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

Company Law (en cours)

Agreements concerning the organization of corporate life include clauses related to the conditions for exercising voting rights, corporate governance, and non-compete obligations of executives.

1) Adjustment of voting rights
Shareholders' agreements may contain voting agreements, whereby several partners mutually commit to vote in a determined manner. Although no text prohibits them , voting agre …

Operation of the company

TUNC, Agreements relating to voting rights, Rev. gén. dr. com. 1942, 967; FREYRIA, Study of case law on agreements infringing voting freedom in companies, RTD com. 1951, 419; PENNEAU, On the irregularity of voting agreements in commercial company law, JCP CI 1975, II, 11776; VIANDIER, Observations on voting agreements, JCP E, 1986, 15405; JEANTIN, Voting agreements, RJ. com. special issue, Nov. 1990, 124; STORCK, Regulation of voting agreements between shareholders, RJ com. 1991, 97; MERCADAL, In favor of the validity of voting agreements between shareholders, RJDA 1992, 727; DIDIER, Voting agreements, in Mélanges J. Foyer, PUF, 1997, 341; VIANDIER, After Mr. Jeantin's article on voting agreements, in Mélanges Jeantin, Dalloz, 1999; CONSTANTIN, Reflections on the validity of voting agreements, in Mélanges Ghestin, LGDJ, 2001, 253; COHEN, Voting agreements, in Mélanges Larroumet, Economica, 2010, 97; LUCAS, Specific performance of voting agreements, BJS 2011, 625.

Agreements concerning the organization of corporate life include clauses related to the conditions for exercising voting rights, corporate governance, and non-compete obligations of executives.

Shareholders' agreements may contain voting agreements, whereby several partners mutually commit to vote in a determined manner. Although no text prohibits them , voting agreements must not be contrary to the company's interests, nor infringe upon the partner's voting rights, a fundamental and mandatory public policy provision . They indeed become illegitimate if a partner feels compelled to relinquish their freedom to vote .

A voting agreement is lawful when it is based on an informed commitment by the signatories, who are aware of the resolutions submitted to their vote, does not entail the transfer of voting rights or infringe on the principle of free revocability of corporate officers, and, intended to establish a stable and lasting policy, does not contradict the corporate interest . Similarly, a voting commitment made knowingly in a memorandum of understanding is lawful as long as it does not eliminate the shareholder's voting right but only restricts it for a specific transaction, and is in line with the corporate interest and free from any idea of fraud . Conversely, an agreement that aims to ensure unanimous voting by two partners falls under the prohibition of voting agreements, as it effectively infringes on the free exercise of voting rights in the company's general meetings . Furthermore, a voting agreement must be considered contrary to the corporate interest when one party asks another to vote against the approval of the accounts of a closed fiscal year, even though no accounting element justifies such a decision, when the letter indicating the voting instructions makes no reference to the corporate interest but only to the need to maintain, in terms of the company's operation and governance rules, a capital block of 50% of the capital, or when the company asks its shareholder to vote against resolutions in favor of which it itself votes . Finally, since the shareholders' agreement does not include any commitment by one of the signatories to have the general meeting vote on the manager's remuneration or the granting of a severance indemnity to him, the vote he casts against his remuneration and for his dismissal without indemnity cannot be considered a breach of his contractual obligations .

Shareholders' agreements often provide for an equal composition of the company's management bodies . They may also establish, alongside official bodies, optional committees whose composition and prerogatives they freely determine . These agreements are not inherently unlawful, as long as the terms they define do not undermine the free revocability of the executives .

The shareholders' agreement can organize not only the financial conditions of the exit of the partners but also contain a non-compete clause. Like any non-compete clause, the one provided by the agreement must be limited in time  and space, and proportionate to the legitimate interests of its beneficiary. In fact, the non-compete obligation stipulated in a shareholders' agreement is unlawful when it constitutes an excessive hindrance to the freedom to re-establish oneself and the free exercise of a professional activity, given the significant number of prohibitions it contains, their duration, and their geographical scope . However, such a clause does not, in principle, have to stipulate financial compensation, unless at the time of its subscription, the signatories were employees of the company it intends to protect . If this is the case and the parties intended to link the shareholders' agreement to the status of one of them as an employee, the labor court has jurisdiction to hear the dispute concerning the validity of the non-compete clause it contains .

Non-compliance with the clause, when it also applies during the life of the company, justifies the exclusion of the offending partner . However, the violation of the clause is not established when the date of entry into the capital of a company allegedly competing with its debtor is not proven, nor is the exercise of a similar activity by the latter .

Article 10 of the Decree-Law of 31 August 1937 declared “null and void in their main and ancillary provisions, clauses that have the purpose or effect of infringing on the free exercise of voting rights in general meetings of commercial companies,” JO 1 September 1937. This provision was not included in the 1966 law. Today, voting agreements are only mentioned in Articles L. 233-3, I, 2° and L. 233-16, II, 3° of the Commercial Code, relating to the definition of control, and in Article L. 233-10, on concerted action.

CA Lyon, 11 June 2015, LawLex202300002824JBJ.

Cass. com., 17 March 2021, LawLex202300012022JBJ, Rev. sociétés 2021, 584, note SAINTOURENS; Dr. sociétés 2021, 25, obs. HAMELIN; Gaz. Pal. 28 September 2021, 73, obs. LEMARECHAL and PEREZ; 26 April 2017, LawLex202200005854JBJ; CA Aix-en-Provence, 28 February 2019, LawLex202300006195JBJ, emphasizing that a shareholders' agreement cannot have the purpose or effect of limiting the mandatory public policy provision of the ad nutum revocability of the CEO of the SA, as stated in Articles L. 225-47, last paragraph, and L. 225-55 of the Commercial Code; CA Paris, 31 May 2011, LawLex202300006259JBJ, considering that the right of the general meeting to revoke a director at any time cannot be limited by any agreement between the shareholders of the public limited company.

Similarly, Paris, 19 February 2021, LawLex202300012511JBJ, holding the potestative nature of a non-compete commitment entered into within a shareholders' agreement, insofar as it allows its beneficiaries to confer an unlimited duration on it, in disregard of the prohibition of perpetual commitments.

Paris, 1 December 2020, LawLex202300006163JBJ.

Paris, 1 December 2020, LawLex202300006163JBJ. - Cf. CA Toulouse, 31 October 2012, LawLex202300008806JBJ. - See also Cass. com., 10 October 2018, LawLex202300006159JBJ, holding that a member of the executive board of a joint stock company who has agreed to a non-compete clause contained in a shareholders' agreement and who has obtained a purely fictitious employment contract, itself accompanied by a non-compete clause, cannot request, after the termination of his mandate, the payment of financial compensation.

Cass. com., 1 June 2023, LawLex202300012887JBJ, RJDA 2023, No 589; CA Paris, 4 November 2020, LawLex202300012517JBJ.

Paris, 9 February 2017, LawLex202300008856JBJ.

Cass. com., 14 October 2020, LawLex202300006160JBJ.

Cass. com., 10 June 1960, LawLex202300003888JBJ; CA Besançon, 17 February 2010, LawLex202300002825JBJ.

Paris, 4 December 2012, LawLex202300002805JBJ, also noting that the agreement was entered into for an indefinite duration and could therefore be terminated unilaterally at any time.

Paris, 30 June 1995, LawLex202300002866JBJ.

Cass. com., 10 June 1960, LawLex202300003888JBJ.

CA Dijon, 18 April 2019, LawLex202300012512JBJ.

See, for illustrations, Cass. com., 19 December 1983, LawLex202300003880JBJ; 26 April 2017, LawLex202200005854JBJ; 17 March 2021, LawLex202300012022JBJ, Rev. sociétés 2021, 584, note SAINTOURENS; Dr. sociétés 2021, 25, obs. HAMELIN; Gaz. Pal. 28 Sep. 2021, 73, obs. LEMARECHAL and PEREZ.

Cass. com., 24 October 2018, LawLex202300005792JBJ, for a supervisory board responsible for monitoring the activity of the management committee; CA Paris, 16 June 2015, LawLex202300013799JBJ, for a steering committee granted the power of prior approval of "important decisions."

Company Law (en cours)

206. Operation of the company(1)

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206. Operation of the company(1)

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