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

Company Law (en cours)

The control primarily concerns agreements entered into between the company and one of its partners and/or managers. Initially reserved for joint stock companies (SA), the control of regulated agreements has been extended to limited liability companies (SARL) and is governed by Articles L. 223-19 et seq. of the Commercial Code. In principle, only so-called free agreements and prohibited agreements  …

Typology and applicable rules.

The control primarily concerns agreements entered into between the company and one of its partners and/or managers. Initially reserved for joint stock companies (SA), the control of regulated agreements has been extended to limited liability companies (SARL) and is governed by Articles L. 223-19 et seq. of the Commercial Code. In principle, only so-called free agreements and prohibited agreements are exempt from this control.

Free agreements, provided for in Article L. 223-20 of the Commercial Code, are those concerning ordinary transactions concluded under normal conditions. Case law considers that the signing of a derogatory lease that commits an SARL to a lessor company managed by the same director, for a duration of twenty-three months, without the possibility of early termination, and which does not fall within its corporate purpose, cannot be considered an ordinary transaction but constitutes a regulated agreement, which, if not approved by the partners, exposes the director to bear the detrimental consequences for the company .

The prohibited agreements mentioned in Article L. 223-21  concern all acts that commit the company for the benefit of the interested party , whether they are a partner or a manager. These include guarantees, endorsements, loans, or authorizations for overdrafts in current accounts. Thus, a loan granted to the manager of an SARL on the condition of being guaranteed by the company's guarantee is subject to absolute invalidity, pursuant to Article L. 223-21 of the Commercial Code . The prohibition of such agreements is justified by the major risk they pose to the company's assets.

All agreements that do not fall into one of the previous categories constitute regulated agreements. Thus, rent revisions made under a commercial lease concluded between an SARL and a company in which the manager or a partner has an interest constitute modifications of a regulated agreement . The procedure for regulated agreements differs depending on whether the company has a statutory auditor. If it does not, the partner or manager is required to seek prior authorization from the partners' meeting.

If the company has a statutory auditor, Article R. 223-16 of the Commercial Code provides that the manager informs the auditor of the existence of the agreement within one month of its conclusion. The auditor then drafts a special report, submitted for the approval of the assembly. In the absence of a statutory auditor, the manager himself prepares the report. However, the manager of an SARL who leases the business assets he owns to the company cannot be reproached for having concealed a modification of this regulated agreement, as long as he indicated the rent increase reported in the management report of the current year, and this was reiterated in the special report prepared the following year, both having been approved at the general meetings .

In principle, the partners interested in regulated agreements must not take part in the vote for their authorization by the general meeting, under penalty of incurring their liability . However, the determination of the manager's compensation in an SARL by the partners' meeting does not result from a regulated agreement, so the manager may participate in the vote even if he is a majority partner .

If the assembly votes favorably, the manager may conclude the agreement . Conversely, if it refuses to authorize the operation, the agreement nevertheless produces its effects, with the manager or the contracting associate individually or jointly, as the case may be, bearing the consequences of the contract detrimental to the company . The associate and employee of an SARL who received, in addition to their previous remuneration, a commission outside all customary practices, resulting in the impoverishment of the company without any positive consideration for it and without this agreement being approved by the general assembly, must thus be ordered to repay all the sums received .

The three-year limitation period for actions seeking compensation for the consequences of irregular agreements concluded between the partners and the SARL, in the absence of any concealment, starts from the harmful event, which corresponds to the conclusion of the agreements and not the decision of the meeting to refuse approval . The indication, in the SARL manager's management report, of the absence of conclusion of regulated agreements, may establish a concealment likely to postpone the starting point of the limitation period . If the company fails to obtain the nullity of an agreement detrimental to the company on the basis of regulated agreements, it may invoke any cause of contract nullity. However, case law specifies that the three-year limitation period for liability actions provided for in Article L. 223-19 of the Commercial Code does not apply to actions seeking annulment, for violation of the laws or principles governing contract nullity, of an agreement covered by this provision .

Furthermore, a regulated technical assistance agreement previously approved by the general meeting but whose renewal has not been regularly ratified by the partners is not subject to invalidity, in the absence of harm caused to the SARL .

Agen, 3 April 2007, LawLex202300005278JBJ.

Cass. com., 6 March 2007, LawLex202200006544JBJ, holding that the transfer of a business concern belonging to a limited liability company does not confer upon the transferee the status of associate, and therefore cannot constitute an instrument of fraud against the provisions of Article L. 223-21 of the Commercial Code, regardless of the motives and even if it was done through an intermediary.

Cass. com., 10 December 1996, LawLex202300005269JBJ. Cf. CA Aix-en-Provence, 30 June 2000, LawLex202300005286JBJ, considering that the decision of the general meeting of an SARL ratifying a management act, namely the provisioning of a bonus granted to the technical director employee, also a non-member co-manager, does not concern an agreement between the company and one of its managers, so there is no need for restitution.

Cass. com., 21 January 1997, LawLex202200007705JBJ.

Cass. com., 30 May 2018, LawLex202200006542JBJ.

Cass. com., 3 April 2013, LawLex202200004996JBJ.

Paris, 28 May 1999, LawLex202300005331JBJ.

Cass. com., 25 May 1993, LawLex202100004503JBJ, considering that the prohibition for the managers of an SARL to be guaranteed by the company towards third parties applies only to guarantees and endorsements of their personal commitments.

Cass. com., 25 April 2006, LawLex202200006543JBJ; 22 May 2001, LawLex202300005268JBJ.

Cass. com., 28 May 2025, LawLex202500004488JBJ.

Cass. com., 23 November 2010, LawLex202300005266JBJ.

Cass. com., 13 February 1996, LawLex202200006541JBJ.

Cass. com., 4 October 2011, LawLex202200006137JBJ; 4 May 2010, LawLex202200006136JBJ.

Cass. com., 7 July 2009, LawLex202200006531JBJ, holding that Article L. 223-19, para. 1, of the Commercial Code, which only provides for a posteriori control of agreements entered into by an SARL with one of its managers or associates, does not apply to an agreement concluded after the vote on the resolution authorizing the transfer of the company's business assets.

Cass. com., 28 June 1988, LawLex202200006545JBJ; 10 April 2019, LawLex202300005267JBJ.

Company Law (en cours)

452. Typology and applicable rules.

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Les notions juridiques connexes

452. Typology and applicable rules.

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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