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

Company Law (en cours)

Governed by Articles L. 223-1 et seq. of the Commercial Code, the limited liability company constitutes a type of hybrid company, between partnerships and capital companies. Its characteristics simultaneously borrow traits from these two major categories. Its creation requires the meeting of specific substantive conditions.
1) Number of partners
The SARL is the only corporate form in which a maxim …

Requirements relating to partners and the company

Governed by Articles L. 223-1 et seq. of the Commercial Code, the limited liability company constitutes a type of hybrid company, between partnerships and capital companies. Its characteristics simultaneously borrow traits from these two major categories. Its creation requires the meeting of specific substantive conditions.

The SARL is the only corporate form in which a maximum number of partners, whether natural or legal persons, is defined. Indeed, under Article L. 223-3 of the Commercial Code, if this number exceeds one hundred, the company must be dissolved, unless it undergoes a transformation or regularization within one year. Furthermore, when the SARL comprises only two partners, Article L. 223-28 provides that one of them cannot be represented by the other at a general meeting, particularly the one convened to decide on the closure of liquidation operations .

The principle of contractual freedom allows partners to freely choose the activity carried out by the company, with the notable exception of insurance, capitalization, and savings activities, which are prohibited by Article L. 223-1. Apart from these cases, the partners must ensure not to assign the company an unlawful corporate purpose and to draft it as broadly as possible to avoid its early disappearance.

Article L. 223-2 provides that the amount of share capital is freely determined by the articles of association. In the absence of a minimum amount, it could, according to some authors, be reduced to zero euros . As with all other corporate forms, the amount of share capital is intangible and the endowment made must be sufficient. This obligation rests solely with the partners and not with the managers: they cannot be held liable for insufficient assets due to their failure to ensure that the company, at its formation, had sufficient equity to operate under normal conditions .

The corporate capital consists of the sum of contributions in cash, in kind  and in the form of services. Also, any person who, under the statutes of an SARL, has subscribed to shares and made the corresponding contribution, possesses the status of associate and may exercise the rights and actions attached thereto, regardless of the conditions under which this contribution was financed .

With regard to contributions in cash, Article L. 223-7 states that the shares representing them must be paid up to at least one-fifth of their amount at the time of the company's formation. The release of the surplus may occur in one or more installments at the manager's decision, within a period not exceeding five years from the registration in the trade and companies register. However, the corporate capital must be fully paid up before any subscription of new shares to be paid in cash, under penalty of nullity of the operation. The unpaid balance of a cash contribution is considered a claim of the company against its partners, which may be subject to seizure by a creditor of this company . In accordance with Article R. 223-3, para. 2, the statutes indicate the name of the depositary of the funds. Pursuant to Article L. 223-8, para. 1, the withdrawal of funds is only authorized after the company's registration . However, if the company is not formed or registered within six months from the first deposit of funds, Articles L. 223-8, para. 2, and R. 223-5 provide for specific procedures for the withdrawal of funds.

Contributions in kind, which must be fully paid up, expose the other partners and the company to the risk of overvaluation. To prevent such an eventuality, Article L. 223-9 of the Commercial Code provides that the articles of association must include the valuation of each contribution in kind. This is done based on a report annexed to the articles of association and prepared, under his responsibility, by a contributions auditor, appointed unanimously by the future partners or, failing that, by a court decision at the request of the most diligent future partner. If no auditor is appointed or if the value of the assets retained differs from that recommended by the auditor, the partners are jointly and severally liable to third parties for the value attributed to the contributions, for a period of five years. Furthermore, Article L. 241-3 punishes with five years' imprisonment and a fine of 375,000 euros any person who fraudulently attributes to a contribution in kind a valuation higher than its actual value. This is particularly the case when a partner conceals the value of the securities encumbering a business asset contributed in kind during the formation of an SARL, depriving it of any real value . Finally, specific rules apply to the contribution to a company of a leasehold right. Jurisprudence considers it a transfer, which must be notified to the lessor .

Originally, case law did not allow contributions in the form of services for the formation of SARLs . Article L. 223-7, para. 2, in its version resulting from the NRE Act , reversed this solution and now provides that it is up to the partners to determine in the articles of association the terms under which shares in the form of services may be subscribed.

The partners of an SARL do not have the status of merchant. Therefore, no particular capacity is required of them, even though the Court of Cassation has ruled that a civil servant, who cannot have the status of merchant, cannot claim the status of an SARL partner to obtain the renewal of a commercial lease . Furthermore, the invalidity of an SARL cannot result from either a defect in consent or incapacity, unless these affect all the founding partners .

Cass. com., 19 February 1991, LawLex202300003989JBJ.

See, for an application, Cass. 1re civ., 24 April 1979, LawLex202200006024JBJ, holding that an insurance agreement proposed by an SARL is subject to annulment.

Cass. crim., 22 January 1990, LawLex202300003504JBJ.

Cass. 3e civ., 8 May 1979, LawLex202200003196JBJ; 2 February 1977, LawLex202200003201JBJ.

Cass. com., 23 October 1984, LawLex202300003604JBJ, considering that the shares of the SARL cannot be represented by contributions in the form of services.

Law No 2001-420 of 15 May 2001 on new economic regulations, known as the NRE law.

Cass. 3e civ., 16 February 2011, LawLex202100003167JBJ, D. 2011, Actu. 674, obs. ROUQUET; RTD com. 2011, 315, obs. KENDERIAN; AJCT 2011, 253, obs. FITTE-DUVAL; JCP G 2011, 1088, obs. LEBEL; Loyers et copr. 2011, No 114, obs. BRAULT; Rev. loyers 2011, 150, obs. VAISSIE; Administrer 4/2011, No 22, obs. BARBIER.

Cass. com., 20 June 1989, LawLex202200003575JBJ.

Cass. com., 27 May 2015, LawLex202200002987JBJ, considering that the illegality of the corporate purpose of a company that provides for the exercise of an activity contrary to the provisions of the Public Health Code results in its invalidity.

See a contrario, CA Paris, 6 October 2010, LawLex202200008385JBJ, considering that the transfer of the business assets of an SARL does not result in the disappearance of its corporate purpose when it is not limited to its operation.

ETAIN, From zero as share capital, LPA 19 September 2011, 4.

Cass. com., 10 March 2015, LawLex202100001752JBJ.

Cass. com., 27 May 2015, LawLex202200009490JBJ, considering, however, that the transformation of a real estate civil company (SCI) into a limited liability company (SARL) does not give rise to two distinct companies but to two successive forms of a single legal entity, so that the property acquired by the first should not be regarded as a contribution made to the second, and as such subject to prior evaluation.

Cass. com., 20 September 2016, LawLex202200003094JBJ. - See also Cass. com., 12 January 1993, LawLex202300003603JBJ, specifying that the spouse of a partner, who, at the time of the formation of an SARL, declares in writing, referring to Article 1832-2 of the Civil Code, not to claim the status of partner for the contribution made by her husband using community property, clearly and unreservedly waives the right to claim the status of partner, without being able to later reverse this decision.

Cass. 2e civ., 12 May 2016, LawLex202100003673JBJ; JCP E 2016, No 1486, note DONDERO; Cass. com., 7 July 2009, LawLex202200003096JBJ, considering that the judge cannot, on the basis of Article 1843-3 of the Civil Code, order a manager of an SARL to release the remaining share of the corporate capital due, as this provision only allows ordering administrators or directors to make a call for funds or to appoint an ad hoc representative to remedy this deficiency.

See, for an application, Cass. com., 19 May 1998, LawLex202300003503JBJ, emphasizing the unavailability of funds representing the corporate capital until the registration of the company.

Company Law (en cours)

435. Requirements relating to partners and the company

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Les notions juridiques connexes

435. Requirements relating to partners and the company

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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