Foreign corporations or individuals that intend to expand their activities to France should, at first, decide what business type is best suited to their objectives.

Created by the Law of January 3, 1994, the Simplified Stock Company hereinafter referred to as an “SAS”, appears to be, in most cases, the most appropriate business type for foreign investors.

One of the main advantages of the SAS is its flexibility and the latitude it offers to its shareholders.  However, it triggers the obligation to appoint a “commissaire aux comptes” (statutory auditor) which generates additional costs for a French newco (usually between 1,500 euros and 10,000 euros the first year for the costs of statutory auditors).   Moreover, the social cost of the president will be higher compared to a “gerant” (manager) of an SARL.

 

Main Characteristics of the SAS

Constitution

SAS are subject to a limited number of legal requirements and could be incorporated by one or more shareholders (including foreign corporations).

For more flexibility, an SAS could be organized with variable capital, which allows the corporation to easily manage its restructuring.

Liability

Each shareholder of the SAS is liable for the debts of the SAS only to the extent of his capital contributions.

Public Offering

Unlike a Société anonyme (another common French business type), a SAS cannot have publicly traded shares.

However, if shareholders have the objective to sell their shares to the public and add liquidity to their personal assets, they’ll have to convert the SAS into a SA.

 

Management of the SAS

Management Body(ies)

Unlike a Sociétés Anonymes, for which the rules regarding management and shareholders’ meetings are determined by Law, SAS’s shareholders may freely establish how the SAS will be managed. Shareholders could include in the by-laws several procedures and conditions, such as:

  • Shareholders’ voting procedure,
  • Shareholders’ agreement in case of shares transfer,
  • Control on strategic decisions,
  • Etc.

The only mandatory requirement is that the SAS’s shareholders must elect a unique President who will represent the SAS. A company of another legal entity may be appointed President.

The Charter of the SAS freely determines the procedure for appointing and removing the President as well as fixing its remuneration.

Please note that French law does not authorize a SAS to have more than one President. In order to authorize more than one person to represent the SAS, shareholders may appoint one or more General Directors, with the mission of representing the SAS.

This rule aside, the SAS could decide to organize itself by committee or any other decision-making methodology. For example, the Charter can provide for one or more management bodies comparable to the board of directors or any other type of board or committee with proposal, decision-making or casting vote.

Shareholders’ Decisions

The Law provides that the rules regarding the organization and procedure for shareholders’ decisions may be freely determined in the by-laws. However, the following decisions may only be taken by the shareholders:

  • Increase or decrease of capital,
  • Merger or spin-off of the company,
  • Appointment of statutory auditors,
  • Annual approval of financial statements and allocation of net profits,
  • Dissolution and liquidation of the company.

This flexibility explains why most of the French corporate joint ventures are under the form of an SAS.

In particular, SAS is an excellent corporate form to integrate deadlock provisions in France.

 

Control of the Share Capital

In order to ensure shareholding stability, shareholders may insert specific clauses in the Charter or in an undisclosed French shareholders’ agreement (Pacte d’actionnaires), such as:

  • Shareholders’ pre-emptive right in case of transfer of shares,
  • Shareholder’s prior approval regarding the transfer of shares,
  • Non-transferability of shares,
  • Exclusion in case of change in shareholder control.

However, some of these mechanisms are subject to certain conditions and should be carefully drafted.

 

Creation of Preferred Stocks (Actions de préférence)

Preferred stocks (or preference shares) are a special category of shares to which will be attached different rights, such as:

  • No voting right during shareholders’ assemblies,
  • Right to a supplementary (or reduced) voting right during assemblies,
  • Right to a supplementary (or reduced) dividend,
  • Etc.

However, shareholders will not be able to include any provisions in the by-laws, like one-sided clauses (clauses léonines), which empowers one or more shareholders to the detriment of other shareholders.

Benoît LAFOURCADE

Co-Founder, Partner & Solicitor -
International Corporate Law & Litigation

Benoît, Delcade’s co-founder, is a Paris Bar lawyer and UK Solicitor (London).

Advisor for various embassies, working closely with the firm's team, Benoît offers his services to French and foreign companies requiring cross-cutting strategic and legal support in business law.

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