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

Company Law (en cours)

The primary criterion around which the scattered rules governing corporate groups can be organized is that of control, which, exercised by a natural or legal person over another, expresses the extent of its power of domination over it. Control, in all its variants, is defined in Article L. 233-3 of the Commercial Code, to which various other provisions relating to the notion of "corporate group" r …

Assessment of the control criterion

BLIN-FRANCHOMME, Essay on the notion of control in business law, Thesis Toulouse 1998; STORCK, Legal definition of the control of a company in French law, Rev. sociétés 1986, 385

The primary criterion around which the scattered rules governing corporate groups can be organized is that of control, which, exercised by a natural or legal person over another, expresses the extent of its power of domination over it. Control, in all its variants, is defined in Article L. 233-3 of the Commercial Code, to which various other provisions relating to the notion of "corporate group" refer.

Pursuant to point I of Article L. 233-3, I, regarding "de jure" control, a company is deemed to control another when it directly or indirectly holds a portion of the capital granting it the majority of voting rights in the general meetings of the latter. This also applies when the same company alone holds the majority of voting rights in the other by virtue of an agreement concluded with other partners or shareholders that is not contrary to the company's interest. The courts apply these criteria, particularly in disputes related to the obligation to reclassify employees within the "group," a concept for which Article L. 1233-4 of the Labor Code refers to Article L. 233-3 of the Commercial Code, and hold that such control is not established when a company holds less than 50% of the capital and less than 39% of the voting rights in another, even if they have common leaders . Similarly, the notion of control under Article L. 233-3 is utilized by Article L. 2331-1 of the Labor Code concerning the establishment of a "group" social and economic committee, which must be formed "within the group formed by a company called the dominant company, whose registered office is located on French territory, and the companies it controls." In application of these texts, it has been ruled that an individual can be qualified as a dominant company, as long as they directly or indirectly interfere in the management of the companies in the group they control . Conversely, the existence of control is not established in the absence of capital links between the allegedly dominant company and the allegedly dominated company, or of holding voting rights and decision-making power of the former over the latter, even if there is an economic dependency relationship between them .

A "de facto" control is characterized in two scenarios: first, when a company actually determines, through the voting rights it holds, the decisions in the general meetings of another company; second, when, being a partner or shareholder of this same company, it has the power to appoint or dismiss the majority of the members of its administrative, management, or supervisory bodies . A transfer of shares or stock limited to 49% of the capital of the transferred company may conceal a change of control, as long as it is immediately contradicted by granting the transferee exorbitant prerogatives, characteristic of those of a majority shareholder, such as the power to dismiss the company's president at its sole discretion, the ability to oppose any resolution of this body by its absence from general meetings, as well as a veto right over all important management decisions .

Control is said to be "presumed" when an undertaking directly or indirectly holds a fraction of voting rights exceeding 40%, while no other partner or shareholder holds directly or indirectly a fraction greater than its own . Thus, a company that holds 46% of the voting rights of another, without any distinct partner or shareholder holding directly or indirectly a fraction greater than its own or exercising, in fact, a decisive influence on its management, is presumed to exercise control over it . Similarly, a 43.7% stake in a company allows for the presumption of control exercised over it by the holding company, in the absence of proof that another partner alone holds a greater stake .

In accordance with para. III of Article L. 233-3, there is "joint" control  by two or more persons acting in concert when they actually determine the decisions made at the general meeting of another . According to Article L. 233-10, which also refers to Article L. 233-3, "[p]ersons who have entered into an agreement to acquire, dispose of, or exercise voting rights, to implement a common policy towards the company or to obtain control of that company are considered to be acting in concert." In this scenario, control implies that the joint management established by the concert parties allows them to determine the decisions made at the general meeting . It is also accepted that joint control is exercised over a company by its two shareholders when there is an agreement whose purpose and effect is to subordinate the definition of its strategy to their mutual agreement . Similarly, the classification of joint control of a company by shareholders acting in concert is established in the presence of a binding agreement aimed at exercising a common policy towards the company, when no "extraordinary" decision can be made without the agreement of each of them and no disagreement on such decisions has been noted during the disputed period . Case law admits, in an extensive conception of joint control, that it can be characterized when two shareholders act in concert, even if one of them holds 80% of the voting rights, which, in the absence of the agreement concluded between them, allows him to determine alone the decisions of the general meetings of this company . Conversely, the existence of family ties between shareholders and the mere parallelism of their behavior during the capital restructuring of a group do not alone imply the existence of concerted action determining joint control .

Finally, Article L. 233-4 of the Commercial Code refers to a form of indirect control, considering that a capital participation, even less than 10%, held by a controlled company is indirectly held by the company that controls it. The text primarily targets the hypothesis of auto-control, which refers to the situation where a company ensures its own control through one or more other companies it controls. Such a situation is not encouraged: a participation of auto-control is indeed deprived of voting rights, even if the control is exercised jointly with other partners . However, the shareholder retains the right to transfer their auto-control shares .

In the event of a dispute regarding the notion of control, Article L. 233-5 provides that the public prosecutor and the Financial Markets Authority, for companies whose shares are admitted to trading on a financial instruments market, are authorized to take legal action to establish the existence of control over one or more companies.

All these definitions conceive control almost exclusively through the voting rights it grants to its holder in a general meeting. However, many control situations may escape this criterion; this is why new definitions of control have emerged, particularly in accounting law, for the application of rules on the consolidation of accounts. While the same notion of joint control is found, the definition given is not exactly the same as that of Article L. 233-3, III. Article L. 233-16, III indeed considers it as the sharing of control of an undertaking operated jointly by a limited number of partners or shareholders, so that decisions result from their agreement.

Furthermore, Article L. 233-16, II defines exclusive control by a company as resulting from: either the direct or indirect holding of the majority of voting rights in another undertaking; or the appointment, during two successive financial years, of the majority of the members of the administrative, management, or supervisory bodies of another undertaking; or the right to exercise a dominant influence over an undertaking pursuant to a contract or statutory clauses.

Cass. com., 10 December 2003, LawLex202200007123JBJ.

Control "by law," "de facto," "presumed," and "joint."

CA Versailles, 3 March 2021, LawLex202200009744JBJ.

CA Lyon, 7 April 2021, LawLex202200009747JBJ.

KASPARIAN, Joint control, contribution to the study of power in the company, Joly ed. 2014; MARTIN-LAPRADE, Joint control, an attempt at assessment on the occasion of the tenth anniversary of this notion, in Mélanges Ph. Bissara, ANSA 2013, 253.

For an application, See Cass. com., 29 June 2010, LawLex202200007122JBJ. - Cf. Cass. com., 15 March 2017, LawLex201700000526JBJ, considering, without referring to general meeting decisions, that a power to dismiss a manager is capable of conferring joint control on its holder.

Cass. com., 15 March 2011, LawLex202200007983JBJ.

CE, 20 October 2004, LawLex202200007987JBJ.

CE, 6 December 2021, LawLex202200007988JBJ.

Cass. com., 29 June 2010, LawLex202200007122JBJ.

CA Versailles, 20 December 2012, LawLex202200009745JBJ.

See notably Commercial Code, Art. L. 233-6, on the obligation to declare threshold crossings; Art. L. 233-10, relating to concerted action; Art. L. 233-31, on the deprivation of voting rights of auto-control shares; Labor Code, Art. L. 1226-10, relating to the reassignment of unfit employees; Art. L. 1233-4, relating to the reassignment of employees dismissed for economic reasons; Art. L. 2331-1 relating to the establishment of a group committee; Monetary and Financial Code, Art. L. 522-10-1, on the exemption from AMF authorization for certain operations carried out within a group of payment institutions; Art. L. 526-13, on the same exemption, this time concerning operations carried out within a group of electronic money institutions; Article L. 561-33, relating to the establishment, within groups, of control and risk management procedures; General Tax Code, Art. 223 B, on the deductibility of financial charges within a group; Art. 726, on the exemption from registration duty for acquisitions of ownership interests between companies within the same group.

Paris, 15 March 2000, LawLex202200008761JBJ.

CA Douai, 10 September 2019, LawLex202200007885JBJ.

Formerly referred to as the "works council".

Cass. soc., 22 November 2023, LawLex202300014050JBJ, JCP E 2024, No 1028, obs. REVILLON; JCP S 2024, No 1006, obs. KERBOURC'H; JCP E 2024, No 1114, obs. PAGNERRE.

CA Besançon, 27 March 2018, LawLex202200009751JBJ.

Commercial Code, Art. L. 233-3, I, 3° and 4°.

Cass. com., 26 February 2013, LawLex201300000265JBJ.

Company Law (en cours)

265. Assessment of the control criterion(1)

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