Business Contracts

There are three fundamental requirements for the setting up of a company: affectio societatis  , sharing of profits and contributions for the benefit of the undertaking . Contributions are an essential condition for the formation of an undertaking, and each partner must make a contribution . In return for the contribution, the contributor receives shareholder rights .
A contribution may take the f …

Classification

There are three fundamental requirements for the setting up of a company: affectio societatis  , sharing of profits and contributions for the benefit of the undertaking . Contributions are an essential condition for the formation of an undertaking, and each partner must make a contribution . In return for the contribution, the contributor receives shareholder rights .

A contribution may take the form of a cash contribution, an industrial contribution or a contribution in kind. A contribution in kind consists of a partner contributing know-how and knowledge to the undertaking. A cash contribution involves the transfer of a sum of money to the undertaking. A contribution in kind must have a pecuniary value and take the form of real (in rem) or personal property, which may be either tangible or intangible. 

A contribution in kind is the closest equivalent to a sale. A contribution in kind may be made in full ownership, in possession or enjoyment (jouissance) or in usufruct (usufruit). A contribution in possession or enjoyment right of use is comparable to a lease. In the case of a contribution in usufruct, only the usus and fructus are transferred, in the absence of the abusus. A contribution of ownership is a transfer for consideration similar to a sale. 

The main difference between a contribution in kind and a contract of sale lies in the fact that in the former the consideration consists of partnership rights  whereas in the latter it consists of a price. As a result, a sale and a contribution in kind cannot be regarded as equivalent . Conversely, the close resemblance between a contribution in kind and an agreement of sale lies in the fact that a transfer of the right of ownership in rem is accompanied by a transfer of associated risks. Furthermore, a contribution by an undertaking for valuable consideration is treated for tax purposes as a sale and is therefore subject to the same tax regime as a sale . In effect, the contribution may generate a capital gain that must be declared to the tax authorities. Similarly, a contribution that results in the transfer of ownership of a property must be treated as a sale within the meaning of Article 1115 of the General Tax Code, which exempts the administrator from State tax if the latter undertakes to implement a purchase-resale transaction within a time-limit determined by law . 

In principle, a contribution in kind for the benefit of an undertaking cannot be considered as a sale, as its consideration is not a price but shares in the undertaking . However, a sale may be disguised as a contribution by an undertaking for fraudulent purposes. According to the Court of Cassation, the contribution of property to an undertaking cannot be treated as either a sale  or a transfer . In an isolated ruling, however, it did accept that a contribution in kind could be classified as a sale if a set of written documents issued by the parties at the same time as the deed of incorporation of the undertaking made it likely that they had a very clear intention not to regard the contributor in kind as a partner, but as a seller who had definitively abandoned his contribution in full ownership in return for immediate payment of its value .

The intentional element in the definition of a partnership and a key characteristic of a company under French law.

Art. 1832, para. 1 Civil Code: “A company is formed by two or more persons who agree by contract to allocate property or their industry to a common undertaking with a view to sharing the profits or benefiting from any savings which may result therefrom”.

Cass. com. 15 December 2009, LawLex202200001646JBJ, see above.

Cass. com,. 10 June 1953, LawLex202200001589JBJ.

Civil Code, Art. 1832, para. 1 and Art. 1843-3, para. 1: “Each member is under obligation to the undertaking for everything that he has promised to contribute to it in kind, in cash or in the form of services or know-how”.

CA Versailles, 13 January 2011, LawLex202200001628JBJ.

Cass. com. 9 November 2010, LawLex202200001376JBJ, ruling that a merger by absorption, which results in the dissolution without liquidation of the absorbed company and the universal transfer of its assets and liabilities to that of the absorbing company and which does not result in the allocation of corporate rights within the latter, does not constitute a contribution made by the former to the latter.

Cass. com. 9 June 2004, LawLex202200001645JBJ.

Cass. com, 6 April 1993, LawLex202200001289JBJ.

Cass. com. 15 December 2009, LawLex202200001646JBJ: the operation by which shareholders transfer elements of their personal assets to a company in the process of being formed in exchange for shares in the company constitutes a contribution and not a transfer for valuable consideration comparable to a sale.

Cass, 3e civ, 15 January 2014, LawLex202200001460JBJ; Cass, Com, 9 June 2004, LawLex202200001645JBJ.

Business Contracts

39. Classification

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39. Classification

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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