Written commercial agreement

Significant imbalance

Sudden termination of established relationships

Competition investigation – French law

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French competition law

Competition investigation – European law

European competition law

Vertical restraints

Distribution law

Liability for defective products

Consumer law

Prohibition of measures having equivalent effect

European business law

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Compliance

Economic law

Shareholders' agreements

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Abuse of voting rights

Companies

Action for infringement (counterfeiting)

Rights conferred by the trademark

Patentability

Industrial property

Commercial rent review

Renewal of the commercial lease

Despecialization (change of use)

Commercial leases

Reform of contract law

Reform of the law of special contracts

Preliminary sales agreement

Obligation to deliver goods in conformity

Classification of the contract for services (contrat d'entreprise)

Effects of the agency agreement with respect to third parties

Business contracts

Ongoing contracts

Recovery claims

Court-approved transfer plan

Bankruptcy proceedings

Personal data breaches

White collar crime

Commercial law

500 Questions - Business Law

Abuses of voting rights can be sanctioned in various ways, depending on the objective pursued. Two are common to the three types of abuse: civil liability and dissolution. Another can only apply to the abuse of majority: it is the annulment of the resolution that established it. Indeed, such a sanction cannot be transposed to abuses of minority and equality, since, by hypothesis, they manifest thr …

What are the penalties ?

“Abuse of majority”  is characterized by the adoption of a decision in a general meeting that is (i) contrary to the corporate interest and (ii) reflects the intention to favor the majority shareholders to the detriment of the minority . These two conditions are cumulative, not alternative: the fact that one of them is met is not sufficient to establish the offense . The burden of proof for an abuse of majority lies with the shareholder who alleges it .

Regarding the first condition, the legislator has never defined the concept of corporate interest. In the absence of guidelines, case law assesses, on a case-by-case basis, whether the resolutions submitted for its review are guided by the compass of corporate interest, which does not coincide with the personal interest of minority shareholders. The following have notably been judged contrary to corporate interest:

the systematic allocation of all profits made by a company to the extraordinary reserve, over very long years, insofar as this constitutes pure and simple hoarding ;

the granting to executives of fixed remunerations not corresponding to any actual work performed in the interest of the company or manifestly excessive in view of the significantly deteriorated results of the company .

On the other hand , the following have not been regarded as contrary to the interests of the company:

decisions to increase the share capital that helps to improve the financial situation of the company, even if it results in the dilution of the minority shareholder's stake;

the exclusion of a minority shareholder that resolves a deadlock situation due to the disagreement among shareholders and avoids the split of the company;

transfer of the business or real estate at market price.

In order to characterize the second condition of abuse of majority, the decision of the majority shareholders must be made with the intent to favor the majority to the detriment of the minority .

the decision to allocate all results to reserve accounts when it is explained by the majority's intention to deprive the minority, especially when the majority shareholders are not affected by this deprivation, as they receive significant remuneration in their management roles within the company;

the decision to liquidate the company, taken at the initiative of a majority shareholder, as long as it does not arise from any serious reason and aims to prevent any possibility of enforcing the buyback commitments of its stake concluded between a minority shareholder and the company.

the increase in the remuneration of two managers when it does not constitute an excessive advantage compared to the standards of the profession;

the transfer of the company's real estate assets and the use of an expert to objectively determine their market value, when it does not in any way demonstrate, on the part of the majority shareholders, an intention to harm the minority shareholder or deprive them of their rights, 

do not tend to favor the majority interest.

Advice: Do not assume that the mere fact that a decision adversely affects the interests of minority shareholders is sufficient to characterize an abuse of mlajority. Indeed, a decision that affects the interests of both minority and majority shareholders in the same way cannot be regarded as having been adopted with the sole aim of favoring the latter.

The resolution of a general meeting that decides to carry forward the profit of a financial year does not constitute an abuse of rights even if it deprives the minority shareholders not only of the expected income but also of the possibility of advantageous realizations through the sale of their shares, as long as it is not established that it is contrary to the general interest of the company and was made with the sole purpose of favoring the majority members to the detriment of the minority members.

Cass. com., 18 April 1961, LawLex202200009075JBJ

An abuse of majority cannot be established in the absence of one of the two cumulative conditions of the offense, specifically the condition that the decision must be made with the sole intention of favoring the majority shareholders to the detriment of the other shareholder.

Cass. 3e civ., 11 May 2022, LawLex202200010374JBJ

An abuse of majority is not established when the minority shareholder does not demonstrate that a resolution is contrary to the company's interest, but only that it allows the majority shareholder to make ordinary and extraordinary corporate decisions without enforcement, in their own interest and to the detriment of their associate.

Cass. 3e civ., 18 June 1997, LawLex202200009077JBJ

The burden of proof of an abuse of majority lies with the partner who alleges it.

Cass. com., 7 May 2025, LawLex202500003716JBJ.

The systematic allocation of all profits made by a company to the extraordinary reserve for twenty years constitutes pure and simple hoarding, contrary to both the purpose and the interest of the company, as it exposes the company to the risks of monetary fluctuations.

Cass. com., 22 April 1976, LawLex202200008953JBJ

The decision to quadruple the average remuneration of managing partners while the company's net accounting result has decreased by more than 99%, without a corresponding investment policy, appears contrary to the corporate interest and as such, constitutes an abuse of majority.

Cass. com., 15 January 2020, LawLex202300003969JBJ

The systematic allocation of profits to reserves by a real estate investment company (SCI) constitutes an abuse of majority if it does not stem from a necessary prudence or investment policy, nor from a requirement of sound management, but is solely intended to favor the majority partners to the detriment of the minority partner.

Cass. com., 17 June 2008, LawLex202200006085JBJ

What is misuse of majority rights? (abus de majorité)

An “abuse of minority” is established when the attitude of the minority shareholders (i) harms the corporate interest, (ii) by preventing the completion of an essential operation for the company, with the sole aim of favoring their personal interests to the detriment of all other shareholders. These two conditions are cumulative: the abuse is therefore not characterized when only one of them is met .

Like abuse of majority, abuse of minority requires harm to the corporate interest. This harm must also prevent the completion of an essential operation for the company. Therefore, to be established, the abuse must be based on a decision made with full awareness of the company's situation and the essential nature of the operation submitted to the shareholders' vote. An associate's opposition to a resolution cannot constitute abuse of minority when they have not been in a position to cast an informed vote, due to the lack of prior communication of information about the difficulties of the group companies involved and the necessity of the financing mentioned for the planned restructuring .

When, on the contrary, the decision is made knowingly, the refusal of a minority shareholder to vote, twice, for a capital increase, when it is a condition for the company's survival, constitutes an abuse of minority rights. The systematic refusal of a minority shareholder to consent to the change of brand necessary for the undertaking's survival is likely to contravene the corporate interest. This obstruction is all the more evident, in the context of a participatory franchise, if it unduly hinders the continuity of activity after the termination of the contract .

In order to characterize abuse of minority, the conduct of the minority shareholder must also be driven by a desire to favor their own interests to the detriment of those of the other shareholders. This is the case for example, where a minority shareholder refuses to vote in favor of a capital increase that is essential to the survival of the company, where that decision is solely intended to serve their own interests .

Conversely, the existence of mixed motives does not suffice to establish an abuse of minority where some of those motives are directed toward protecting the corporate interest. interest .

Advice: Do not act on a misuse of minority rights solely based on a minority shareholder's refusal to vote for a capital increase. Indeed, such an action is unlikely to succeed if the shareholder does not have a blocking minority and if there is no established collusion with other minority shareholders solely to protect their interests.

The partner who refuses to vote for a capital increase that appears, in the presence of difficulties, as the only measure in line with the company's interest, cannot be accused of minority abuse if it is not also established that their decision is based solely on the intent to favor their own interests to the detriment of all other partners.

Cass. com., 20 March 2007, 05-19.225, LawLex2022000051

The partner who does not have information allowing them to make an informed decision on the reasons, significance, and usefulness of the proposed accordion transaction in view of the company's future prospects does not commit minority abuse by refusing to vote in favor of this resolution.

Cass. com., 20 March 2007, LawLex202200005121JBJ

In the context of a participatory franchise, the refusal by the minority partner, representing the franchisor, to modify the corporate purpose to allow a change of brand may be contrary to the corporate interest when this measure is essential to ensure the continuity of operations after the termination of the franchise agreement.

Cass. com., 13 March 2024, LawLex202400002239JBJ.

The refusal of a minority shareholder to vote for a capital increase essential to the survival of the company constitutes an abuse of minority rights when it aims to hinder the functioning of the company as a retaliatory measure against their removal from the board of directors and to favor a third-party company in which they have interests.

Cass. com., 5 May 1998, LawLex202200009222JBJ

The refusal of the minority shareholder to vote for a capital increase necessary for the survival of the company constitutes an abuse of minority rights, as it was solely intended to force the majority shareholders to bear the risks of an operation from which he would have benefited in the event of success, and to avoid hindering his plan to open a competing establishment himself.

Cass. com., 18 June 2002, LawLex202200006571JBJ

A minority abuse is not established when the minority shareholder does not have only personal reasons to oppose the adoption of the resolutions presented by the management, but also legitimate reasons drawn from the interest of the company and the measures to be taken for its survival.

CA Paris, 23 November 2001, LawLex202200009249JBJ

What is misuse of minority rights? (abus de minorité)

The abuse of equality (abusive use of a blocking position in a deadlock situation by equal shareholders) is similar to the abuse of minority in terms of its conditions of application. It is characterized in a situation where a partner who holds the same number of shares or stocks as their co-partner prevents, through their negative vote, an essential operation for the company, with the sole aim of favoring their own interests to the detriment of the other partner .

A partner holding half of the shares in an SARL commits an abuse of equality by opposing the allocation of profits to reserves, as the company requires significant self-financing for its investments and working capital due to the time lag between financing its manufacturing and collecting sales proceeds, and distributing the entire accounting result as dividends would reduce its credit with banks.

On the other hand, the refusal of an equal partner to vote on resolutions submitted to the assembly does not exhibit the characteristics of an abuse of rights when it is explained by their disapproval of the company's management by the other partner, which has been outside the bounds of legality for several years. The refusal to participate in a capital reduction and increase, when it is part of a desire for sound management of the company , also escapes this classification.

The fact that the shareholders with equal shares in an SAS intended to subject all their decisions to the rule of unanimity and accepted the possibility of a disagreement leading to a deadlock in the company's operations, or even to the disappearance of the affectio societatis, is not sufficient to exclude the existence of an abuse of equality.

Cass. com., 21 June 2023, LawLex202300008403JBJ

The refusal of a partner to participate in general meetings with the agenda of voting on a “capital reduction and increase,” as long as it is motivated by the fact that the operation is not viable and is part of a concept of sound management of the company and not exclusively out of concern to protect their own interests to the detriment of those of the other partners.

CA Montpellier, 18 June 2002, LawLex202200009247JBJ

What is an abuse of equality?

Among the resolutions most conducive to abuses of voting rights are:

The allocation of profits: abuse of majority is clearly established in the case of systematic allocation to reserves of considerable sums, especially when it characterizes genuine hoarding and does not result in any investment by the company, or in the distribution of any dividends for many years, as it deprives the minority shareholder, who is not involved in the management of corporate affairs, of the only benefit of being a shareholder . Such a policy is in fact bearable for the majority shareholders when they hold management positions in the company that provide them with very comfortable remuneration .

Those concerning the remuneration of directors, particularly when involving a considerable increase, while the company is experiencing difficulties , or when they do not correspond to any actual work performed in the interest of the company .

Capital increases: they may give rise to an abuse of majority when they are not solely aimed at fulfilling the legal obligation to recapitalize the company, but are intended to exempt the majority shareholders from honoring their commitments to a minority shareholder , to dilute their participation , or to oust them . Conversely, the refusal of a minority shareholder to vote for a capital increase may constitute an act contrary to the corporate interest when this operation is a condition for the company's survival, also constitutes .

Those concerning the dissolution of the company: they may give rise to an abuse of majority when the vote was cast with the sole purpose of favoring the majority shareholder , notably by preventing any possibility of executing the buyback commitments of their stake concluded between a minority shareholder and the company. Conversely, the decision to dissolve a company does not constitute an abuse of majority as long as it is in line with the corporate interest, the company having lost its main client and the affectio societatis having disappeared.

Advice: Do not oppose every decision to set aside funds. In effect, such a measure may be a mark of prudent financial management, which enables the company to self-finance or to secure loans for major investments and ensure their reliable and sustainable repayment

The systematic decision, since the company's incorporation, to set aside all operating profits to reserves in order to lend substantial amounts to other companies in the group, enabling them to pursue a strategy of diversifying their investments, is neither in accordance with the corporate purpose nor in the general interest of the company in question, but is made solely with the aim of favoring the majority shareholders to the detriment of the minority shareholders.

CA Versailles, 6 December 2022, LawLex202300004122JBJ

The systematic allocation of profits to reserves since the company's creation, without incorporating them into the capital, constitutes an abuse of majority when it has had no effect on the company's investment policy, while the majority shareholders have received significant remuneration that allowed them to make personal investments substituting those that should have been made by the company.

Cass. com., 6 June 1990, LawLex202200005112JBJ

The decision to quadruple the average remuneration of managing partners while the company's net accounting result has decreased by more than 99%, without a corresponding investment policy, is contrary to the corporate interest and as such, constitutes an abuse of majority.

Doubling the manager’s compensation while, at the same time, profits are set aside as reserves due to their low level may constitute an abuse of majority power, since it cannot be ruled out that these decisions were made for the sole purpose of advancing the manager’s interests.d to get your take on something

Cass. com., 20 February 2019, LawLex202200006216JBJ

An abuse of majority is characterized when a decision authorizes two majority partners, who hold 66% of the share capital, to receive fixed remunerations that do not correspond to any actual work performed in the interest of the company.

Cass. 3e civ., 14 January 2021, LawLex202300003966JBJ

Abuse of majority is established when the successive reductions and increases in capital, denounced by a minority shareholder, are not solely aimed at fulfilling the legal obligation to recapitalize the latter, but also aim to exempt the majority shareholders from honoring their commitments to the former.

Cass. com., 28 February 2006, LawLex202300003796JBJ

Abuse of majority can result from a decision to increase capital contrary to the corporate interest, as long as it only aims at diluting the participation of a minority shareholder, with a view to the subsequent sale of a building.

Cass. 3e civ., 8 July 2015, LawLex202200005113JBJ.

An extraordinary general meeting must be annulled when the capital increase decided, by creating new shares reserved solely for the majority shareholder, has been fully paid by offsetting with a current account claim held by the latter and therefore has not created any cash flow to meet the financing needs invoked, so it is established that the primary objective of the operation is to oust minority shareholders without any of the submitted elements proving that this ousting is justified by the company's corporate interest.

Cass. com., 11 January 2017, LawLex202300004194JBJ

The refusal of a minority shareholder to vote for a capital increase essential to the survival of the company, with the aim of hindering its operation as a retaliatory measure against their removal from the board of directors and to favor a third-party company in which they have interests, constitutes an abuse of minority rights as long as this decision is intended solely to favor their own interests.

Cass. com., 5 May 1998, LawLex202200009222JBJ.

A resolution that declares the dissolution of the company must be annulled, as it is contrary to the interest of the company and results from an abuse of rights, when the vote was cast with the sole purpose, for the majority shareholder, of avoiding the application of a tontine clause.

Cass. 3e civ., 15 October 2015, LawLex202200009055JBJ

What types of resolutions can be affected by an abuse of voting rights?

Abuses of voting rights can be sanctioned in various ways, depending on the objective pursued. Two are common to the three types of abuse: civil liability and dissolution. Another can only apply to the abuse of majority: it is the annulment of the resolution that established it. Indeed, such a sanction cannot be transposed to abuses of minority and equality, since, by hypothesis, they manifest through a blockage of decision-making.

The annulment of the resolution represents the most effective sanction against an abuse of majority as it allows the abuse to be eliminated. It is incurred solely due to the abuse committed, as long as it affects the regularity of the assembly's resolutions by itself . The action for annulment of a corporate resolution based on an abuse of majority is subject to the three-year limitation period provided by Article L. 235-9 of the Commercial Code . This limitation period is not suspended by judicial requests irregularly filed against the company itself and not against the majority shareholders.

Abuses of voting rights necessarily cause harm to members of the opposing bloc. Majority abuse causes harm to minority shareholders, minority abuse to majority shareholders, and equality abuse to the other shareholder. As a personal action, the action for compensation for harm caused by majority or minority abuse is subject to a five-year limitation period from the day the holder of a right knew or should have known the facts allowing them to exercise it .

Abuses of voting rights generally reflect a serious disagreement between opposing blocs. They are therefore theoretically likely to constitute just grounds for the dissolution of the company, in accordance with Article 1844-7, 5° of the Civil Code, when they result in a paralysis of its functioning.

Advice: To avoid these extremes and unlock deadlock situations, petition the court to appoint an ad hoc administrator, who will vote in place of the partner, to uphold, in their ballots, the collective interest of the partners and that of the company. However, it should be noted that in such a case, the court cannot dictate how the proxy should vote or require him or her to vote in favor of a particular resolution.

Any abuse of voting rights at a general meeting in itself affects the validity of the proceedings of that meeting.

An action to set aside a corporate resolution based on an abuse of majority power is subject to the three-year statute of limitations provided for in Article L. 235-9 of the Commercial Code.

Cass. com., 30 May 2018, 16-21.022, LawLex202200006542JBJ

The three-year limitation period of Article L. 223-23 of the Commercial Code does not apply to liability actions based on abuse of majority.

CA Caen, 26 April 2022, LawLex202300004151JBJ.

The parties entitled to bring an action for annulment against an abuse of majority are, on the one hand, the minority shareholders, including those who voted in favor of the contested resolutions . However, a minority shareholder cannot request the annulment of resolutions on the grounds of abuse of majority if they did not attend the meeting, while not disputing having been duly convened. On the other hand, the representatives of the company can act for annulment since an abusive resolution, contrary to the corporate interest, necessarily harms the company .

The holders of the action for compensation for the damage suffered are, in the case of abuse of majority, the minority shareholders, even if they voted in favor of the criticized resolution . The representatives of the company can also act on behalf of the company, based on the legal powers conferred upon them, to seek compensation for the damages suffered by the company resulting from an abuse of majority.

Conversely, the majority shareholders of the company may hold the minority shareholders who committed the abuse civilly liable, pursuant to Article 1240 of the Civil Code..

Finally, the partner who is the victim of the abuse may engage the civil liability of the equal partner who committed the abuse, based on Article 1240 of the Civil Code.

With regard to the early dissolution of the company, it may be pronounced by the court at the request of any partner for just cause.

The partner who participated in the decision, made unanimously, is admissible to bring an action for annulment of it, if they demonstrate a legitimate interest in the success or rejection of a claim.

Cass. 3e civ., 19 July 2000, LawLex202200005986JBJ

The manager of a subsidiary is entitled to act on behalf of the company, based on the legal powers conferred upon them, to establish the nullity of the assistance and treasury agreements, constituting an abuse of majority, concluded by the former manager with the parent company.

Cass. com., 21 January 1997, LawLex202200007705JBJ

A minority shareholder who voted in favor of a resolution is not deproved of standing to bring proceedings in contesting it later.

CA Lyon, 14 May 2009, LawLex202200009146JBJ

500 Questions - Business Law

293. What are the penalties ?

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

293. What are the penalties ?

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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au contenu exclusif Livv – juristes d’entreprise