Auditing and Controlling a French SARL: Statutory Auditors and Management Control Tools

Auditing and controlling a French SARL: who watches the accounts, and who watches the management

Most French SARLs have no statutory auditor. Since the PACTE reform, only companies crossing two of three size thresholds must appoint a commissaire aux comptes.

When a SARL must appoint an auditor

Since the PACTE and Soilihi laws of 2019, the rule is uniform across all French commercial companies: a SARL crossing two of the three audit thresholds at the close of a financial year must appoint at least one commissaire aux comptes. For financial years opened from 1 January 2024 those thresholds are:

• €5 million of balance-sheet total,
• €10 million of turnover excluding tax, and
• 50 employees.

These thresholds were raised by a decree of 28 February 2024 from the previous 4/8/50 figures, which still matter for transitional questions. Mandates already running when the new thresholds took effect on 1 March 2024 continue to their normal expiry.

The obligation is not permanent. It ceases where the company has failed to cross two of the three thresholds during the two financial years preceding the expiry of the auditor's mandate — at which point the company simply does not renew. Where the obligation does bite, the engagement is the classic six-year mission.

Two categories escape the size test altogether and must appoint whatever their dimensions:

• public-interest entities, which need at least one auditor, and
• companies required to publish consolidated accounts,

which need at least two. Those two must be genuinely independent of one another, which rules out appointing colleagues from the same firm. Sector-specific rules can impose an auditor independently of all of this.

One procedural detail deserves emphasis: the appointment or renewal of an auditor must appear on the meeting's agenda and cannot be slipped through under the resolution "any other business" ("Divers"). A shareholder resolution appointing an auditor and a deputy other than those named in the resolution circulated with the agenda to the shareholders is irregular (Cass. com. 14 February 2018, no. 15-16525).

The sanction for an irregular appointment of statutory auditors is significant: resolutions taken without a properly designated auditor, or on the report of an auditor appointed or kept in office contrary to the rules, are void, though the nullity action is extinguished where a later meeting expressly confirms them on the report of a properly appointed auditor.

Managers who fail to procure a required appointment face two years' imprisonment and a €30,000 fine.

When a small SARL can still have a statutory auditor

A SARL below the thresholds is a "small enterprise" for audit purposes and is not obliged by its size to appoint anyone. Several situations can still put an auditor in place.

A reasoned request by a third of the capital. One or more shareholders representing at least a third of the capital can make a reasoned request to the company, and the appointment then becomes compulsory — no court application needed (C. com. Art. L 223-35, al. 4). The engagement in that case is necessarily the three-year small-enterprise audit described below.

Voluntary appointment. The shareholders may appoint an auditor by ordinary decision. Absent a contrary statement at the time of appointment, the mandate runs for six financial years; the shareholders may instead limit it to three, provided the resolution says so clearly. Where the statuts themselves fix the auditor's mandate at six years, that clause must be amended before a three-year engagement can be entrusted.

Judicial appointment on the application of a tenth of the capital. Even where no threshold is crossed, shareholders representing at least a tenth of the capital may apply to the president of the commercial court, ruling in the accelerated form (C. com. Art. L 223-35, al. 3). The president is not bound to appoint: he weighs the company's interest in deciding. Where he does appoint, the mission is the classic six-year one.

One-off appointment for a specific operation. Because so many small companies now have no standing auditor, certain transactions require one to be appointed for that transaction alone — in a SARL, the distribution of an interim dividend is the classic case. This is not a voluntary appointment for three or six years; the auditor is appointed for the operation.

A small company must still appoint an auditor when it belongs to a group of companies whose combined figures exceed the thresholds

A company that is small on its own can still be forced into an audit by the group it heads or belongs to.

Where a person or entity that is not required to prepare consolidated accounts, and controls one or more companies, forms with those companies a set crossing two of the same 5/10/50 thresholds on a cumulated basis, the head must appoint an auditor (c. com. art. L 821-43).

Control here carries its ordinary meaning under French company law, including the presumption that attaches to holding more than 40% of the voting rights where no one else holds more, and the concept of persons acting in concert. All controlled companies count towards the cumulated thresholds, significant or not.

The head's engagement is the classic six-year mission, or three years where the head does not itself cross the thresholds. It is excused altogether where the head is itself controlled by an entity that has appointed an auditor — including a foreign entity that has appointed a statutory auditor under its own law, since the professional body reads the exemption generically.

Controlled companies must have an auditor where they cross two of three lower thresholds: €2.5 million of balance-sheet total, €5 million of turnover excluding tax, and 25 employees. The same auditor may serve the head and the controlled company.

The obligation lapses after two financial years below the figures preceding the mandate's expiry. Importantly, this cascade does not apply to companies controlled by public-interest entities or by groups already publishing consolidated accounts.

Auditors within a small group are released from professional secrecy towards one another — but the flow is one-way in practice: auditors of significant controlled companies may pass their risk reports up to the head's auditor, and nothing authorises the reverse.

The auditor: deputies, independence, tenure and removal

Deputy auditors. In a SARL a deputy is required only where the appointed auditor is an individual or a single-member firm. The deputy, appointed by ordinary meeting for six financial years, steps up automatically if the principal refuses, is prevented, resigns or dies, and stays until the end of the principal's mandate — unless the impediment was temporary, in which case the principal resumes after the next accounts meeting. Voluntary appointment of a deputy is always possible.

Two practical points:

• publicity formalities apply to deputies as well as principals, and
• where the bylaws require a deputy without referring to the governing article, that clause binds until the bylaws are amended, even if the auditor is a multi-member firm.

Independence. Only professionals entered on the official list may act, and firms may act subject to voting and management requirements.

Auditors must abide by strict incompatibilities:

• the office cannot be combined with any salaried employment, nor
• with any commercial activity, whether carried on directly or through an intermediary,

save ancillary commercial activities of the accountancy profession and those of the multi-professional practice structures auditors may join.

The supervisory authority reads "commercial activity" as the carrying out of several commercial acts, excluding acts done for the strict needs of ordinary life, and treats indirect exercise as covering any third party — individual or entity — acting under the auditor's influence or whose decisions he controls.

Soliciting business and accepting gifts beyond token value are also prohibited. Supervision of the profession now sits with the Haute autorité de l'audit, which succeeded the H3C at the beginning of 2024.

Professional secrecy and liability. Auditors, their staff and their experts are bound to secrecy for everything learned in the exercise of the profession, subject to statutory exceptions — notifying shareholders of irregularities or inaccuracies found, revealing criminal facts to the public prosecutor, and informing the court's president within an alert procedure. Auditors of consolidating and consolidated companies are released from secrecy towards one another. On liability, the auditor owes an obligation of means, not of result: he need not verify every operation nor systematically hunt every error, and answers to the company and to third parties only for the harmful consequences of his own faults and negligence. He is not civilly liable for offences committed by the gérants unless, knowing of them, he failed to reveal them in his report to the meeting. Actions against auditors prescribe in three years from the harmful fact or, if concealed, from its revelation.

Network and fees. An auditor belonging to a national or international network whose members share a common economic interest, and whose activity is not exclusively statutory audit work, must inform the SARL in writing before appointment — and, where applicable, of the nature of any non-audit services the network supplied to the company or to entities controlling or controlled by it, together with the total fees received. The fees paid to each auditor are separately made available to the shareholders at the registered office.

Tenure. The mandate runs for six financial years and expires after the ordinary meeting ruling on the sixth year's accounts. Outside public-interest entities, renewals are unlimited. An auditor appointed to replace another following death or resignation serves only to the normal expiry of his predecessor's mandate, and an auditor may resign only for legitimate reasons, the authority being informed. A judicial appointment made because the meeting omitted to appoint ends once the meeting has appointed. Where a firm of auditors is absorbed, the absorbing firm continues the mandate to expiry. A liquidation judgment does not end the mandate — the mission continues until dissolution, since the company still has to draw up and approve accounts — and where the registered office moves abroad, the mandate ends only at the effective transfer, so the alert procedure, the revelation of criminal facts and the signalling of irregularities all remain live until then.

Challenge, removal and non-renewal. Shareholders representing at least 5% of the capital, the social and economic committee where the company has more than 50 employees, and the public prosecutor may apply to court to disqualify an auditor for just cause — a request that must be made within thirty days of appointment, and which a mere difference of view on an accounting treatment or a control procedure will not support. Where the application succeeds, a replacement is appointed judicially and serves until the meeting's appointee takes office. Separately, in case of fault or impediment, the gérant, the social and economic committee, shareholders holding 5% or the public prosecutor may ask the court to relieve the auditor of the certification mission before its normal end; the deputy then takes over. An alert procedure that later proves unfounded is not itself a ground for removal. Where non-renewal is proposed, the auditor must be heard by the meeting if he asks. And continuity matters: the successor should be appointed at the meeting approving the sixth year's accounts, failing which the agenda must include a resolution convening a further meeting to appoint one — otherwise the outgoing auditor will signal the irregularity and reveal it to the public prosecutor.

What the auditor actually does in a SARL

Two engagements coexist for smaller companies, and the difference is more than duration. The classic six-year mission and the three-year ALPE small-enterprise audit both deliver certification of the annual accounts with the same level of assurance; only the ALPE mission adds a report on the company's financial, accounting and management risks, and only the ALPE mission carries lightened statutory procedures.

Certification and permanent verification. The auditor certifies, justifying his assessments, that the annual accounts are proper and sincere and give a true and fair view of the year's results and of the company's financial position and assets. His permanent mission — excluding any interference in management — is to verify the company's accounting values and documents and check the accounts against the applicable rules, to verify the sincerity and consistency with the annual accounts of the information in the management report and in documents sent to shareholders, and to satisfy himself that equality between shareholders has been respected. In his report he either certifies, certifies with reservations, refuses to certify, or declares himself unable to certify, giving reasons in the last three cases — and the meeting may still approve the accounts despite a refusal. The obligation of means shapes the standard throughout: exhaustive verification is not required, and a temporary refusal to certify while awaiting justification of a doubtful transaction is not a fault. But the mission is not purely retrospective either: where an employee's misappropriations are at issue, the auditor cannot escape responsibility for the period before his report by arguing that his control operates only after the event. The report on the annual accounts must be available at the registered office at least 15 days before the meeting.

The risk report. Under the ALPE mission the auditor must produce, for each financial year and not merely once every three, a report on the financial, accounting and management risks to which the company — and, where it heads a small group, the whole group — is exposed. It is addressed to the managers, its content and form are left to professional judgement, it must be consistent with the audit opinion, and the auditor discusses the identified risks with the manager before issuing it, formulating recommendations where useful while respecting the boundaries of independence and non-interference.

Alert, revelation and money laundering. The auditor must trigger the alert procedure on any fact liable to compromise the continuity of the business. He must reveal to the public prosecutor any criminal facts learned in the course of his mission, without incurring liability for doing so — misuse of company assets being the textbook example, and failure to file the annual accounts another — though it is not for him to characterise the offence or to judge whether prosecution is opportune. Failure to reveal, like confirming misleading information about the company's position, carries five years' imprisonment and a €75,000 fine. Separately, and without prejudice to that duty, he applies the anti-money-laundering and terrorist-financing regime, reporting to Tracfin sums he knows or suspects derive from an offence punishable by more than a year's imprisonment, are linked to terrorist financing, or derive from tax fraud where at least one of the regulatory criteria is met.

Prerogatives — and the offence of obstruction. At any time of year the auditor carries out whatever verifications he judges appropriate and may require on-site production of any document he considers useful: contracts, books, accounting records, minute books, the list being open. He may be assisted or represented by experts or staff of his choosing, named to the company, who enjoy the same investigation rights. His investigations extend to the company's parents and subsidiaries, and to every entity within a consolidation. He may gather information from third parties who carried out operations for the company, though obtaining their documents requires the president of the commercial court ruling in summary proceedings; professional secrecy cannot be raised against him except by officers of the court. He must be notified of meetings and consultations no later than the shareholders and has access to meetings; he may convene meetings where the gérant fails to — including where net assets have fallen below half the capital, and within a shortened eight-day period on the death of a sole gérant. Accounts and reports must be held at his disposal a month before the meeting convening notice, and he must be told of regulated agreements within one month of conclusion. Managers who fail to convene auditors to meetings face two years and €30,000; those who obstruct the auditor's verifications or refuse on-site production of useful documents face five years and €75,000 — a sanction that can also reach any employee of the company.

When the problem is management, not accounts

An auditor certifies accounts; he does not adjudicate a suspect transaction, break a deadlock or force a meeting. French law offers shareholders three separate judicial tools for those situations, and choosing the wrong one is the commonest reason applications fail.

Expertise de gestion: investigating specific transactions

Shareholders representing at least a tenth of the capital — individually or grouped in any form whatever — may apply to court for the appointment of one or more experts to report on one or more management operations (c. com. art. L 223-37). Shareholders must first summon the gérant to provide the required information and explanations. The request can only concern the SARL's own operations, not those of its subsidiaries. The public prosecutor and the social and economic committee may also apply. The capital condition is assessed at the date the application is introduced, and is not defeated by the applicant later ceasing to hold any shares; co-owners of undivided shares may apply where they hold the required fraction between them. A shareholder holding only industry shares cannot apply, since those shares form no part of the capital.

The decisive requirement is specificity. The court must order the expertise only where it identifies presumptions of irregularity affecting one or more determined operations (Cass. com. 22 March 1988, no. 86-17040), and where it grants the application it must define the scope and powers precisely, identifying the suspect acts rather than issuing a general mandate. That is why so many applications fail: requests aimed at the company's overall management, at reconstructing all financial operations across two years to establish de facto management, or at challenging the regularity and sincerity of the annual or consolidated accounts, are all inadmissible — accounting irregularities are not management acts. So are applications targeting operations within the meeting's own competence, such as a capital increase or a management buy-out, and applications that amount to harassment of the managers or to procedural warfare by an ousted gérant.

Within those limits the tool is generous. The amount at stake is irrelevant — an expertise must be ordered where presumptions of irregularity exist on determined operations, however small the sums, and even where the operation did not harm the company, as where a location-gérance should have gone through the regulated-agreements procedure and did not. Confidentiality of the agreement under scrutiny is no obstacle. Neither is the applicant's own conduct, his failure to attend the meetings that voted the operations, or his failure to challenge those decisions. And shareholder approval of a related-party agreement does not shield it: an approved convention can still be the subject of an expertise, because the convention emanates from the gérant and the shareholders merely ratify it (Cass. com. 5 May 2009, no. 08-15313) — though the expertise cannot extend to irregularities in the approving resolutions themselves, which belong to a nullity action. The gérant's remuneration, once fixed by the shareholders, is not a management act within the tool's scope; gratuities the gérant awards himself without a vote are. The expert's report goes to the applicant, the public prosecutor, the social and economic committee, the auditor and the gérant, is annexed to the auditor's report for the next meeting and receives the same publicity, and the costs may be placed on the company.

Administrateur provisoire: taking over a paralysed company

What practitioners call a provisional administrator is a judicial administrator appointed — on the merits, or in summary proceedings where there is urgency — to run the company's affairs when serious temporary difficulties prevent it from functioning normally and gravely threaten its interests. It is an exceptional measure, and the courts keep it that way: the applicant must prove circumstances making normal functioning impossible and threatening the company with imminent damage or peril. Paralysis of the management organs, danger to the company itself or to its interests, and the threat of imminent harm are the recognised grounds. Poor management alone is not enough. Nor is shareholder discord: disagreement between two shareholders, even where it amounts to a manifestly unlawful disturbance, does not by itself justify an appointment without those circumstances (Cass. com. 14 October 2020, no. 18-20240) — and where a family group holding the majority keeps the company running normally, serious quarrels between brothers will not support one. Where shareholders simply want the majority gérant removed, the answer is the judicial revocation procedure, not a provisional administrator.

Three practical points. The administrator's remuneration normally falls on the company, but judges may place it on the shareholder responsible for the appointment. Where appointed for a fixed period, the mission can be extended only if the company is still threatened with imminent peril, even if the work is unfinished. And where the appointing order is later retracted — because the applicant turned out to be the source of the blockage — the administrator is still entitled to be paid for work actually done.

Mandataire ad hoc: a single defined task

Where the need is narrower, the court can appoint not an administrator who displaces the management but an ad hoc agent charged with one specific operation (c. proc. civ. art. 873). The mission might be to review how the existing organs are managing the company, with a search for conciliation between the parties where appropriate. The appointment does not divest the gérant of his powers.

The threshold is markedly lower than for a provisional administrator: an ad hoc agent can be appointed even where no circumstances make normal functioning impossible, the application being subordinated only to showing that the appointment conforms to the company's interest. The classic use is convening a meeting the gérant refuses to call — where a majority shareholder asks for a meeting to remove the gérant and appoint a successor and the gérant refuses, the judges must grant the appointment, though the request is still assessed against the company's interest. Other established uses include forcing resolutions onto an agenda where they were left off and never put to the vote, and allowing a usufructuary — who is not a shareholder — to provoke a shareholders' decision liable to affect his enjoyment rights directly. One firm limit: an ad hoc agent cannot be given a mandate to perform an act of management in the company's name.

The four control tools side by side

Frequently asked questions about auditing and controlling a French SARL

This article states French law as published in the sources available at the date shown above, for general information only. Audit thresholds and the codified numbering of the auditing rules were recently recast; verify current figures before acting. It is not legal advice, does not create an attorney-client relationship, and rules and case law evolve.