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

Company Law (en cours)

Although shareholders' agreements are not inherently unlawful, their validity can be challenged on several grounds. They also raise numerous questions regarding their duration, their effect on third parties, their coordination with the company's articles of association, and the sanctions for their breach. However, the effectiveness of an agreement cannot be questioned on the grounds that it has ne …

Characteristics

JEANDIDIER, The specific performance of contractual obligations to do, RTD civ. 1978, 713; STORCK, The validity of extrastatutory agreements, D. 1989, chron., 267; LE NABASQUE and TERRIER, The specific performance of shareholders' agreements, Actes prat. 1994, No 14, 2; POITRINAL, Specific performance in the matter of share transfer promises, Bull. Joly 1995, 21; DUBOUT, Duration clauses in extrastatutory agreements between shareholders, Bull. Joly 1997, 5; PORACCHIA, LECUYER, RAYNOUARD, The relativity and enforceability of agreements, Dr. et patr. Nov. 2009, 64.

Although shareholders' agreements are not inherently unlawful, their validity can be challenged on several grounds. They also raise numerous questions regarding their duration, their effect on third parties, their coordination with the company's articles of association, and the sanctions for their breach. However, the effectiveness of an agreement cannot be questioned on the grounds that it has neither been dated nor registered, provided that the party relying on it proves its date by any means .

Like any contract, a shareholders' agreement is subject to the validity conditions of agreements set forth in Articles 1128 et seq. of the Civil Code. However, the allegation of fraud must be dismissed when the agreement was concluded under the auspices of the CIRI and in the presence of a judicial representative, by an informed and professional person in the sector, fully aware of the financial difficulties of the company in which they invested . Furthermore, the fact that one of the clauses of the agreement may be affected by a cause of invalidity does not lead to the annulment of the entire agreement if it does not constitute an essential and determining condition. This is the case for a clause in a shareholders' agreement that provides for the management of the company after the founder's death, with the aim of preserving the family nature of the business, which may resemble an agreement on future succession , or an arbitration clause that is merely ancillary to the shareholders' agreement that contains it and does not constitute its cause . The shareholders' agreement must also not contain provisions contrary to the mandatory public policy provisions contained in the Labor Code. Not contrary to public policy is a clause in a shareholders' agreement concluded between an employee and the parent company of their employer, in the presence of the latter, by which the employee irrevocably promises to transfer all the shares they hold in the event of losing this status, for any reason whatsoever, and that in the event of termination of duties due to dismissal other than for serious or gross misconduct, the transfer price of the shares will be assessed by an expert and then reduced by a coefficient of 0.5. Indeed, according to the Court of Cassation, such a clause is not considered a prohibited financial penalty, as it does not aim to sanction an action by the employee deemed faulty by the employer, but applies in all cases of dismissal other than disciplinary .

Subsequent events to the conclusion of the contract cannot affect its validity. Therefore, an agreement "caused" at the time of its signing cannot be annulled because, subsequently, some of its beneficiaries have left the company . Similarly, when two agreements follow one another, the adoption of a new shareholders' agreement does not render the previous agreement void, so that an action for annulment of a share transfer based on the violation of the former is not rendered moot by the entry into force of the latter .

The action for nullity of a shareholders' agreement must be brought within five years from its conclusion, unless the claimant demonstrates that they discovered an error or fraud vitiating their consent late, which would postpone the starting point of the limitation period .

A shareholders' agreement may be concluded for a fixed or indefinite term. When it is for an indefinite term, each partner may terminate it at any time, in accordance with Article 1211 of the Civil Code, subject to the notice period provided or, failing that, a reasonable notice period . An agreement concluded for an indefinite term may be subject to a grievance for violating the prohibition of perpetual contracts. Case law resolves the issue by holding that an agreement tainted with perpetuity does not incur annulment, but that each contracting party may terminate it at any time, subject to a notice period . However, the mere fact that the agreement is concluded for the duration of the company's life does not suffice to confer upon it the quality of a perpetual contract and therefore does not allow each party to unilaterally terminate it at any time . Similarly, a twenty-year duration of a shareholders' agreement is not considered excessive when it stipulates that it will cease to have effect for any shareholder who loses that status and provides that each of them has the ability to transfer their shares at any time . Conversely, a shareholders' agreement that does not mention any limitation of duration and contains no fixed or determinable term but only its application as long as one of its signatories is a partner in a third-party company must be considered as having an indefinite term and terminable at any time .

Pursuant to the principle of the relative effect of contracts , a shareholders' agreement binds only its signatories, who cannot enforce its provisions against third parties . External to the statutes and the company, the agreement does not bind the latter. The mere fact that it was signed in the presence of a company is not sufficient to make it accountable for the obligations provided by the agreement and to confer upon it the status of a party, as it only intervened as an agent for certain signatories for the future management of these obligations . Furthermore, the shareholders' agreement, which creates personal obligations, is not transferred as an ancillary to the transferees of the company's shares . However, if the agreements are not enforceable against third parties, their non-performance can be invoked by them when it causes them harm, based on tort liability. Thus, a company may denounce, based on tort liability, the breach by one of its shareholders of the non-compete clause subscribed to in an agreement to which it is a third party .

4) Coordination with law and articles of association

Can the partners, within the framework of a shareholders' agreement, derogate from the statutory provisions or mandatory public policy rules? The answer is obviously negative regarding legal rules. The Court of Cassation consistently holds that the stipulations of a shareholders' agreement can in no way infringe upon mandatory public policy provisions such as the free revocability of directors of SA . Regarding the statutes, their stipulations must always, in principle, prevail over those of a shareholders' agreement : extra-statutory acts can only supplement the statutes, not derogate from them . In particular, a clause in an extra-statutory protocol cannot provide, contrary to the statutes that exclude it, for compensation of the dismissed CEO . However, the holding of a board meeting in the absence of independent directors provided for by a shareholders' agreement and not by the statutes cannot, under Article L. 235-1 of the Commercial Code, result in the nullity of its deliberations . Exceptionally, the Court of Cassation allows a partners' agreement to derogate from a clause in the statutes and bypass it if all partners consent .

The violation of a shareholders' agreement, like any obligation to do or not to do, traditionally results in damages. Due to the relative effect of contracts, a third party cannot, in the absence of fraudulent collusion, have the contract concluded by a signatory annulled for violating the terms of the agreement, in order to restore the victim's rights. Therefore, the violation of the preemption procedure provided by a shareholders' agreement results in damages, as it is an obligation to do, and not by substituting its beneficiaries for the transferee, in the absence of proof of fraudulent collusion between the latter and the transferors. The allocation of damages, however, requires establishing the existence of harm. This is evident when the transfer made in violation of the agreement has resulted in the loss of an opportunity for the other signatories to negotiate the block sale of their shares under the initially envisaged valuation conditions and to present a united front of minority shareholders, but nonexistent when the beneficiaries of the violated preemption agreement did not wish to increase their participation but rather to sell it. Furthermore, compensation is only possible if the violated agreement is itself lawful: this is not the case when it imposes restrictions on the free dismissal of directors.

The invalidity of the transfer may exceptionally be declared when the company's articles of association expressly provide that a breach of the shareholders' agreement results in the invalidity of the transfer of shares. The invalidity must then be declared, without substituting this sanction with the award of damages for breach of an obligation to do or not to do .

When the breached obligation is an obligation to do, the aggrieved party may also request its enforced performance. Indeed, Article 1221 of the Civil Code provides that the creditor of an obligation may, after formal notice, pursue its specific performance unless such performance is impossible or there is a manifest disproportion between its cost to the debtor in good faith and its interest to the creditor. In the event of non-performance by a partner of their commitment to subscribe to a capital increase, the court may therefore order the convening of a new extraordinary general meeting to proceed with the capital increase in question and require them to subscribe . Similarly, a clause that involves the joint transfer of the shares of all shareholders when more than 51% of them notify their wish to proceed with a global transfer of the shares may be subject to enforced performance when it does not encounter any material, legal, or moral impossibility . The court may order the enforced performance of a shareholders' agreement that provides that in the event of the hiring of a minority shareholder by a competing company, the latter will be required to sell their shares at the first request of the majority shareholder, even if the terms for setting the price have not yet been determined . However, under the principle of full compensation, the violation of a non-acquisition obligation of shares contained in a shareholders' agreement cannot be sanctioned by the forced transfer of the acquired shares to the other signatory of the agreement if this would increase their participation in the company in question beyond their damage .

Cass. com., 20 March 2024, LawLex202400002502JBJ, Contracts Conc. Consom. 2024, No 70, note LEVENEUR; RJDA 2024, No 343.

Cass. com., 17 March 2021, LawLex202300012022JBJ, Rev. sociétés 2021, 584, note SAINTOURENS; Dr. sociétés 2021, 25, obs. HAMELIN; Gaz. Pal. 28 September 2021, 73, ons. LEMARECHAL and PEREZ. - See also CA Paris, 22 January 2019, LawLex202300012509JBJ.

Cass. 1re civ., 25 January 2023, LawLex202300001646JBJ, D. 2023, 370, obs. BARRILLON; L'essentiel Droit des contrats March 2023, 6, obs. HAMELIN; RLDA 2023, No 7705, obs. NEMOZ-RAJOT and POUX; Contrats Conc. Consom. 2023, No 56, obs. LEVENEUR; LPA April 2023, 66, obs. NIEL; RJDA 5/2023, 7, obs. de CABARRUS; RJDA 2023, No 262; JCP E 2023, No 1216, No 3, obs. DUMONT; RDC 2023/2, 9, obs. DOURNAUX; RDC 2023/3, 43, obs. HEINICH.

Cass. com., 27 September 2005, LawLex202300006255JBJ.

Cass. com., 20 December 2017, LawLex202300013801JBJ. - Similarly, Paris, 18 October 2005, LawLex202300006266JBJ, considering that the absence of a time limitation on the effects of a shareholders' agreement does not constitute grounds for its invalidity.

Paris, 29 November 2022, LawLex202300012503JBJ, holding that the obligations established by the stipulations of a shareholders' agreement relating to the transfer of a company's shares do not weigh on the beneficiary of the transfer, but on the holders of the shares intended to be transferred. - Also see Bordeaux, 8 October 2013, LawLex202300002179JBJ, emphasizing that the shareholders' agreement containing a preemption clause and an anti-dilution clause is unenforceable against third parties.

Paris, 8 February 2022, LawLex202300012501JBJ. - Adde : DELVALLEE and REYGROBELLET, Company as “party” to a shareholders' agreement or agreement signed “in the presence of the company,” what differences?, BRDA 22/22, No 21.

CA Versailles, 22 May 2012, LawLex202300013797JBJ.

Cass. com., 18 December 2007, LawLex200800000010JBJ.

Cass. com., 26 April 2017, LawLex202200005854JBJ; 14 May 2013, LawLex202200005855JBJ. - Also see, regarding the principle of ad nutum revocability of directors and deputy chief executive officers, Cass. com., 17 March 2021, LawLex202300012022JBJ, Rev. sociétés 2021, 584, note SAINTOURENS; Dr. sociétés 2021, 25, obs. HAMELIN; Gaz. Pal. 28 Sept. 2021, 73, ons. LEMARECHAL and PEREZ.

Cass. com., 5 June 2019, LawLex202200010194JBJ.

Cass. 1re civ., 25 January 2023, LawLex202300001646JBJ, D. 2023, 370, obs. BARRILLON; RLDA 2023, No 7705, obs. NEMOZ-RAJOT and POUX; Contrats Conc. Consom. 2023, No 56, obs. LEVENEUR; LPA April 2023, 66, obs. NIEL; RJDA 5/2023, 7, obs. de CABARRUS; JCP E 2023, No 1216, No 3, obs. DUMONT; RDC 2023/2, 9, obs. DOURNAUX; RDC 2023/3, 43, obs. HEINICH. - Similarly, excluding the classification of an agreement on future succession in the presence of a promise of sale at term contained in a shareholders' agreement, determined in its object and in its price, Cass. 1re civ., 15 May 2008, LawLex202200003244JBJ, RJ com. 2009, 55, obs. MOREAU; JCP 2008, 50, Doctr. 222, obs. BEGUIN.

Cass. com., 12 October 2022, LawLex202200008725JBJ, JCP E 2022, No 1371, obs. DONDERO; JCP G 2022, No 1364, obs. GIBIRILA; JCP E 2023, No 1085, No 9, obs. PAGNUCCO; RDC 1/2023, 84, obs. HEINICH.

Nancy, 12 April 2023, LawLex202300008671JBJ.

CA Aix-en-Provence, 28 February 2019, LawLex202300006195JBJ.

Cass. com., 12 May 2015, LawLex202300003402JBJ, French Company Law 2015, No 148, note GALLOIS-COCHET; JCP E 2015, No 1338, note DONDERO; BJS September 2015, note DANOS; Rev. sociétés 2016, 99, note LECOURT; 29 January 2020, LawLex202000000157JBJ, French Company Law 2020, No 81, note HAMELIN; BJS May 2020, note COQUELET; RDC June 2020, note HEINICH, regarding a memorandum of understanding derogating from the statutes of the SARL authorizing the creation of a competing company by a withdrawing associate.

Civil Code, former Art. 1142. The current Art. 1217 now provides a whole range of sanctions from the defense of non-performance to the award of damages.

Cf. CA Paris, 23 May 2019, LawLex202300012499JBJ, holding that while the violation of a shareholders' agreement generally results in damages, it may lead to the annulment of the transfer of shares when it has been made in favor of a partner who, as a signatory, necessarily knew of the obligations that this agreement imposed on the transferor.

Cass. com., 7 March 1989, LawLex202300012021JBJ, D. 1989, jur., 231, concl. JEOL; JCP E 1989, II, No 15517, obs. VIANDIER and CAUSSAIN. - See also Paris, 2 July 2002, LawLex202300013802JBJ, holding that the violation of the preemption right provided by a shareholders' agreement, whose provisions have not been included in the company's articles of association, does not result in the annulment of the share transfers and subsequent general meetings, but only gives rise to damages.

Paris, 29 September 2009, LawLex202300013800JBJ.

Cass. com., 9 April 2002, LawLex202300005779JBJ.

Cass. com., 26 April 2017, LawLex202200005854JBJ.

Cass. 1re civ., 15 May 2008, LawLex202200003244JBJ, previously cited.

Cass. com., 27 June 2018, LawLex202300012567JBJ, French Company Law 2018, No 203, note MORTIER; BJS 2018, 565, note PERIN; Gaz. Pal. 25 September 2018, 66, note SCHLUMBERGER, and, on remand, CA Paris, 13 June 2019, LawLex202300012500JBJ.

Paris, 30 June 1995, LawLex202300002866JBJ. - Cf. CA Aix-en-Provence, 13 June 2024, LawLex202400004598JBJ, considering that when an investment agreement and a shareholders' agreement provide that after a certain period the investor's claims may be converted into shares, without including a clause requiring the company to convene a general meeting for the purpose of increasing the share capital, the latter is not entitled to seek specific performance of these agreements by asking the court to order the parties to organize such a meeting, especially before the expiration of the agreed period.

Paris, 21 December 2001, LawLex202300010519JBJ.

Cass. com., 13 January 2021, LawLex202300000729JBJ. - Similarly, CA Paris, 24 March 2023, LawLex202300006166JBJ, holding that the violation of the provisions of a shareholders' agreement exposes its author to the forced transfer of their shares, as provided by one of its clauses.

Cass. com., 24 May 2011, LawLex202300004852JBJ.

Cass. com., 7 June 2016, LawLex202300005776JBJ.

Cass. com., 1 June 2023, LawLex202300012497JBJ

CA Douai, 17 November 2022, LawLex202300012508JBJ.

Cass. com., 27 September 2017, LawLex202300003681JBJ. - See already, CA Paris, 2 July 2002, LawLex202300013802JBJ.

Cass. com., 21 September 2022, LawLex202200011213JBJ, JCP E 2023, No 1017, obs. DONDERO; JCP G 2022, No 1292, obs. SCHILLER; RDC 1/2023, 54, obs. HAMELIN; Gaz. Pal. 14 March 2023, 58, obs. PRODHOMME and DEUCHLER; RLDA 2023, No 7706, obs. PEREZ; JCP E 2023, No 1222, No 15, obs. CAFFIN-MOI.

Company Law (en cours)

207. Characteristics(1)

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise

Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

207. Characteristics.css-17rnqzd{cursor:pointer;margin-left:4px;-webkit-text-decoration:underline;text-decoration:underline;}(1).css-1exptwg{z-index:1500;color:#FFFFFF;font-family:IBM Plex Sans,sans-serif,Playfair Display,serif;font-size:16px;line-height:body1.lineHeight;}

Demandez un accès gratuit au contenu exclusif Livv – juristes d’entreprise

Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

207. Characteristics(1)

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise