-27). That rule is mandatory for the approval of the management report, the inventory and the annual accounts - the decision traditionally called the annual ordinary meeting.

For decisions other than the annual accounts, the articles may stipulate that all or some of them can be taken by written consultation of the shareholders, or can result from the consent of all the shareholders expressed in a deed. Both therefore depend on a clause: without one, every decision goes to a meeting.

Those clauses are not absolute either. The law allows one or more shareholders to demand that a meeting be held where they hold either half of the shares, or a tenth of the shares if they also represent a tenth of the shareholders - and any clause to the contrary is deemed unwritten. Two further restrictions bound the flexibility: a bond issue is decided by the shareholders' meeting, with no room for written consultation or a deed; and the manager cannot mix the modes for the same decision, convening some shareholders to a meeting while consulting others in writing.

Whichever mode is used, it is the nature of the decision that determines the majority. Appointing or removing a manager, taken in a meeting or by written consultation, needs on first consultation a total of votes representing more than half of the shares.

Convening a SARL shareholders' meeting

The meeting is convened, in principle, on the manager's initiative. It becomes an obligation in defined cases: the meeting called to rule on the year's accounts, which must be held within six months of the year-end; and in every other case the law or the articles provide - where the equity has fallen below half of the share capital, where the number of shareholders has passed one hundred, where an agreement is concluded between the company and one of its managers or shareholders, and where a meeting is requested by shareholders meeting the half-of-shares or tenth-and-tenth thresholds.

Where there are several managers, the articles usually specify whether each can convene or whether they must act jointly. In the articles' silence, each manager appears able to convene: convening belongs to the relations between shareholders, and the right of opposition available to co-managers concerns acts of management rather than the convening of a meeting. Where a statutory clause is breached, the consequence is real - a meeting convened by one manager where the articles required both signatures was annulled for defect of form.

Three substitutes exist for a manager who will not act. Where the company is left without a manager, or the sole manager is placed under guardianship, the statutory auditor or any shareholder convenes the meeting within eight days for the sole purpose of replacing the manager, and the meeting is chaired by the shareholder present and willing who represents the largest number of shares. The statutory auditor, where one exists, can also convene. And shareholders can seek the appointment of a court representative to convene the meeting and set its agenda - covered in the guide to the gérant.

A convened meeting can be postponed by a court only exceptionally: adjournment has been allowed for a grave failure to inform the shareholders, and the summary-proceedings judge can postpone a meeting where it is liable to cause the company imminent harm.

Notice: fifteen days, by registered letter

The convening notice must be sent by registered letter, at least fifteen days before the meeting (C. com. Art. R. 223-20). It cannot be effected against signature or receipt. The fifteen days is a minimum and the articles may set a longer period. For the calculation, the day the notice is sent is not counted while the day of the meeting is, and the period runs from the date the registered letter is dispatched - so for a meeting on 16 June, the last day to send the letter is 1 June. Where the sole manager has died, the period is reduced to eight days. There is no legal requirement that the manager sign the convening letter personally.

Electronic convening is available, but only after a preparatory step. The manager may use email instead of post, having first submitted the proposal to the shareholders by post or electronically. Each shareholder can give written agreement, by registered letter or electronically, at the latest twenty days before the date of the next meeting - so 10 June at the latest for a meeting held on 30 June. Where a shareholder does not agree, the company reverts to post for that shareholder. Agreement holds for subsequent meetings, and a shareholder who consented may ask to return to postal sending, by the same routes, at least twenty days before the next meeting. Where agreement is given, the convening notice and the necessary documents - annual accounts, management report, text of the proposed resolutions and, where applicable, consolidated accounts, group management report and auditors' reports - are sent to the address the shareholder indicates at least fifteen days before the meeting.

A purely verbal convening can be admitted where all the shareholders are present or represented, since the nullity action is then inadmissible - but the shareholders' information right must also have been respected, and that conditions the regularity of the meeting. The risks of departing from the registered letter are therefore real, and the unanimous-deed technique is generally the better route around the difficulty, subject to its own limits.

The agenda

The convening letter must state the questions on the agenda, worded so that their content and scope appear clearly without needing to refer to other documents (C. com. Art. R. 223-20). Where the convening follows a request by shareholders meeting the thresholds above, the agenda must obviously take account of the questions they raised, failing which the manager incurs liability. Shareholders holding, individually or together, at least a twentieth of the shares may have items or draft resolutions added to the agenda (C. com. Art. L. 223-27), and the works council may require draft resolutions to be included. "Any other business" must cover only matters of minimal importance. The author of a draft resolution may withdraw it during the meeting before the vote - and it is not within the judge's power to modify the agenda set by whoever convened the meeting.

Voting and representation

The right to vote is exercised personally at the meeting or through the written consultation; postal voting is not available in SARLs. Where the articles permit, shareholders may vote by videoconference or teleconference - with the standing exception that those modes are excluded for the approval of the annual accounts.

Representation is deliberately narrow. A shareholder may be represented by their spouse, unless the company comprises only the two spouses. Unless there are only two shareholders, a shareholder may also be represented by another shareholder. Representation by anyone else is possible only if the articles allow it - which is a clause worth checking before assuming a colleague or adviser can attend.

Protected persons follow their own rules. Exercising the vote is an act of administration, save for particular agenda items; it is in principle an act of disposal where the agenda concerns the recovery of contributions, amendment of the articles, extension or dissolution, a merger, demerger or partial asset transfer, the approval of a shareholder, a capital increase or reduction, a change of corporate objects, a borrowing or the creation of security, or a transfer of securities. For a minor, the parents - or the parent exercising sole authority - vote without needing the guardianship judge's prior authorisation whatever the subject. For an adult under guardianship, the guardian must ask the family council or the guardianship judge to determine how to vote where the agenda concerns amendments to the articles, mergers, demergers, partial asset transfers, capital increases or reductions, the sale of a fixed corporate asset, an aggravation of the shareholders' commitments, or the approval of a new shareholder. A person under curatorship must be assisted by their curator, though for ordinary decisions - except a candidacy for the office of manager - the curator's assistance or the guardian's own vote suffices without special authorisation.

Ordinary and extraordinary majorities in a SARL

Ordinary decisions

Ordinary decisions are those concerning neither the approval of new shareholders nor amendments to the articles - subject to the exceptions the law provides, and there are several. Some statutory clauses can be changed without an extraordinary decision: the manager, even one named in the articles, is removed by ordinary decision; the manager can transfer the registered office anywhere in France subject to ratification by an ordinary meeting; the manager can bring the articles into line with mandatory provisions, subject to the same ratification; in a lease of shares the manager may insert and amend the names of lessor and lessee in the articles; on a statutory manager ceasing to hold office the shareholders may delete their name from the articles by ordinary decision; a SARL whose equity exceeds €750,000 can be transformed into a public limited company by ordinary decision; and a transfer of shares between shareholders, which implicitly amends the articles, requires no collective decision at all.

The majority runs in two stages. On a first meeting or consultation, the decision needs the absolute majority - more than half of all the shares. Where that is not obtained, and unless the articles provide otherwise, the shareholders are convened or consulted a second time and the decision is taken by a majority of the votes cast, whatever the number voting (C. com. Art. L. 223-29). Each share carries one vote, so the second round needs half plus one of the votes actually expressed.

The articles may exclude the second consultation, requiring decisions to be taken by shareholders representing more than half the shares. But where they do not exclude it expressly, a second convening is mandatory whenever the majority in shares was not obtained at the first round - and disregarding that rule, which protects minority interests, can annul the meeting. Ordinary decisions taken in breach of the majority rules can be annulled at the request of any interested person.

Extraordinary decisions: the 2005 divide

Amendments to the articles follow different rules depending on when the company was formed, and both regimes remain in force.

For SARLs formed before 3 August 2005, all amendments other than those for which the law specially provides a different majority are decided by shareholders representing at least three-quarters of the shares (C. com. Art. L. 223-30). Any clause requiring a higher majority is deemed unwritten, and a lower one is implicitly excluded. No quorum applies. The blocking minority is therefore just over a quarter: a shareholder holding a quarter of the shares plus one can block any amendment. By way of derogation, a capital increase by incorporation of reserves or profits is decided by shareholders representing at least half of the shares - where half, rather than more than half, suffices. These companies may, by unanimous decision, adopt the newer rules.

For SARLs formed after 3 August 2005, a quorum applies: the meeting deliberates validly only if the shareholders present or represented hold at least a quarter of the shares on first convening and a fifth on second. Failing that quorum, the second meeting can be postponed to a date no more than two months after the one for which it was convened. Where the quorum is met, amendments are decided by a majority of two-thirds of the shares held by the shareholders present or represented - so the legal blocking minority is a third rather than a quarter. The articles may set a higher quorum and a stronger majority - three-quarters, for instance - but cannot require unanimity. Extraordinary decisions taken in breach of the quorum or majority rules can be annulled at the request of any interested person.

One further majority sits apart from both. Consent to the transfer of shares to persons outside the company requires a double majority: a majority in number of the shareholders, holding at least half of the shares (C. com. Art. L. 223-14). The articles may require a stronger majority, and the same rule applies to a forced sale of pledged shares - while a weaker majority, or one expressed in shares alone, may be stipulated for approving a shareholder's spouse, ascendant, descendant or heir where the articles impose approval for them. The full approval mechanics are in buying and selling shares in a French SARL.

Written consultation and unanimous deeds

Written consultation

Where the articles so stipulate, all decisions or some of them - except the approval of the management report, the inventory and the annual accounts - can be taken by written consultation (C. com. Art. L. 223-27). The initiative belongs to the management: this mode is not among the prerogatives of the statutory auditor or of a court-appointed representative.

The mechanics are straightforward. The text of the proposed resolutions, together with the documents needed to inform the shareholders, is sent to each of them by registered letter (C. com. Art. R. 223-22); the documents should be the same as those provided for meetings, matched to the nature of the decision. The shareholders then have a minimum of fifteen days from receipt of the draft resolutions to cast their vote in writing.

One technical question is worth flagging. Read literally, the quorum and majority rules for amendments refer only to decisions taken in meetings - the text mentions a single consultation mode and speaks of shareholders "present or represented", a notion not easily reconciled with written consultation. The prudent approach for a company formed after 3 August 2005 is to apply the same quorum and majority rules to written consultations amending the articles.

Decisions in a unanimous deed

Like written consultation, the unanimous-deed technique depends on a clause in the articles, and cannot be used for the approval of the management report, the inventory and the annual accounts. Where the articles authorise it, they may do so for all decisions outside the annual meeting or only for some - though in practice it is very difficult to determine in advance which decisions will benefit, so articles generally authorise both procedures without particular restriction and the company uses them as circumstances require. Companies whose articles do not yet provide for the unanimous deed are well advised to amend them to include it alongside written consultation.

Its merits are practical and real. It allows signatures to be collected calmly at the foot of a deed, where the same exercise is fundamentally flawed if it produces minutes describing a meeting that only took place on paper. It allows decisions to be taken quickly, with no convening formality and no response period. And it allows decisions that the meeting system takes in two stages - an authorisation then a decision, or a decision conditional on another - to be gathered into a single act.

One decision is excluded by its own logic: the approval of a regulated agreement. A deed expressing the agreement of all the shareholders appears irreconcilable with the interested shareholder's duty to abstain - though the unanimous deed can be used for the prior authorisation of a regulated agreement, meaning, absent a statutory auditor, an agreement in which the interested party is a non-shareholder manager. That regime is covered in regulated agreements in a French SARL.

Minutes, and what happens when the procedure is not followed

The minutes must contain a summary of the debates - and answers given to shareholders' written questions count as part of those debates, so the full text of questions and answers need not be transcribed provided the minutes give a faithful and objective summary. The minutes need not be drawn up on the spot, though a well-developed draft should be: for a difficult or stormy meeting, have the draft signed by the chair and, if possible, by another shareholder, to avoid later dispute. There is no need to read the minutes to the following meeting or have them approved by resolution, not least because the shareholders present at the two meetings may differ.

Correcting the minutes is governed strictly. The regulations forbid any addition, deletion, substitution or transposition of pages, and while they do not address corrections within the text, the offences of forgery and use of forgery carry three years' imprisonment and a €45,000 fine. The safe method mirrors notarial practice: strike through and number the void words, mark a marginal reference, write the corrected words in the margin or at the foot of the page, have them initialled by the same people who signed the original, and state at the end of the minutes the number of words struck out and added, with signatures beneath. Before entering minutes in the register, verify the continuity of the deliberations and check that no earlier decision has been omitted - particularly decisions outside the annual routine, such as authorising an agreement with a non-shareholder manager, or authorising the management to perform an act exceeding its powers.

Properly drawn minutes prove the holding of the meeting and the resolutions taken only until proof to the contrary, so any shareholder may contest their accuracy.

Nullity

Any irregularly convened meeting can be annulled - but the nullity action is inadmissible where all the shareholders were present or represented (C. com. Art. L. 223-27). Where they were not, grave and significant breaches of the convening rules cannot be cured, and the meeting and its resolutions are void. To obtain nullity for the failure to convene a particular shareholder, proof of a grievance must be shown. A shareholder may seek annulment even if they were themselves properly convened, and even where the absence of the unconvened shareholders would have made no difference to the decisions. The action belongs to shareholders alone: a non-shareholder manager cannot bring it. A shareholder who voted in favour of the resolution is not for that reason alone deprived of an interest in seeking its annulment - but a shareholder who was irregularly convened and then expressly approved the acts performed under the resolution has been held to have tacitly ratified it.

The action is subject to a three-year limitation running from the day the deliberations were taken (C. com. Art. L. 235-9), save concealment making action impossible: where a shareholder did not know a meeting had been held, time still runs from the meeting unless they can show it was concealed from them. The defence of nullity is perpetual, and can be raised whether or not the limitation period for the action has expired. One practical point on evidence: where shareholders challenge the regularity of a convening in court, the burden of proving the existence and regularity of that convening falls on the manager.

Frequently asked questions about SARL shareholder decisions

This article states general principles of French law as at its date of publication and is provided for information only. It does not constitute legal or tax advice and creates no lawyer-client relationship. Figures, rates and thresholds evolve; verify them against the texts in force before acting, and take advice on your specific situation.