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

Company Law (en cours)

When the company is formed or during its existence, preference shares may be created, with or without voting rights, accompanied by special rights of any kind, either temporarily or permanently .
Established by Ordinance No 2004-604 of 24 June 2004 , preference or preferred shares/stock (actions de préférence), which can be issued by all joint stock companies, replaced priority shares as well as p …

Principle

When the company is formed or during its existence, preference shares may be created, with or without voting rights, accompanied by special rights of any kind, either temporarily or permanently .

Established by Ordinance No 2004-604 of 24 June 2004 , preference or preferred shares/stock (actions de préférence), which can be issued by all joint stock companies, replaced priority shares as well as priority dividend shares without voting rights . Their holders possess rights other than those attached to ordinary shares , and even to priority shares , including political rights (double voting rights, multiple voting rights ), financial rights (right to priority dividends), and proprietary rights. These are defined by the statutes and, for companies whose shares are admitted to trading on a regulated market or on a multilateral trading system, in compliance with Articles L. 225-122 to L. 225-125 of the Commercial Code .

Voting rights may be adjusted for a fixed or determinable period. They may be suspended for a fixed or determinable duration or eliminated. Non-voting preferred shares may also be created, which cannot represent more than half of the share capital , and in companies whose shares are admitted to trading on a regulated market, more than a quarter of the share capital. Any issuance that results in exceeding this limit may be annulled .

The extraordinary general meeting of shareholders is solely competent to decide on the issuance and conversion of preference shares based on a special report from the statutory auditors . To this end, the report from the board of directors or the management board must indicate the characteristics of the preference shares and specify the impact of the operation on the situation of holders of equity securities and securities giving access to capital . The statutory auditor gives their opinion on the proposed capital increase, the characteristics of the preference shares, and the impact of the operation on the situation of holders of equity securities and securities giving access to capital . The general meeting may delegate its power under the conditions set by Articles L. 225-129 to L. 225-129-6 of the Commercial Code .

Pursuant to Article L. 228-14 of the Commercial Code, preference shares may be converted into ordinary shares or preference shares of another category. The creation of these shares, except for SAS which are not subject to it , results in the application of Articles L. 225-8, L. 225-10, L. 225-14, L. 225-147, L. 22-10-53, and L. 22-10-54 of the Commercial Code relating to special benefits when the shares are issued for the benefit of one or more specifically designated persons. One or more contribution auditors must be appointed unanimously by the shareholders or, failing that, by court decision. Their report must be annexed to the statutes . The contribution auditors must not have carried out and must not carry out any mission within the company for the past three years . Holders of shares that are to be converted into preference shares of the category to be created cannot, under penalty of nullity of the resolution, take part in the vote on the creation of this category , and the shares they hold are not considered for the calculation of the quorum and majority, unless all the shares are subject to conversion into preference shares .

Preference shares may be repurchased under the conditions and according to the terms provided in Articles L. 225-204 to L. 225-214 of the Commercial Code , relating to the reduction of share capital, and to the subscription, purchase, or pledging by companies of their own shares.

Commercial Code, Art. L. 228-11. For an application see Conseil d'État, 21 April 2023, LawLex202300006070JBJ, specifying that the judge cannot consider that a distribution of dividends to employees amounting to 20% of the distributable profit constitutes a management fault due to its excessive and disproportionate nature to the objective of retaining their beneficiaries, as long as they are holders of non-voting preference shares, for which such a payment mechanism is provided by the amended statutes of the company, the general regulation relating to free share awards, and the shareholders' agreements concluded with the employees benefiting from this free award.

Ordinance No 2004-604 of 24 June 2004 reforming the regime of marketable securities issued by commercial companies and extending to overseas territories provisions that have amended commercial legislation, OJ of 26 June 2004.

Commercial Code, Art. R. 228-17, para. 1.

Commercial Code, Art. R. 228-17, para. 2.

Commercial Code, Art. L. 228-12, para. 1.

Cass. com., 13 March 2024, LawLex202400002241JBJ, previously cited.

CA Basse-Terre, 20 December 2021, aforementioned, considering that the granting of multiple voting rights to a partner constitutes a special advantage, the creation of which must be preceded by a report from the contribution auditor annexed to the articles of association.

Commercial Code, Art. L. 228-15, para. 1.

Cass. com., 10 July 2024, LawLex202400005244JBJ, holding that the modification of rights attached to preference shares is considered a conversion of shares within the meaning of Article L. 228-15, para. 2, of the Commercial Code, which prohibits their holders from participating in the vote, under penalty of cancellation of the resolution.

Commercial Code, Art. L. 228-15, para. 2.

Commercial Code, Art. L. 228-11, version in force before the ordinance of 24 June 2004.

However, the prohibition on stipulating a fixed or interim interest in favor of the partners set out in Article L. 232-15, as well as the prohibition on converting or transforming capital securities into marketable securities representing a debt right, set out in Article L. 228-91, apply to them.

The creation of preference shares must comply with the provisions of Article 1844-1 of the Civil Code, under which any stipulations that grant a partner the entirety of the profit generated by the company or exempt them from all losses, as well as those that completely exclude a partner from profit or place the entirety of the losses on them, are deemed unwritten. - Adde : GRIMAUD, The influence of Anglo-American law on securities issued by joint stock companies in French law, Litec, 2004.

CA Basse-Terre, 20 December 2021, LawLex202300002836JBJ, holding that the allocation of multiple voting rights is permitted in SAS, as the provisions of the Commercial Code that establish the principle of a voting right proportional to the share of capital held and that only authorize double voting rights do not apply to these companies.

See, specifying that the 50% ceiling does not apply to shares conferring negligible voting rights, Cass. com., 13 March 2024, LawLex202400002241JBJ.

Company Law (en cours)

87. Principle

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87. Principle

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