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

Company Law (en cours)

The initial directors, who may be either natural persons or legal entities , are appointed in the articles of association . The duration of their terms is determined by the articles of association and cannot exceed six years .
1) Number
Their minimum number is set at three by Article L. 225-17 of the Commercial Code. The meeting of the board of directors held while one of the three directors was n …

Specificities of directors' functions

The initial directors, who may be either natural persons or legal entities , are appointed in the articles of association . The duration of their terms is determined by the articles of association and cannot exceed six years .

Their minimum number is set at three by Article L. 225-17 of the Commercial Code. The meeting of the board of directors held while one of the three directors was no longer actually performing their duties remains valid, as long as their number has not fallen below the legal minimum until they have resigned . Pursuant to Article L. 225-24, when the number of directors has fallen below the legal minimum, the remaining directors must immediately convene the ordinary general meeting to fill the board's vacancies. When the number of directors has fallen below the statutory minimum, but not below the legal minimum, the board of directors must make provisional appointments to fill its vacancies within three months from the date the vacancy occurs. Case law considers that the co-option of directors by the board of directors following the resignation of some of them is irregular, as their number having fallen below the legal threshold, their appointment can only be validly decided by the general meeting immediately convened by the remaining director . The maximum number of directors cannot exceed eighteen. However, in the event of the death, resignation, or dismissal of the chairman of the board of directors, and if the board has not been able to replace them with one of its members, it may appoint an additional director to serve as chairman.

Paragraph 2 of Article L. 225-17 states that the board of directors must be composed with a view to achieving a balanced representation of women and men. The proportion of directors of each gender cannot be less than 40% following the next general meeting that decides on appointments in companies which, for the third consecutive fiscal year, employ an average of at least 250 permanent employees and have a net turnover or total balance sheet of at least 50 million euros . In these same companies, when the board of directors is composed of no more than eight members, the difference between the number of directors of each gender cannot exceed two. When its composition no longer complies with these provisions, the board of directors must make provisional appointments to remedy this within six months from the date the vacancy occurs. It should be noted that this is actually a simple principle, the non-compliance with which is not subject to any sanction.

Article L. 225-25 of the Commercial Code provides that the statutes may require directors to own a number of shares in the company, as determined by them. If, on the day of their appointment, a director does not own the required number of shares or if, during their term, they cease to own them, they are deemed to have resigned automatically if they have not regularized their situation within six months . A management company of a mutual fund, acting as a director of a public limited company, fulfills the obligation for each director to own a number of shares in the company as determined by the statutes, as long as the fund it represents is a shareholder . Furthermore, the automatic resignation of a director for not holding shares in the public limited company only takes effect at the end of the regularization period and does not affect the validity of the deliberations in which they participated before that date .

The rules regarding the accumulation of mandates require distinguishing several situations. First, concerning the accumulation of directorships, the NRE Law of 15 May 2001 established significant limits. Article L. 225-21, para. 1, of the Commercial Code thus provides that a natural person cannot simultaneously hold more than five directorships or supervisory board memberships in joint stock companies with their registered office in France. Furthermore, Article L. 225-94-1 set a global cap for all types of mandates: a natural person cannot simultaneously hold more than five mandates as CEO, member of the management board, sole CEO, director, or supervisory board member of joint stock companies with their registered office in France. This number is reduced to three for corporate mandates held in companies whose securities are admitted to trading on a regulated market by persons holding a mandate as CEO, member of the management board, or sole CEO in a company whose securities are admitted to trading on a regulated market and which employs at least five thousand permanent employees in the company and its subsidiaries, direct or indirect, with the registered office in France, or at least ten thousand permanent employees in the company and its subsidiaries, direct or indirect, with the registered office in France and abroad. Any natural person in violation of these provisions must resign from one of their mandates within three months of their appointment, or from the mandate in question within three months of the event that caused the disappearance of one of the conditions. At the expiration of this period, they are deemed to have resigned, as the case may be, either from their new mandate or from the mandate no longer meeting the conditions set, without affecting the validity of the deliberations in which they participated.

4) Combination of the mandate with an employment contract

The combination of a director's mandate with an employment contract also poses difficulties. Several scenarios must be considered.

The first is when an employee becomes a director. Article L. 225-22 of the Commercial Code provides that an employee of the company can only be appointed as a director if their employment contract corresponds to an actual position and if a relationship of subordination is maintained. Any appointment made in violation of this rule is void, without affecting the validity of the deliberations in which this director participated. Furthermore, during the term of office, the employee does not lose the benefit of this employment contract, which is simply suspended. In addition, the number of directors linked to the company by an employment contract cannot exceed one-third of the directors in office. Thus, a director cannot claim to hold an employment contract if more than one-third of the company's directors already have such a contract . The appointment of a director in violation of this rule only affects the validity of their designation but does not result in the termination of their employment contract .

The second hypothesis is where a current director considers entering into an employment contract with the company. Case law formally excludes this possibility. Based on the combination of Article L. 225-22 with Article L. 225-44, which prohibits directors from receiving any remuneration other than that allocated by a general meeting decision, it indeed holds that a director of a public limited company cannot obtain an employment contract with the company, under penalty of absolute nullity of the act, which cannot be retroactively confirmed, even by a decision of the assembly . In fact, the employment contract concluded between a director and a public limited company at a date when he has not yet resigned from his duties is void . A SA is entitled to invoke the mandatory public policy provision nullity of the employment contract granted to a director even if it is responsible for it . However, the declaration of nullity of the employment contract of a director of a SA does not result in the restitution of the remuneration he received in exchange for the work performed . Furthermore, the director is not authorized to request compensation for the work performed on behalf of the company on the grounds of unjust enrichment, since, being unable to receive any remuneration from the company, such a claim faces a legal obstacle .

As an exception, Article L. 225-21-1 provides that a director may become an employee of a public limited company on whose board he sits if this company does not exceed, at the close of a fiscal year, the thresholds defining small and medium-sized enterprises and if his employment contract corresponds to an actual job. Similarly, holding a directorship in a subsidiary does not preclude the existence of an employment contract with the parent company, so that the employee may receive additional compensation for activities performed within the subsidiary, paid not by the subsidiary but by the parent company . Finally, an employment contract granted to a director after his appointment is not void if it merely constitutes an adjustment of a previously concluded contract, under normal conditions not requiring approval by the board of directors .

Article L. 225-44 sets very clear limits on the remuneration that a director may receive: in particular, they cannot claim any remuneration other than those provided for in Articles L. 225-45 and L. 225-46.

Article L. 225-45 provides that the general meeting may allocate to directors, as compensation for their activity, a fixed annual sum that it determines without being bound by statutory provisions or previous decisions. The distribution of compensation among the directors is determined by the board of directors. Before the PACTE law, the terminology used was "attendance fees." This law preferred the term "compensation," even though the regime remains the same. The amount of this compensation is charged to operating expenses. The sums allocated to directors as compensation for their activity are also included in the basis for the social package and subject to a contribution payable by the employer, even if they have been paid at their request into the account of a trade union . Similarly, the amount of attendance fees paid to the chairman and CEO of a joint-stock company must be reintegrated into the basis for social security contributions, as long as the payment of these sums is inseparable from the activity of a corporate officer, whether this is exercised exclusively or combined with that of a director . However, amounts paid to a director solely due to their non-salaried activity do not enter into the basis for contributions owed by the company . Likewise, sums received by a director following the revocation of their corporate mandate and which have an indemnity character should not enter into the basis for URSSAF contributions . Indeed, attendance fees paid to directors of a joint-stock company due to their activity in the company can only be included in the basis for social security contributions if the existence of an employment contract meeting legal requirements is established .

When the board of directors is not composed in accordance with the gender parity rules provided in Article L. 225-18-1, the payment of the remuneration provided in Article L. 225-45 is suspended. The payment is reinstated when the composition of the board of directors becomes compliant, including the arrears since the suspension.

Furthermore, under Article L. 225-46, the board of directors may allocate exceptional remuneration for missions or mandates entrusted to directors. The judge specifies that the amounts paid to a director on the occasion of a specific study mission entrusted to them by the board of directors to provide insight into the situation of a company fall within the scope of their duties as a corporate officer and are not subject to contributions. Thus, the URSSAF cannot reintegrate into the social security contribution base owed by a SA the annual allowance paid to a director as remuneration for an audit mission entrusted to them by the board of directors due to their particular expertise, as long as this constitutes a specific activity exclusive of any subordinate relationship .

Finally, in accordance with Article R. 225-33, the board of directors may authorize the reimbursement of travel and accommodation expenses and expenses incurred by the directors in the interest of the company.

Certain individuals cannot serve as directors. This applies to those prohibited from engaging in commercial activities, even if the director themselves does not have the status of a merchant. Similarly, the law of 13 July 1983  prohibits civil servants from engaging in private lucrative activities. Furthermore, members of parliament, ministerial officers, or legal auxiliaries cannot be directors. As for lawyers and notaries, they may serve under certain conditions.

For an illustration, see Cass. com., 8 January 2020, LawLex202200005209JBJ.

Agen, 13 November 2001, LawLex202300012241JBJ.

Cass. com., 26 January 1999, LawLex202200004748JBJ. - See also Cass. soc., 7 December 2016, LawLex202200005847JBJ, holding that the director of a joint stock company, who cannot receive any remuneration from the company, permanent or otherwise, must be ordered to repay the salaries received from the company; 5 November 2009, LawLex202200005211JBJ; 21 November 2006, LawLex202200004747JBJ; 6 October 1993, LawLex202200004746JBJ, considering that the employee of a parent company, appointed as a director of a subsidiary, cannot claim the transfer of his employment contract to the latter, even if he performs actual work and has received the agreement of the group's management.

Cass. soc., 22 April 1992, LawLex202200004744JBJ.

Cass. soc., 22 November 1979, LawLex202300012240JBJ.

Cass. soc., 5 November 2009, LawLex202200005211JBJ; Cass. com., 16 May 1995, LawLex202200005210JBJ.

Cass. soc., 21 February 2006, LawLex202200004760JBJ.

Cass. soc., 14 May 1998, LawLex202200006049JBJ; 7 December 2016, LawLex202200005847JBJ, considering that a new employment contract concluded by an employee after their appointment as a director is void since, providing for different functions and remuneration, it cannot be considered as the continuation of their previous contract. See also Cass. soc., 26 June 2008, LawLex202200004750JBJ, considering that the employment contract granted by a joint stock company to a former director before completing the publicity formalities related to the termination of their director functions is not void.

Cass. 2e civ., 13 October 2022, LawLex202300012227JBJ; Cass. 2e civ., 25 November 2021, LawLex202300012229JBJ, considering that a company whose directors have received attendance fees must be subject to an adjustment concerning the social security lump sum, even if they are of foreign nationality and reside abroad, as long as it has not produced documents justifying their situation, which could lead to an exemption; holding that the salary benefit corresponding to the value of shares granted free of charge to directors is exempt from the contribution due by the company, provided that it notifies its collection agency of the identity of those to whom the shares were granted during the previous calendar year, as well as the number and value of these shares; Cass. soc., 6 March 2003, LawLex202300012238JBJ.

Cass. soc., 13 June 1996, LawLex202300012236JBJ.

Commercial Code, Art. L. 225-18. - See, for an application, Cass. com., 21 November 1977, LawLex202300007923JBJ, emphasizing that the appointment of a director for a term ending at the meeting to decide on the accounts of the fifth fiscal year, while the statutes set the term of office at six years, is valid if proof of holding this meeting less than six years after the appointment is not provided.

Cass. soc., 19 October 1995, LawLex202300007918JBJ.

Cass. soc., 31 October 2000, LawLex202300007919JBJ.

Cass. soc., 3 December 1981, LawLex202300012237JBJ; 6 October 1994, LawLex202300007916JBJ; 12 December 1991, LawLex202300007915JBJ.

Cass. soc., 26 May 1987, LawLex202300007917JBJ.

L. 83-634 of 13 July 1983 on the rights and obligations of civil servants.

Cass. com., 13 March 1979, LawLex202300007942JBJ.

CA Paris, 4 September 2000, LawLex202300003178JBJ.

See, for applications, Cass. com., 7 June 2011, LawLex202200005858JBJ; 12 October 2022, LawLex202200009467JBJ, RJDA 2023, No 92; Gaz. Pal. 14 March 2023, 72, obs. ZATTARA, holding that the director, who, at the date of appointment, does not own the required number of shares and has not regularized the situation within the legal timeframe, is deemed to have resigned automatically, without the board of directors' deliberations in which they participated being subject to annulment, provided that the quorum and required majority were met even without their presence.

Cass. com., 12 October 2022, LawLex202200009467JBJ; RJDA 2023, No 92; Gaz. Pal. 14 March 2023, 72, obs. ZATTARA

Paris, 7 May 2019, LawLex202300002248JBJ; adding that the fact that a director is deemed to have resigned automatically due to the absence of account registration of the consumer loan granted to him in a timely manner does not result in the invalidity of the decisions in which he participated, as long as the required quorum and majority were reached even without counting his vote.

Paris, 2 April 2015, LawLex202300012239JBJ.

Company Law (en cours)

498. Specificities of directors' functions

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Les notions juridiques connexes

498. Specificities of directors' functions

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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