France: New Form Of Company For Joint Ventures And Holding Companies In France

Last Updated: 24 May 1995

("Societe par actions simplifiee (SAS)")

1. Introduction
The societe par actions simplifiee ("SAS") is a new type of French company, which was created by a law of 3 January 1994.

The structure of the SAS is inspired by the Dutch B.V., which has proved to be an extremely flexible vehicle for cooperation between commercial companies. The SAS was created specifically with joint ventures in mind, but its flexibility means that it is also likely to be widely used for other purposes, for example as a vehicle for wholly-owned subsidiaries.

This new corporate vehicle combines limited liability status with contractual freedom for the shareholders to determine the rules governing their relationship for themselves (whereas in relation to other types of French company, a number of aspects of the relationship are governed by statutory rules). The liability of the shareholders is limited to the amount of their participation in the share capital, but otherwise the SAS has little in common with the classic French "societe anonyme" (SA).

There is currently some uncertainty regarding the interpretation of the law concerning the SAS by the French courts. The law states that the rules which apply to the SA also apply to the SAS insofar as they are compatible with the specific rules concerning the SAS provided for in the law of 3 January 1994 (apart from certain rules which concern mainly the management of the company and shareholders' general meetings). The uncertainty concerns exactly which rules applying to the SA are "compatible with" the rules applying to the SAS and which "rules" are being referred to (i.e. whether the rules are those contained in laws, decrees or even European legislation). No doubt as use of the SAS becomes more widespread and specific cases are brought before the courts some of these issues will be clarified.

In practice, these issues should not concern wholly-owned subsidiaries, as conflicts between the shareholders are unlikely to arise.

2. Incorporation - share capital
The SAS may be incorporated as such, or may arise from the transformation of another type of company, provided that the transformation is approved by all the shareholders of the former company and that the conditions set out below are met.

An SAS must have a minimum of 2 shareholders (compared with 7 for the SA) which must be corporate entities with a fully paid up share capital of at least 1,500,000 FRF (or the equivalent in foreign currency). If the share capital of a shareholder is reduced to less than this amount, the shareholder must either sell its shareholding in the SAS or increase its share capital to the requisite amount within six months, failing which the SAS must be wound up or transformed into another type of company at the end of the six-month period. Any interested third party or the public prosecutor may apply to a court for compulsory liquidation of the SAS. The court may then grant a minimum of six months to the shareholder to comply with the relevant requirements.

The share capital of the SAS, which must be at least FF. 250,000, must be fully paid up on subscription.

The shares cannot be listed, nor offered to the public.

3. Management
The shareholders' freedom to structure the management of the company as they feel fit is restricted by only two rules.

The first concerns the obligatory appointment of a chairman, and the second provides for a specific procedure applicable to contracts between the SAS and its chairman or officers ("dirigeants").

The company must appoint a chairman ("President") to represent the SAS vis-a-vis third parties in all circumstances. The powers of the chairman are very wide and any restriction on such powers provided for in the articles of association is not binding on third parties. The chairman may be a corporate entity or an individual (while in the SA, the chairman must be an individual).

Apart from the chairman, the articles of association may provide for whatever rules seem appropriate as to the internal management of the SAS. This may take the form of one or more bodies such as a board of directors, a supervisory board and a directorate, and/or one or more managers all of whom may be corporate entities or individuals. (The form of management for other types of French companies is governed by statute).

The rules relating to the liability of the directors of the SA apply also to the chairman and the officers ("dirigeants") of the SAS.

The chairman and officers ("dirigeants") of any corporate entity which is an officer ("dirigeant") or chairman of the SAS are subject to the same liability as if they were themselves officers ("dirigeants") or chairman of the SAS.

Finally, the articles of association of the SAS should specify the corporate body (chairman, manager(s), body of several managers, shareholders' meeting...) in relation to which the members of the works council may exercise the rights they have in respect of the board of directors in an SA (attending meetings etc...)

Another obligation relates to contracts which are entered into between the company and the chairman and/or the officers ("dirigeants"). These contracts are subject to a specific authorisation procedure of the same nature as the procedure set out for this type of contract in the SA (approval by the shareholders). As in the SA, loans granted by the company to the chairman or the officers ("dirigeants") or guarantees granted by the SAS in relation to obligations thereof are prohibited.

Apart from the two rules mentioned above, the appointment, removal, and powers of management of the chairman and other managers can be freely provided for in the articles of association. Consequently, the chairman and other managers, as opposed to the directors of an SA, do not need to be shareholders unless otherwise provided in the articles of association.

4. Shareholders' resolutions
The shareholders are also free to determine the rules relating to shareholders' resolutions in the articles and the articles may determine which decisions are to be taken by management and which must be submitted to the shareholders and the form that such shareholders' resolutions may take (general meetings, written resolutions, video conference meetings, for example). The articles of association should provide for the provisions regarding passing of resolutions, such as quorum, proxies and calculation of the majority.

Nevertheless, some decisions which are considered of particular significance must be taken by the shareholders and not by the management. These decisions relate to the increase or reduction and redemption of the share capital, mergers and demergers, winding-up, appointment of the statutory auditors (the provisions of French company law concerning statutory auditors in the SA also apply to the SAS), consideration of the annual accounts, and the declaration of a dividend. However, even in these cases, some degree of flexibility is available to the shareholders as no specific rule is provided for by law in relation to the means of taking decisions (e.g. as regards quorum and majority).

Finally, certain provisions (whose validity appeared doubtful under French company law when applied to the SA and/or whose validity required strict conditions to be met) can be included in the articles of association of an SAS provided that they are adopted by an unanimous vote of shareholders. The articles of association can include, in particular, the following provisions:

  • - The "clause d'agrement", which is a clause which compels any shareholder who wishes to transfer shares to obtain the approval of the company for the transfer, can be included. The scope of this provision is wider than its equivalent for the SA, as the clause may encompass transfers between shareholders as well as transfers to third parties, whereas the equivalent provision for the SA can only apply to transfers to third parties.
  • - If a transfer of shares is made in breach of a provision of the articles, the transfer is deemed to be null and void. In the classic SA, a transfer made in breach of the articles does not necessarily result in the transfer being deemed null and void.
  • - The eviction of a shareholder from the company may be authorised by the articles. [QQ] The reasons and the procedure for such an eviction should be precisely defined, to avoid any possible unfair or arbitrary use of the right of eviction. Until the sale of the shares of the evicted shareholder is effective, the non-monetary rights of the excluded shareholder may be suspended, if the articles so provide.
  • - The articles may include a change of control clause applying to the shareholders of the SAS under which the shareholders must notify the SAS of any change in their control. Such a clause enables the company to exclude the shareholder and to suspend its non-monetary rights.

5. Tax aspects

The tax regime applicable to the SAS is the same as that applicable to the SA. Accordingly, the SAS is subject to corporation tax (standard rate at present being 33.33%) on profits derived from a business activity carried out in France or an activity for which the right to tax has been attributed to France by virtue of a double tax treaty.

Transfers of shares in an SAS are subject to registration duty in France only if the transfer is recorded in a deed of transfer executed in France. If applicable, the registration duty (1% of the purchase price) is limited to FF 20,000 per transaction (i.e. per vendor/purchaser).

The only issue which is worth noting as far as the SAS is concerned is that an SAS might not be treated as an SA by other EU countries for the application of EU tax directives such as the parent/subsidiary directive pursuant to which (i) no withholding tax is applicable to the distribution of dividends from a subsidiary established in a EU member state to its parent company established in another EU member state and (ii) the parent company which receives the dividend from its foreign subsidiary is exempted from taxation or is entitled to an underlying tax credit with respect to such a dividend.

The applicability of the EU tax directives to the SAS should be checked on a country by country basis for those EU countries for which the problem may arise.

6. Conclusion

The SAS can be managed very simply and on a flexible basis and therefore can be recommended either for the purpose for which the legislation intended it (i.e. joint ventures), or as a vehicle for wholly-owned subsidiaries or for other purposes where flexibility is desirable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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