All of French Company Law: ordinary law of companies and specific regime for different types of companies

Company Law (en cours)

The company contract, as defined by Article 1832 of the Civil Code, requires the partners to share in the losses  in the event that the company's result is negative. The principle of participation by all in the losses is intended to apply only at the time of the company's dissolution , unless the law and the articles of association provide otherwise.
A company in financial difficulty may be led to …

Contribution of partners to corporate losses

The company contract, as defined by Article 1832 of the Civil Code, requires the partners to share in the losses  in the event that the company's result is negative. The principle of participation by all in the losses is intended to apply only at the time of the company's dissolution , unless the law and the articles of association provide otherwise.

A company in financial difficulty may be led to make capital calls from its partners. However, Article 1836, paragraph 2, states that such capital calls, which increase the partners' commitments, cannot occur during the company's life without first obtaining their consent. In fact, neither the corporate officers nor the majority of partners can impose a payment on a partner that they have not accepted as part of an additional capital call to meet the demands of certain corporate creditors . Similarly, a partner's refusal in a real estate investment company (SCI) to respond to capital calls, particularly for financing work and services already performed, is not faulty unless they were provided for in the articles of association . However, general meeting decisions, made in accordance with the articles of association, which stipulate that the profit for the fiscal year is fully acquired by the partners at the closing date and distributed among them proportionally to the number of their shares, in the form of a current account entry, and that losses are immediately fully borne and distributed among the partners, do not violate Article 1836, which only governs the conditions that must be met by decisions amending the articles of association .

If, upon the dissolution of the company, after settling the creditors, the liquidator finds a negative result in the company's accounting records, they are entitled to take action against the company's partners for the settlement of their contribution to losses . The extent of participation in losses for partners in unlimited liability companies differs from that of members in limited liability companies, whose risk is confined to the amount of their contribution. Indeed, in companies where the risk is unlimited, the contribution to losses can greatly exceed the amount of the contribution.

The contribution to losses must be distinguished from a related concept: the obligation for corporate debts. Again, a distinction must be made depending on whether it is a limited liability company or an unlimited liability company. Indeed, in limited liability companies, a partner cannot be personally required to satisfy the company's creditors, unless they have expressly committed to do so. In fact, additional billing unrelated to a service provided, addressed to the partners of an SAS for uncovered expenses at the end of the fiscal year, violates the prohibition against subjecting them to a contribution to liabilities . Conversely, in unlimited liability companies, partners are indefinitely and jointly liable for corporate debts . However, this obligation is instituted solely for the benefit of third parties, so that a partner who is a creditor of an SCI for advances in a current account cannot rely on it to claim payment from their co-partners .

In accordance with Article 1844-1 of the Civil Code, each partner contributes to the losses in proportion to their share in the corporate capital . The articles of association may provide for a different distribution, provided that it does not violate the regulations concerning leonine clauses.

The prohibition of leonine clauses is frequently invoked in the context of purchase promises, particularly when a transfer price is agreed upon in advance by the parties to the act. Jurisprudence considers that a promise to purchase shares at a determined price constitutes a stipulation unrelated to the corporate purpose, devoid of impact on the allocation of profits to the partners and their contribution to losses . It therefore holds that the conclusion of a transfer agreement between partners, whose sole purpose is to ensure, for a freely agreed price, the transfer of shares  or the balance of agreements concluded between the parties , does not infringe upon the corporate purpose and does not fall under the prohibition of clauses that have the effect of freeing one of the partners from any contribution to corporate losses. Similarly, the conclusion of a promise to purchase shares at a freely negotiated minimum price, subject to the suspensive condition that one of the parties ceases its functions within the company it manages, does not affect its contribution to losses . Ultimately, jurisprudence readily accepts the validity of such promises when the existence of a corporate risk  is not excluded, which is not the case when one of the parties relinquishes the profits corresponding to its shares in exchange for a fixed fee, as this operation tends to guarantee a certain profit .

The leonine nature of the dealer agreement, which stipulates that the parties' participation in profits and losses is set in proportion to the partners' shares, has also been excluded because these provisions do not exempt the silent partner from any contribution to losses .

Finally, decisions of extraordinary general meetings that allocate all losses to minority partners for three closed fiscal years and exempt certain partners from any participation in them are not deemed unwritten, as long as they only temporarily deviate from the articles of association .

Cass. req., 8 January 1872, LawLex202300014061JBJ.

Cass. com., 3 March 1975, LawLex202200003220JBJ.

Cass. com., 10 January 1989, LawLex202200003642JBJ.

Cass. com., 20 May 1986, LawLex202200003430JBJ; 8 March 2005, LawLex202200003241JBJ; 19 October 1999, LawLex202200003462JBJ; 24 May 1994, LawLex202200003235JBJ; 19 May 1998, LawLex202200003643JBJ.

Cass. com., 16 November 2004, LawLex202200003268JBJ, considering that a share buyback promise, which aims, by setting a minimum sale price, to ensure the balance of agreements concluded between the parties and guarantees its beneficiary, the lender, the reimbursement of the investment to which he would not have consented without this determining condition, does not exempt the latter from any contribution to losses, even if it is a unilateral commitment; 3 March 2009, LawLex202200003240JBJ, regarding a promise granted in consideration for subscribing to a capital increase.

Cass. com., 12 March 1996, LawLex202200003438JBJ.

Cass. com., 22 February 2005, LawLex202200003237JBJ, holding that the promise to purchase shares subscribed by a shareholder, unlinked to any reciprocal promise to sell them, does not have a leonine character, as its implementation is subject to the exercise of an option after a certain period and for a limited time, from which it follows that the shareholder, outside this period, remains subject to the risk of disappearance or depreciation of the shares; 23 March 2010, LawLex202200003269JBJ, indicating that the promise to repurchase shares of a minority partner held in a subsidiary, at a minimum sale price, does not exempt its beneficiary from any contribution to losses, as it is accompanied by a transition period during which the latter provides the company with his experience and knowledge of the operation of this unit, and that over the five-year period during which the repurchase promise cannot be exercised, he commits to serving as the company's president only during the first two years; Cass. 1re civ., 15 May 2008, LawLex202200003244JBJ, considering that a right to repurchase shares or withdrawal framed in time offered to the transferee does not exempt him from all risk of losses as the remuneration of the shares depends on the distributable profits and their variation.

Cass. com., 18 October 1994, LawLex202200003458JBJ.

Cass. com., 15 December 1998, LawLex202200002970JBJ.

Cons. d'Et., 18 October 2022, LawLex202300004365JBJ, Gaz. Pal. 14 March 2023, 54, obs. MASSARD.

Cass. com., 7 March 1989, LawLex202200003223JBJ.

Cass. com., 10 July 2012, LawLex202200003226JBJ; 5 May 2009, LawLex202200003221JBJ, considering that a member of a real estate civil company (SCI) who requests to exercise their right of withdrawal cannot be required to pay an amount for the company's net accounting deficit when the company's statutes do not expressly stipulate that the partners must contribute to the losses incurred during the company's existence; 5 May 2009, LawLex202200003221JBJ.

Cass. com., 9 June 2004, LawLex202200003228JBJ.

Cass. com., 27 September 2016, LawLex202100002936JBJ.

Cass. com., 18 December 2012, LawLex202200003224JBJ.

Commercial Code, Art. L. 221-1, para. 1, L. 222-1, para. 1, and L. 226-1, para. 1.

Cass. com., 3 May 2012, LawLex202100003574JBJ.

Cass. com., 7 May 2019, LawLex202200003267JBJ.

Company Law (en cours)

29. Contribution of partners to corporate losses

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29. Contribution of partners to corporate losses

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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