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

Company Law (en cours)

The removal of voting rights may result from a temporary sanction imposed by the legislator in the event of a partner's failure to fulfill one of their obligations.
Article L. 228-29 of the Commercial Code thus provides that when a shareholder does not pay the remaining amounts due on the shares they have subscribed, the shares in question cease to grant the right to admission and voting in shareh …

Sanctioned breaches

BONNEAU, Crossing of thresholds, deprivation of voting rights and successors, in Mélanges offerts à Paul Didier, Études de droit privé, Economica, 2008, 25; COURET, On some vicissitudes of an a priori exemplary sanction: the deprivation of voting rights, in The sanction: the reading of economists and jurists, under the dir. Chaput, Bruylant, 2011, 97.

The removal of voting rights may result from a temporary sanction imposed by the legislator in the event of a partner's failure to fulfill one of their obligations.

Article L. 228-29 of the Commercial Code thus provides that when a shareholder does not pay the remaining amounts due on the shares they have subscribed, the shares in question cease to grant the right to admission and voting in shareholders' meetings and are deducted for the calculation of the quorum.

Furthermore, in accordance with Article L. 233-14 of the Commercial Code, a shareholder who has not duly made the threshold crossing declarations required is deprived of the voting rights attached to the shares exceeding the fraction that has not been duly declared for any shareholders' meeting held until the expiration of a two-year period following the date of regularization of the notification. Under the same conditions, the voting rights attached to these shares that have not been duly declared cannot be exercised or delegated by the defaulting shareholder . The deprivation of voting rights must apply as long as no threshold crossing declaration has been regularized . In fact, when partners, acting in concert, exceed the threshold of 10% of the company's shares and voting rights without declaring it to the supervisory authority, the general meeting may validly decide that the voting rights attached to the shares they hold cannot exceed 10% of the voting rights for any shareholders' meeting held until the expiration of a two-year period following the date of the declaration, even if they have subsequently declared a threshold crossing of 20%, as such a declaration does not constitute regularization of the first crossing . The office of the general meeting of shareholders is competent to apply the voting rights limitations resulting from an undeclared threshold crossing, when it results from concerted action whose existence is not contested . However, the sanction of temporary removal of voting rights is not incurred, even if the crossing of the individual holding threshold of 5% of the company's capital has not been declared in accordance with legal requirements, as long as the partner has subsequently crossed below the 5% capital threshold and has held less than 5% of it since .

According to the Constitutional Council, the provisions of Article L. 233-14, which do not establish a sanction with the nature of a punishment subject to the requirement of necessity and individualization of penalties provided for in Article 8 of the Declaration of 1789, pursue a general interest objective, since the suspension of voting rights it provides aims to prevent covert shareholdings in listed companies in order to strengthen, on the one hand, compliance with rules ensuring fairness in relations between the company and its members, as well as among its members, and, on the other hand, market transparency . These provisions do not result in the deprivation of the shareholder's property rights, nor, where applicable, a disproportionate deprivation of this right, since the shareholder retains the right to share in corporate profits and, potentially, the rights that may arise for them from the issuance of stock warrants or the liquidation of the company, can freely transfer these shares without such transfer resulting in the transferee inheriting the temporary suspension of voting rights, has legal recourse to contest the decision depriving them of their voting rights, and the deprivation of voting rights ceases two years after the shareholder regularizes their declaration and only applies to the portion of shares held by the interested shareholder that exceeds the undeclared threshold .

Furthermore, pursuant to Article L. 433-3 of the Monetary and Financial Code, any shareholder who has failed to fulfill their obligation to file a public tender offer project, with the aim of acquiring a specified quantity of the company's securities, will have their securities deprived of voting rights.

The law of 22 March 2012  added four situations in which a shareholder's voting rights may be suspended. This suspension is also accompanied by a suspension of any dividend payment. This applies when shares or share certificates have been issued in violation of the provisions relating to the incorporation with a public offering of joint stock companies, until the situation is regularized . Any vote cast or any dividend payment made during the suspension is void . The sanction is the same in the case of incorporation without a public offering or with a public offering  and in the case of violation of the rules relating to capital increase listed in Articles L. 225-127 to L. 225-149 of the Commercial Code . Finally, in accordance with Article L. 225-109 of the Commercial Code, the directors of joint stock companies are required to have the shares they own or that belong to their unemancipated minor children, and which are issued by the company itself, by its subsidiaries, by the company of which it is a subsidiary, or by the other subsidiaries of the latter company, registered in their name or deposited when these shares are admitted to trading on a regulated market. In case of violation of this provision, the voting rights and dividend rights of the shares held by any defaulting person are suspended until the situation is regularized . Any vote cast or any dividend payment made during the suspension is void .

Commercial Code, Art. L. 233-14, para. 2. - For an application, See CA Paris, 10 June 2009, LawLex202300009160JBJ, holding that partners who, acting in concert, have acquired more than one-third of the company's voting rights without making a threshold crossing declaration, must be temporarily deprived of their voting rights exceeding 20% of the total.

Cass. com., 27 June 2018, LawLex202300003614JBJ. - See also Paris, 18 November 2003, LawLex202300009185JBJ, approved by Cass. com., 10 May 2006, LawLex202300003780JBJ, BJS 2006, 1142, note DAIGRE; RTD com. 2006, 623, note STORCK.

Commercial Code, Art. L. 225-109, para. 3.

Paris, 18 November 2003, LawLex202300009185JBJ and Cass. com., 10 May 2006, LawLex202300003780JBJ, BJS 2006, 1142, note DAIGRE; RTD com. 2006, 623, note STORCK.

Cass. com., 27 June 2018, LawLex202300003614JBJ. - Cf. Cass. com., 15 May 2012, LawLex202300003777JBJ, holding that the board of the meeting does not have the power to deprive certain shareholders of their voting rights on the grounds that they have not fulfilled the obligation to notify a crossing of a shareholding threshold, as long as the existence of the concerted action, from which this obligation arises, is contested.

Paris, 18 November 2003, LawLex202300009185JBJ, previously cited.

CC, 28 February 2014, No 2013-369 QPC, LawLex202300009161JBJ.

Law No 2012-387 of 22 March 2012 on the simplification of law and the reduction of administrative procedures, known as the "Warsmann II Law".

Commercial Code, Art. L. 225-11-1, para. 1.

Commercial Code, Art. L. 225-11-1, para. 2.

Company Law (en cours)

180. Sanctioned breaches(1)

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180. Sanctioned breaches(1)

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