France: Corporate Governance

1. What is the typical organizational structure of a company and does the structure typically differ if the company is public or private?

The most common forms are the following limited-liability companies:

  • société anonyme ("SA") – This form, with rather rigid governance rules, is the prevalent form historically for large companies. An SA issues shares (actions) which are negotiable securities. It must have a minimum capital of €37,000 and at least two shareholders, or seven if it is publicy traded. (A variant of the SA is the European company or societas Europaea ("SE"), adopted by a few dozen companies in France.)
  • société par actions simplifiée ("SAS") – This form, like the SA, issues shares (actions) in the form of negotiable securities, but there is great freedom in choosing governance rules. Shares of an SAS may not be publicly traded. There is no minimum capital or minimum number of shareholders. (An SAS with only one shareholder is referred to as a "société par actions simplifiée unipersonnelle" or "SASU".)
  • société à responsabilité limitée ("SARL") – This is a traditional form for closely held companies, with a certain flexibility of governance rules. Its shares (referred to as "parts sociales") are not negotiable but may be transferred only by written contract. There is no minimum capital or minimum number of shareholders, but there is a maximum of 100. (An SARL with only one shareholder is referred to as an entreprise unipersonnelle à responsabilité limitée or "EURL".)

Less frequently used forms for operating business entities are:

  • limited partnership (société en commandite), with somewhat flexible governance rules, some partners/shareholders of which (commandités) have unlimited liability, the others (commanditaires) having limited liability. There are two types of such companies:
    • société en commandite par actions ("SCA"), which issues negotiable shares (actions), and has somewhat flexible governance rules, allowing unlimited-liability partners to maintain control. A few publicly traded companies take this form;
    • société en commandite simple ("SCS"), which issues shares in non-negotiable form ("parts sociales").
  • société en nom collectif ("SNC"), all partners of which have unlimited liability;
  • société civile (which is not intended to engage in a business deemed to be "commercial"), each partner having unlimited liability for its rateable share of the company's debts; and
  • de facto companies (sociéte en participation and société créée de fait), members of which have unlimited liability.

The vast majority of publicly traded companies take the form of an SA, with a few taking the form of an SCA or SE (the rules for which are substantially those applicable to an SA).

The forms SCS, SNC and société civile, as well as de facto companies, all of which are infrequently used for major operating companies, are not discussed further in this paper.

This paper presents a non-exhaustive summary of certain relevant rules applicable to the SA, SCA, SAS and SARL. It does not describe special rules applicable to companies whose shareholders include the French state or other governmental entities or to regulated entities including financial institutions.

2. Who are the key corporate actors (e.g., the governing body, management, shareholders and other key constituencies) and what are their primary roles? How are responsibilities divided between the governing body and management?

Besides shareholders, the key actors in the above company forms are as follows:

  • For an SA, two options are possible:

    (a) Under the "single-tier" structure, which is the most common, management authority is exercised by:

    a board of directors (conseil d'administration) made up of 3 to 18 members (not counting directors representing employees) presided by a chair (président), and

    the chief executive officer (directeur général or DG), who has the authority to bind the company vis-à-vis third parties (and need not be a member of the board). One person may hold both the offices of board chair (président) and DG (and is then commonly referred to as the "PDG") or the positions may be held by different individuals.

    (b) Under a "two-tier" structure, the company is managed by individuals composing a management board (directoire) with not more than 5 members (7 if the company is publicly traded), one of whom is named chairman (président du directoire), or for companies with stated capital less than €150,000 by a sole chief executive (directeur general unique or "DGU"), but the management function is supervised by a supervisory board (conseil de surveillance) with between 3 and 18 members (not counting directors representing employees) headed by a chair (président).
  • An SAS must have a president (either an individual or a legal entity) but other governance features are optional, so that it is possible for the president to carry out all management functions with supervision only by the shareholders (who can deliberate as infrequently as once a year) or to provide for a board of directors, a supervisory board or other governing bodies.
  • An SARL is headed by a manager (gérant) who must be an individual; other governance features are optional (but not common).
  • Companies in other forms mentioned above are headed by one or more managers (gérants). An SCA features a supervisory board which oversees the manager(s).

An SA structure featuring a PDG, i.e. the same person being chair of the board of directors and DG, is referred to as having a unitary (moniste) structure, whereas an SA with a supervisory-board/management board structure or an SCA (having one or more managers and a supervisory board) is considered to have a two-tier (dualiste) structure. An SA with a board chaired by someone other than the DG is also sometimes classified as a two-tier structure.

Executive officers include, for a one-tier SA, the DG and any deputy DG (directeur general délégué) if named by the board; for a two-tier SA, the management board members or DGU; for an SAS, the president; for an SCA or SARL, the manager(s) (gérant(s)).

3. What are the sources of corporate governance requirements?

The principal sources of such requirements are the Civil Code (Code civil or "C. civ."), the Commercial Code (Code de commerce or "C. com."), the Monetary and Financial Code (Code Monétaire et Financier or "CMF") and rules promulgated by the Autorité des Marchés Financiers ("AMF", the French securities regulator). This body of legislation reflects the numerous EU directives touching on corporate governance. An influential source of "soft law" requirements is the code of conduct promulgated jointly by the Association Française des Entreprises Privées ("AFEP") and the Mouvement des Entreprises de France ("MEDEF") most recently in June 2018 (the "AFEP-MEDEF Code"), and the code issued by Middlenext most recently in 2016, used principally by smaller listed companies (the "Middlenext Code").

4. What is the purpose of a company?

The fundamental purpose of a company is to produce economic gain (C. civ. article 1832), but other purposes are recognised. For example, the AFEP-MEDEF Code (article 1) refers to "long-term value creation" while "considering the social and environmental aspects of its activities". And legislation under consideration at this writing (17 January 2019), known as the "Loi PACTE", would if enacted, among many other changes, require that "social and environmental stakes" be taken into account (pursuant to EU Directive 17/828) and provide that bylaws could set out a corporate raison d'être, consisting of "principles" to be followed in carrying out its business.

5. Is the typical governing body a single board or comprised of more than one board?

Among publicly traded French companies, about half adopt the unitary (moniste) structure with the board headed by the DG, and about 30% have a single board structure but with the board chaired by a person other than the DG. The remaining 20% of listed companies have a twotier (dualiste) structure, either being SAs with a supervisory board and management board or, in a few cases, having the form of an SCA.

Companies not publicly traded most often are constituted as either a single-tier SA, an SAS managed by its president or an SARL with one or more managers (gérants).

6. How are members of the governing body appointed and removed from service?

Members of the board of directors or the supervisory board of an SA (other than directors representing employees) are chosen and removed by shareholders, except that vacancies caused by resignation or death of a board member can be filled by co-optation by remaining board members (if at least three are then in office), subject to ratification at the next shareholder meeting. The board of directors of an SA names and removes the DG. When there is a supervisory board, it selects members of the management board and names its chair (or names the DGU); members of the management board (or the DGU) are removed by the shareholders or, if the bylaws so provide, the supervisory board.

In an SCA, supervisory board members are named and removed by the limited-liability shareholders (commanditaires), with vacant positions filled by co-optation, subject to ratification by the limited-liability shareholders. Rules for naming and removing managers of an SCA are as set out in the bylaws, and usually give control to the unlimited-liability partners, sometimes with a veto right of limited-liability shareholders.

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