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

Company Law (en cours)

Given the stakes surrounding mergers and acquisitions, the seller and the buyer generally resort to advisors (advisors), responsible for assisting them in conducting negotiations and ensuring the smooth progress of the operations.

1) Lawyers

Lawyers  provide their legal expertise for the preparation of operations. They assist and advise the seller and the buyer from start to finish of these oper …

Legal and financial advisors

AMF and ACPR, Clarification of the legal classification of advisory activities in business transfer, transmission, and acquisition, joint press release, 14 March 2018.

Given the stakes surrounding mergers and acquisitions, the seller and the buyer generally resort to advisors (advisors), responsible for assisting them in conducting negotiations and ensuring the smooth progress of the operations.

Lawyers  provide their legal expertise for the preparation of operations. They assist and advise the seller and the buyer from start to finish of these operations and are responsible for drafting all legal documentation. They also ensure the follow-up of the restructuring after its completion (post-closing).

Their remuneration is regulated by the decree on the ethical rules of the legal profession . Their liability can be contractual, towards the contracting party, or tortious, towards third parties . However, if a law firm specializing in legal audits and mergers and acquisitions commits a negligent fault by failing to detect during an initial data room, from documents provided by its client or that should have been requested, the existence of a building permit violation, it does not incur liability for this if the noted breach does not affect the transaction price in question, nor the payment of the tax, or the costs or losses generated by the deferred sale of the property .

Among financial advisors are mergers and acquisitions advisors, accounting firms, investment banks  and investment service providers. The latter include investment firms, portfolio management companies, as well as credit institutions that have received authorization to provide investment services mentioned in Article L. 321-1 of the Monetary and Financial Code . They can perform ancillary services, notably providing advice to companies on capital structure or industrial strategy, as well as providing advice and services in mergers and acquisitions . The provision of ancillary services is free, in compliance with the legislative and regulatory provisions in force applicable to each of these services , but does not, by itself, confer the status of an investment firm .

The advisors carry out their missions based on a mission order established by the seller. The contract concluded is not analyzed as a mandate stricto sensu, like that entrusted to lawyers, since it is not an act by which the seller gives the advisor the power to do something for him and in his name , but rather as a service contract, which involves support services .

In practice, the task of finding the buyer(s) is entrusted to financial advisors. Therefore, in addition to the remuneration they receive for their services, advisors may receive a success fee (success fee), often conditioned upon the occurrence of events specified in the contract, and calculated and paid based on the contractual stipulations. For example, it may be stipulated in the contract that the merger and acquisition advisor will receive a success fee if the contemplated transaction is completed, calculated on the basis of the sale price, and will be due if, within twelve months following the expiration of the mandate, the transaction is completed with a buyer introduced by the advisor . Thus, the mere identification of a potential buyer by said advisor does not entitle them to the payment of the success fee under the conditions provided in the contract . Similarly, when a contract stipulates that the advisor will receive a success fee in the event of the realization of a sale or acquisition within the scope of the mission, the advisor cannot seriously claim payment if the sale has not been concluded . Also, an advisor can only claim a success fee under the follow-up rights provided by their mandate if they have introduced a buyer to their co-contractors during the execution of the contract, and not merely by listing a company on the list of potential investors submitted to their principal, which constitutes mere identification . Conversely, amounts paid as fixed fees due under a merger and acquisition advisory agreement, not conditioned on the success of the transaction, are not subject to reimbursement in the event of abandonment of the proposed transaction . Furthermore, an advisor who, without receiving a mandate from the selling company, facilitates the organization of a meeting with a positive outcome, may, under business management, claim reimbursement for expenses personally incurred . Finally, the principal advisor, who may engage the services of a financial advisor specialized in a field of activity, must, in accordance with contractual stipulations, pay them a remuneration calculated as a percentage of the success fee received by the principal advisor, when they themselves have introduced the target's buyer .

When an advisor commits a fault  in the performance of the missions entrusted to them, they incur contractual liability towards their contracting party. With respect to third parties, notably the target and the acquirer, the advisor incurs non-contractual liability in the event of damage caused in the performance of their missions . A clause that limits the cases of liability of an investment bank for its advisory duty to serious breaches, which contradicts the essential obligation undertaken, must be deemed unwritten .

On the other hand, the advisor, who, in their report, highlighted the risks of a merger-acquisition, identified the weaknesses of the project despite the short time frame allotted, developed a detailed opinion complementing the views expressed by the two other service providers working alongside them, and communicated these concerns to their client, who was nevertheless eager to complete the acquisition in question, does not incur any liability for the subsequent financial difficulties encountered by the target companies . Furthermore, an advisor cannot be considered complicit in the fraudulent actions of a company executive who concealed, at the time of the signing of the transfer agreement, the planned departure of a key person from the company, as long as it is not established that they were aware of it at that date . Finally, an advisor cannot be reproached for any disloyalty in proposing the offer from the son of one of their collaborators, as long as their client was informed of this person's status and it is not established that other candidates were irregularly excluded to favor him .

In addition to the advice presented above, other professionals may be involved in the process, including ordinary banks, audit firms, accounting firms, and even consulting firms specialized in technical matters, depending on the needs of the target.

Specialized notably in French Company Law and mergers and acquisitions, tax law, financial markets law, competition law, labor law, insurance law, intellectual property law, compliance law, etc.

Decree No 2023-552 of 30 June 2023 on the code of ethics for lawyers, Art. 10.

CA Lyon, 22 March 2018, LawLex202300001997JBJ.

Paris, 11 September 2014, LawLex202300001998JBJ

CA Paris, 11 October 2012, LawLex202300002059JBJ.

Cass. com., 11 October 2016, LawLex202300002402JBJ.

Paris, 23 March 2017, LawLex202300001999JBJ.

CA Paris, 16 October 2014, LawLex202300002003JBJ.

CA Paris, 12 February 2016, LawLex202300002000JBJ.

Paris, 13 January 2017, LawLex202300002006JBJ, considering that an investment bank commits a fault in the performance of its mission to assess the opportunity of an equity investment and its cost, when it does not analyze the risk of the opening of another airport, as it is likely to lead to the closure of the company's main asset and to significantly reduce the expected profitability of the operation.

Paris, 13 January 2017, LawLex202300002006JBJ

Cass. com., 3 April 2012, LawLex202300002014JBJ.

Paris, 2 April 2019, LawLex202300002009JBJ.

CA Paris, 5 July 2006, LawLex202300002277JBJ.

LE PAPE, The role of investment banks in restructurings, Annales des Mines - Réalités industrielles, February 2023, 57. - Among the most important investment banks, we can mention Goldman Sachs, BNP Paribas, Lazard, Rothschild, Société Générale, Crédit Agricole CIB, or JP Morgan.

CMF, Art. L. 321-2, 3°, by reference to Art. L. 531-1, para. 2.

See for an illustration, Paris, 11 September 2014, LawLex202300001998JBJ, recalling that the provision of advisory and consulting services to undertakings in mergers and acquisitions does not constitute an investment service, reserved for investment service providers and financial investment advisors referred to in Article L. 541-1 of the Monetary and Financial Code, but an ancillary service to investment services whose provision is unrestricted.

Company Law (en cours)

235. Legal and financial advisors(1)

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235. Legal and financial advisors(1)

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