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

Company Law (en cours)

The allocation of profits is the decision that concentrates the main tensions between the different groups of partners in most companies. An analysis of abundant litigation allows for drawing the line between cases where the decision constitutes an abuse of majority and those where the decision to retain earnings results from a sound management policy.
The abuse of majority is clearly established  …

Principle

The allocation of profits is the decision that concentrates the main tensions between the different groups of partners in most companies. An analysis of abundant litigation allows for drawing the line between cases where the decision constitutes an abuse of majority and those where the decision to retain earnings results from a sound management policy.

The abuse of majority is clearly established in the case of systematically allocating considerable sums to the extraordinary reserve, when it characterizes genuine hoarding that does not result in any investment by the company, or in the distribution of any dividend for many years, depriving the minority shareholder, who is not involved in the management of corporate affairs, of the only benefit of being a shareholder . Such a policy is indeed bearable for the majority shareholders when they hold management positions in the company that provide them with very comfortable remuneration . The systematic allocation of profits to the reserve by a real estate civil company (SCI), when it does not stem from a necessary prudence policy or investment, nor from a requirement of sound management, but is solely intended to favor the majority shareholders to the detriment of the minority shareholder, reveals an abuse of majority . The same applies to the decision to systematically carry forward the entire profit, depriving a minority shareholder of any dividend for several fiscal years, when the company's corporate purpose, limited to the purchase and management of a single real estate asset, now sold, does not justify new investments, and this decision aims solely to allocate all the cash to advances benefiting the majority shareholder's companies, to the detriment of the minority shareholder .

A decision to allocate profits to the "other reserves" account adopted by the general meeting may constitute an abuse of majority even if it was made by a majority of votes and in compliance with the statutes .

However, any decision to allocate profits to reserves does not in itself constitute an abuse of majority. Indeed, allocating profits to reserves can be a sound management decision, enabling the company's self-financing . This is particularly true when it has contributed to the company's favorable situation through a prudent policy allowing significant financing without the need for external fund advances, and to the increase in share value for the benefit of all shareholders, without the remunerations paid to executives being abnormal , or aims to secure loans contracted for significant investments and their safe and sustainable repayment . Similarly, a minority shareholder voting against a resolution to allocate profits to retained earnings does not demonstrate how this constitutes an abuse of majority, as long as, in the context of the health crisis and the Orpéa scandal, which necessarily impacted the economic situation of nursing homes, this decision does not appear to have been made contrary to the corporate interest and solely to favor the majority to the detriment of the minority, but aims to protect the company against cyclical difficulties .

Cass. com., 22 April 1976, LawLex202200008953JBJ. - Cf. also Versailles, 6 December 2022, LawLex202300004122JBJ, holding that the systematic decision, since the company's formation, to allocate all operating profits to reserves in order to lend substantial amounts to other companies in the group, enabling them to pursue a strategy of diversifying their investments, is neither in accordance with the corporate purpose nor in the general interest of the company in question, but is made solely to favor the majority shareholders to the detriment of the minority; See, conversely, Montpellier, 24 May 2022, LawLex202300004163JBJ, considering that while the systematic allocation of profits to reserves by a company since its formation is part of a hoarding policy contrary to the corporate interest, it does not necessarily constitute an abuse of majority, as long as the minority shareholder who denounces it does not establish the resulting breach of equality.

Cass. com., 6 June 1990, LawLex202200005112JBJ; 1 July 2003, LawLex202200008860JBJ.

Cass. com., 17 June 2008, LawLex202200006085JBJ; Cass. 3e civ., 12 November 2015, LawLex202200005114JBJ; 6 April 2022, LawLex202300003965JBJ, considering abusive the decision to retain reserves amounting to eight times the annual profit and twenty-four times the corporate capital, made contrary to the general interest of the company and solely to favor the majority shareholder to the detriment of the minority shareholders, in the absence of any project or current or foreseeable debt.

Cass. 3e civ., 8 July 2015, LawLex202200005113JBJ.

CA Orléans, 7 April 2022, LawLex202300004118JBJ.

CA Angers, 10 January 2023, LawLex202300004117JBJ.

Cass. com., 23 June 1987, LawLex202200008952JBJ.

Cass. com., 4 November 2020, LawLex202200005118JBJ.

CA Versailles, 6 December 2022, LawLex202300004122JBJ.

Company Law (en cours)

189. Principle

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

189. Principle

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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