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

Company Law (en cours)

When establishing a simplified joint-stock company, or during its existence, preference shares may be created, with or without voting rights, accompanied by special rights of any kind, either temporarily or permanently . Preference shares without voting rights cannot represent more than half of the share capital, and in companies whose shares are admitted to trading on a regulated market, more tha …

Special rights

GERMAIN, Preference shares, Rev. soc., 2004, 597; MAGNIER, Preference shares: who benefits from the preference? D. 2004, chr. 2559.

When establishing a simplified joint-stock company, or during its existence, preference shares may be created, with or without voting rights, accompanied by special rights of any kind, either temporarily or permanently . Preference shares without voting rights cannot represent more than half of the share capital, and in companies whose shares are admitted to trading on a regulated market, more than a quarter of the share capital . Only shares deprived of all voting rights, and not those with negligible voting rights, are considered for calculating the ceiling of half the share capital .

Established by Ordinance No 2004-604 of 24 June 2004 , preferred shares (in French, actions de préférence), which can be issued by all joint-stock companies, have replaced priority shares as well as priority dividend shares without voting rights . Their holders possess rights other than those attached to ordinary shares, and even to priority shares , including financial rights (right to priority dividends), proprietary rights, and political rights (double voting rights, multiple voting rights). SAS thus enjoy greater freedom regarding multiple voting rights than non-listed public limited companies , in which it is expressly prohibited by Article L. 225-122 of the Commercial Code . Since this provision is not applicable to SAS, it is possible to organize multiple voting rights in these structures, by virtue of a statutory clause, from the creation of the company. However, this right is then analyzed as a particular advantage, whose creation must be preceded by a report from the contribution auditor annexed to the articles of association . Multiple voting rights can lead to the allocation of the majority of voting rights to a shareholder, even if they hold only a minority of the shares .

The extraordinary general meeting of shareholders is solely competent to decide on the issuance and conversion of preference shares based on a special report from the statutory auditors . To this end, the board of directors' report must indicate the characteristics of the preference shares and specify the impact of the operation on the situation of holders of equity securities and financial instruments that give access to capital . The statutory auditor gives their opinion on the proposed capital increase, the characteristics of the preference shares, and the impact of the operation on the situation of holders of equity securities and financial instruments that give access to capital . The general meeting may delegate its power under the conditions set by Articles L. 225-129 to L. 225-129-6 of the Commercial Code.

Pursuant to Article L. 228-14 of the Commercial Code, preference shares may be converted into ordinary shares or preference shares of another category. The creation of these shares results in the application of Articles L. 225-8, L. 225-10, L. 225-147 of the Commercial Code relating to special benefits when the shares are issued for the benefit of one or more specifically designated persons. The contribution auditors must not have carried out and must not carry out any assignment within the company for the past three years . Holders of shares that must be converted into preference shares of the category to be created cannot, under penalty of nullity of the resolution, take part in the vote on the creation of this category, and the shares they hold are not considered for the calculation of the quorum and majority, unless all the shares are subject to conversion into preference shares . This prohibition does not apply to holders of already existing preference shares when the purpose of the resolution is to lower the remuneration of these securities .

Preference shares may be repurchased under the conditions and according to the terms provided in Articles L. 225-204 to L. 225-214 of the Commercial Code , relating to the reduction of corporate capital, and to the subscription, purchase, or pledging by companies of their own shares.

Previously subject to the special benefits procedure provided for joint stock companies in Article L. 225-14 of the Commercial Code, SAS are exempt from it regarding the creation of preference shares for specifically designated partners since the entry into force of the law of 19 July 2019 . However, the entry into force of this law cannot serve as a regularization for the non-compliance with the procedure by an SAS initially subject to the obligation .

Commercial Code, Art. L. 228-11, para. 1.

Commercial Code, Art. L. 228-11, para. 3.

Commercial Code, Art. L. 228-12, para. 1. - See, for an illustration, Lyon, 17 February 2022, LawLex202200011491JBJ, noting that no legal provision requires that the consent of shareholders to the modification of their specific rights attached to certain shares be obtained individually, the only requirement being that such modification does not result from a unilateral decision by the company and specifying that the reduction in the remuneration of preference shares voted by the extraordinary general meeting of an SAS does not constitute an abuse of majority as long as it is in line with the corporate interest, removing an obstacle to its growth.

Commercial Code, Art. R. 228-17, para. 1.

Commercial Code, Art. R. 228-17, para. 2.

Commercial Code, Art. L. 228-15, para. 1.

Commercial Code, Art. L. 228-15, para. 2.

CA Lyon, 17 February 2022, LawLex202200011491JBJ.

L. 2019-744 of 19 July 2019 on the simplification, clarification, and updating of French Company Law, OJ of 20 July 2019.

Cass. com., 13 March 2024, LawLex202400002241JBJ.

Ord. No 2004-604 of 24 June 2004 on the reform of the regime of marketable securities issued by commercial companies and the extension to overseas territories of provisions amending commercial legislation, JO of 26 June 2004.

Commercial Code, Art. L. 228-11, version in force before the ordinance of 24 June 2004.

Commercial Code, Art. L. 228-12, para. 1.

See, for listed companies, the new provisions of Art. L. 22-10-46-1 of the Commercial Code, stemming from Law No 2024-537 of 13 June 2024, allowing under conditions the issuance of multiple voting shares.

Commercial Code, Art. L. 227-1, para. 3. - See, for an illustration, CA Basse-Terre, 20 December 2021, LawLex202300002836JBJ.

See for an illustration, Basse-Terre, 20 December 2021, LawLex202300002836JBJ, aforementioned, holding that the allocation of multiple voting rights is permitted in SAS, as the provisions of the Commercial Code that establish the principle of voting rights proportional to the share of capital held and that only authorize double voting rights do not apply to these companies.

Company Law (en cours)

571. Special rights(1)

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