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

Company Law (en cours)

In accordance with Article 1832 of the Civil Code, the company is established by two or more persons who agree by contract to allocate assets or their industry to a common undertaking with the aim of sharing the profit or benefiting from the resulting savings.  The last paragraph of the text further specifies that the partners undertake to contribute to the losses. These cumulative conditions are  …

Profit sharing

In accordance with Article 1832 of the Civil Code, the company is established by two or more persons who agree by contract to allocate assets or their industry to a common undertaking with the aim of sharing the profit or benefiting from the resulting savings.  The last paragraph of the text further specifies that the partners undertake to contribute to the losses. These cumulative conditions are often assessed simultaneously .

The associate who claims a share of the profits must establish the common intention to distribute the results of the operation . The production of a letter that attests that the pursuit of profit was the objective of the joint operation fully satisfies such a requirement . The vocation for profit sharing is distinct from the right to remuneration: receiving a salary excludes the status of an associate in a de facto company . Similarly, the charitable aim of the joint project does not allow for the characterization of the existence of a de facto company, in the absence of a pursuit of profits to be shared .

The absence of profits to share does not exclude the classification of a de facto company: the intention to share potential profits is sufficient . However, in the presence of profits, the appropriation of these by only one of the partners prevents the other from claiming a de facto company . The provision of a sum of money by an entrepreneur to his two brothers for the construction of villas with materials purchased by the company and with the assistance of its staff and equipment, without ever demanding reimbursement, is characteristic of profit sharing among partners of a de facto company . Similarly, pooling resources for the construction of a building intended to provide housing for themselves and their children could be considered as demonstrating the partners' intention to participate in the profits .

The rules for the distribution of profits among partners fall under contractual freedom, provided they do not have a leonine character. The partners' intention to distribute the results in proportion to their share in the ownership interests can be inferred from the stipulations of a previous transfer deed of the ownership interests of a withdrawing partner . In the absence of contrary provisions in such a deed, each partner may claim a share of the profits even for periods during which they have suspended their activity .

If the Court of Cassation has been able to hold that the finding of the partners' intention to share in the profits implicitly but necessarily allows for the finding of their merely potential intention to share in the losses , it most often requires that the latter be firmly established . However, just as the absence of profits to share, the absence of losses to which the partners of a de facto company should have contributed does not preclude the characterization of such a company as long as the existence of contributions and affectio societatis is demonstrated and they both participated in the positive results of their operation . The absence of intention of the person claiming to be a partner to effectively participate in the losses related to the operation is established, in the case of a ship captain, when he received a power of attorney on his bank account from the owner of the ship . It is similarly excluded, in the case of a cohabitant, when during the period of joint operation of the commercial activity, the cohabitant assumed almost all the expenses and current charges  or when he personally did not take out any loans and thus protected himself from any risk . Conversely, taking out loans intended to cover the losses of the operation  or guaranteeing the loan intended to finance the construction of a pavilion on the land belonging to the cohabitant, in the event that she could not meet the installments of this loan , allows for the characterization of the intention to contribute to potential losses.

The inequality of the contribution to losses, in favor of one of the parties, does not affect the validity of the distribution, as long as it can be justified by the initial advantage it brought to the de facto company .

Cass. com., 5 April 2005, LawLex202300014405JBJ; CA Paris, 29 September 2020, LawLex202300010080JBJ.

Cass. com., 18 December 1990, LawLex202300014410JBJ, emphasizing that in the absence of an agreement between the parties on the share of profits to be allocated to each of them, a de facto company cannot be characterized.

Cass. com., 15 March 2017, LawLex202300014401JBJ.

Cass. 1re civ., 25 June 1996, LawLex202300010075JBJ.

Cass. com., 21 April 1992, LawLex202300010070JBJ.

Cass. com., 16 June 1998, LawLex202300009313JBJ. - See already, Cass. com., 11 July 1977, LawLex202300010176JBJ.

Cass. com., 30 May 2000, LawLex202300009793JBJ.

Cass. com., 12 May 2015, LawLex202300009787JBJ.

CA Poitiers, 26 April 2023, LawLex202300010798JBJ.

Cass. com., 8 July 2003, LawLex202300009781JBJ.

Cass. 1re civ., 11 February 1997, LawLex202300010177JBJ. - Contra, Paris, 12 September 2002, LawLex202300011121JBJ, emphasizing that the mere act of standing as guarantor cannot, by itself, characterize an intention to share in the losses since the guarantor, unlike the co-borrower, has recourse against the defaulting borrower.

Cass. com., 4 March 1970, LawLex202300010067JBJ.

Cass. com., 30 May 2000, LawLex202300009793JBJ. - See a contrario, CA Paris, 23 March 2017, LawLex202300010840JBJ, holding that a person participates in the profits of the undertaking when, in addition to the salary they receive, their rent is paid by the company and they have bank signing authority and use its accounts as their own.

CA Versailles, 10 June 2010, LawLex202300014397JBJ.

Cass. com., 11 July 1977, LawLex202300010176JBJ.

Cass. com., 5 November 1974, LawLex202300010076JBJ.

Cass. 1re civ., 11 February 1997, LawLex202300010177JBJ.

Cass. com., 4 December 2012, LawLex202300003473JBJ.

Company Law (en cours)

618. Profit sharing

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618. Profit sharing

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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