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

Company Law (en cours)

The veto power granted to one or more partners allows them to oppose the making of a decision. In joint stock companies , partnerships limited by shares , and limited liability companies , the legislator prohibits the establishment of a veto power. Conversely, in simplified joint-stock companies  and civil companies, which offer more contractual freedom to partners, it is possible to use it.

The  …

Principle

The veto power granted to one or more partners allows them to oppose the making of a decision. In joint stock companies , partnerships limited by shares , and limited liability companies , the legislator prohibits the establishment of a veto power. Conversely, in simplified joint-stock companies  and civil companies, which offer more contractual freedom to partners, it is possible to use it.

The veto power may result from the allocation of preference shares or a clause inserted in a shareholders' agreement. Regardless of its source, its exercise must be framed and limited to a category of decisions to avoid any abuse of rights or de facto management of the company . However, the trial courts consider that partners may have a veto right concerning a number of decisions that may be made by both the company and its subsidiaries, without substituting themselves for their managers in decision-making and without being accused of wrongful interference in their management . Conversely, they hold that the clauses of a partners' agreement granting a veto right to a minority partner are null and void, insofar as they aim, given the extent of the restrictions imposed on the manager's powers, to elevate the minority partner to the status of co-manager of the company, in disregard of the provisions of the Public Health Code .

In European law, although any hindrance, even of minor importance, to the free movement of capital is prohibited , the Union court holds that the regulation, which, in order to ensure supply security, allocates a golden share (or specific share) to a Member State in energy companies, granting it a right of opposition to any transfer, any assignment as security, or any change in the destination of pipelines and certain other strategic assets, as well as to certain management decisions deemed contrary to the country's energy policy guidelines, is proportionate, as long as the exercise of this right is limited to decisions concerning strategic assets and specific management decisions, based on objective criteria that can be reviewed by the judicial authorities. Conversely, a national regulation that establishes a golden share in a company in favor of a Member State constitutes a restriction on capital movements even if it does not create unequal treatment between national shareholders and nationals of other Member States, as long as it is likely to prevent the acquisition of shares in this company and to deter investors from other Member States from making investments . Similarly, a national regulation that establishes a golden share in a company in favor of a Member State by requiring its prior authorization for any upward crossing of certain thresholds of shareholding, regardless of its nature or legal form, cannot be justified by the need to ensure the security of oil supplies in the event of a crisis, as long as the exercise of these special rights is not subject to any specific condition, grants discretionary power to the Member State, and is contrary to the principle of legal certainty . Also, a golden share introduced by a Member State in the statutes of a company responsible for the universal postal service during its partial privatization, which grants the State special rights of prior approval of significant management decisions, restricts the free movement of capital and goes beyond what is necessary to safeguard the solvency and continuity of this provider, as these special rights are not limited to the activities of the universal postal service and are exercised without justification and on the basis of no specific criteria . Furthermore, the veto right that grants a State influence over the management and control of a company, not justified by the extent of its participation in it, is likely to discourage operators from other Member States from making direct investments in this company because they will not be able to participate in its management and control in proportion to the value of their holdings . Finally, the national legislation, indiscriminately applicable, which grants public actors a blocking minority with a smaller investment than would be required by ordinary company law, allowing them to oppose important decisions, limits the ability of other shareholders to participate in the company to create or maintain durable and direct economic links with it and is therefore likely to deter direct investors from other Member States .

Commercial Code, Art. L. 225-122, para. 1.

Commercial Code, Art. L. 225-122, para. 1, by reference to Art. L. 226-1, para. 2.

CJCE, 28 September 2006, Commission v. Netherlands, Case C-282-04, LawLex200700000564JBJ; Also see, CJUE, 11 November 2010, European Commission v. Portuguese Republic, Case C-543-08, LawLex201000001244JBJ, affirming that the veto right regarding certain resolutions of a company's general meeting, the exemption from the 5% voting cap provided in favor of a State, and the right to appoint a director, in the event that they voted against the winning proposal during the election of directors, constitute restrictions on the free movement of capital.

CJEU, 11 November 2010, European Commission v. Portuguese Republic, Case C-543/08, LawLex201000001244JBJ.

ECJ, 23 October 2007, Commission v. Germany, Case C-112-05, LawLex200700001775JBJ; 11 November 2010, European Commission v. Portuguese Republic, Case C-543-08, LawLex201000001244JBJ, holding that the veto right granted to the State may have a deterrent effect on portfolio investments in a company, insofar as a potential refusal to approve an important decision, presented by the company's bodies as serving its interest, is likely to affect the value of its shares and, consequently, the attractiveness of investing in such shares.

Commercial Code, Art. L. 227-1, para. 3, excluding the application of Art. L. 225-122, para. 1 and L. 227-9.

Paris, 6 January 2022, LawLex202300009233JBJ, holding that the mere holding of a Golden Share is not sufficient to confer de facto management of the company to its holder, when the powers attached to it only concern the transfer of the company's securities, the composition of the supervisory board, and a veto right on the modification of the appointment procedures provided for in the statutes, excluding any management power of the company in the exercise of its activity.

Nancy, 7 April 2017, LawLex202300009232JBJ.

Nouméa, 16 February 2023, LawLex202300009231JBJ.

See ECJ, 13 December 1989, Corsica Ferries France v. French Customs Directorate, Case C-49-89, LawLex200500005893JBJ.

ECJ, 4 June 2002, Commission v. Belgium, Case C-503/99, LawLex200800000292JBJ

ECJ, 4 June 2002, Commission v. France, Case C-483/99, LawLex200700000559JBJ.

Company Law (en cours)

185. Principle

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185. Principle

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