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

Company Law (en cours)

In exceptional cases and under specific circumstances, the legislator allows the exclusion of a partner.
The first exception is found in Article 1844-12 of the Civil Code, which addresses the case where a cause for the invalidity of the company arises: the text allows the responsible party the choice to rectify it or to request the invalidity of the company. In such a situation, if the company rec …

Exclusions provided by law

In exceptional cases and under specific circumstances, the legislator allows the exclusion of a partner.

The first exception is found in Article 1844-12 of the Civil Code, which addresses the case where a cause for the invalidity of the company arises: the text allows the responsible party the choice to rectify it or to request the invalidity of the company. In such a situation, if the company recommends, to avoid the annulment of the company, the exclusion of the partner, the judge may grant its request.

Furthermore, Article L. 227-16 of the Commercial Code states, regarding simplified joint-stock companies, that the statutes may provide the conditions under which a shareholder may be required to transfer their shares. The same exclusion right is granted to the general meeting of the variable capital company by Article L. 231-6. Such a prerogative can be justified as being the corollary of the right of withdrawal granted to shareholders. In this case, the excluded shareholder remains liable, for five years, to the shareholders and third parties for all obligations existing at the time of their exclusion.

Furthermore, in the event of insolvency proceedings, the court may condition the adoption of the continuation plan on the forced transfer of the shares of the managers  or the partners or shareholders who have refused the capital modification provided for by the plan and who hold, directly or indirectly, a fraction of the capital granting them a majority of the voting rights or a blocking minority in the general meetings of this company, or who alone hold the majority of the voting rights in this company pursuant to an agreement concluded with other partners or shareholders, not contrary to the company's interests .

Finally, Articles 237-1 et seq. of the AMF General Regulation provide that when the proportion of minority shareholders does not exceed 10% of the capital or voting rights, they may be subject to a squeeze-out at the request of the majority shareholder, subject to compensation.

This provision has given rise to significant litigation. However, case law considers that it does not violate the right to property guaranteed by the ECHR  and does not constitute an expropriation for private utility, as it stems from the legislation governing financial markets and the transfer of property, carried out with fair and equitable compensation to the withdrawing party by the offer initiator under the supervision of the market authority, meets the general interest of the proper functioning of this market . It added that while the assets of public entities are recognized as immune from seizure, such a principle does not preclude the forced transfer of assets belonging to their private domain .

Jurisprudence has broadly interpreted the legal grounds for exclusion, establishing new ones. It has indeed considered that partners who do not subscribe to a capital increase regularly decided and in line with the corporate interest, following a reduction of capital to zero, can be excluded . It holds that the reduction of capital to zero, which results in the cancellation of all corresponding shares and the exclusion of shareholders who did not subscribe to the subsequent capital increase, is lawful, as long as it aims to prevent the dissolution of the company when the net assets have become significantly less than half of the share capital . Similarly, the exclusion of a partner from a real estate civil company (SCI) that automatically results from their personal bankruptcy and the absence of a decision to dissolve the company prematurely is not contingent upon the persistence of this bankruptcy at the time of the reimbursement of their ownership interests . Furthermore, an arbitral award that pronounces the exclusion of a partner, based on the implicit but certain intention of the partners to make their participation in the company's capital dependent on the maintenance of indivisible contractual distribution relationships, does not violate corporate public policy . Jurisprudence has also determined, in matters of merger, that a shareholder of the absorbed company, who, due to the exchange ratio adopted by the merger agreement, holds an insufficient number of shares to obtain a share of the absorbing company, and has been repeatedly offered the purchase of their shares at a price deemed satisfactory by the trial court, must personally handle the fractional shares resulting from the operation, which stem from their unjustified refusal of this purchase offer and do not constitute either an abuse of rights or an undue deprivation of their property rights over their securities .

Commercial Code, Art. L. 631-19-2; Cass. com., 10 July 2007, LawLex202100003285JBJ.

Paris, 16 September 2003, LawLex202300006377JBJ; Cass. com., 29 April 1997, LawLex202200007246JBJ, holding that the obligation imposed on minority shareholders to transfer their shares to the majority group, within the framework of the mandatory withdrawal, does not violate the protection of their property rights, as long as the transfer of ownership occurs under the conditions defined by law, to meet general interest purposes, which ensure effective compensation for the shareholders obliged to transfer their securities.

Cass. com., 17 July 2001, LawLex202200007243JBJ.

Cass. com., 21 January 2014, LawLex202300006370JBJ.

Cass. com., 31 March 2015, LawLex202300001682JBJ; 1 July 2008, LawLex202300001681JBJ.

Cass. com., 17 May 1994, LawLex202200008805JBJ.

Cass. 3e civ., 17 December 2013, LawLex202300001700JBJ.

CA Grenoble, 16 September 2010, LawLex201100000531JBJ, Mousseron, JCP G, 2011, No 273.

Cass. com., 2 December 2020, LawLex202200009499JBJ.

Company Law (en cours)

310. Exclusions provided by law

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

310. Exclusions provided by law

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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