Doing Business In

France has a civil law system.

• The Commercial Code;
• The Civil Code;
• The Monetary and Financial Code;
• The Labour Law; and
• EU regulations and directives on corporate governance.

Regulatory bodies and authorities such as the Financial Market Authorities and the Data Protection Authority also oversee and regulate specific aspects of business activities. Influential sources of soft law include:

• the code of conduct promulgated jointly by the Association Française des Entreprises Privées and the Mouvement des Entreprises de France, most recently in June 2018; and
• the code issued by Middlenext, most recently in 2016, used principally by smaller listed companies.

The National Assembly and the Senate are the legislative bodies that draft and pass laws. The commercial courts and other courts in France – in particular, the French Supreme Court – play a role in interpreting and enforcing laws related to commercial disputes, contracts and business disputes.

French law provides for several different types of commercial companies, which differ in the way they are organised:

• An entreprise unipersonnelle à responsabilité limitée (EURL), or sole shareholder limited liability company, has a single shareholder; while a société à responsabilité limitée (SARL) has between two and 100 shareholders. The minimum share capital is €1. They are managed by one or several managers, who must be natural persons. Capital contributions include:
• • cash;
  • contributions in kind; and
  • know-how.
• Liability of shareholders is limited to their capital contribution.
• A société par actions simplifiée unipersonnelle (SASU), or sole-shareholder simplified joint stock company, has only one shareholder; while a société par actions simplifiée (SAS), or simplified joint stock company, has at least two shareholders and is legally represented by its president, but may also have general managers or delegate general managers with the same or limited powers. The minimum share capital is €1. This form of company is very flexible, as the shareholders can set out in the bylaws the rules regarding the management and governance of the company. An SAS cannot be listed.
• A société anonyme (SA), or joint stock company, differs from the previous types of company in that the minimum share capital is €37,000. It may be managed either by:
• • a board of directors; or
  • a management board and supervisory board.
• It has at least two shareholders, whose liability is limited to their capital contribution. This form of company is less flexible and more constraining than an SAS, but can be publicly listed.

Please see the table here:

Less common forms for operating business entities include the following:

• A limited partnership (société en commandite) is subject to somewhat flexible governance rules – some of the partners/shareholders have unlimited liability, while the others have limited liability. There are two types of such companies:
• • A société en commandite par actions issues negotiable shares (actions) and has somewhat flexible governance rules, which allow unlimited liability partners to maintain control. A few publicly traded companies take this form.
  • A société en commandite simple issues shares in non-negotiable form.
• In a société en nom collectif, all partners have unlimited liability.
• A société civile cannot engage in a business deemed to be ‘commercial’. Each partner has unlimited liability for its rateable share of the company’s debts.
• In de facto companies, members have unlimited liability

No answer submitted for this question.

The steps to incorporate a business structure in France are as follows:

• drafting the bylaws;
• appointing the manager(s) or president and general managers in the bylaws or by decision of the shareholders’ general meeting;
• opening a bank account to deposit the funds (share capital amount) and obtain a bank certificate, which can be challenging for foreign companies due to money laundering regulations;
• entering into a lease or domiciliation agreement for the registered office of the company;
• publishing the company’s formation in a legal newspaper; and
• filing all documents with the concerned clerk of the commercial court where the company has its registered office to obtain the Kbis (ie, certificate of incorporation).

Since 1 January 2023, the company’s incorporation must be processed through the Guichet Unique. All formalities can be completed online on the National Institute of Intellectual Property website.

All companies’ legal data is now gathered in a single register: the Companies National Register.

Foreign citizens or companies can create a corporation in France. There is no citizenship restrictions.

There is no requirement for the legal representative(s) of a foreign company to live in France. However, if the French company has a social and economic committee (CSE), it is recommended to:

• have a representative in France; or
• delegate powers to a French employee to manage French obligations vis-à-vis the CSE.

However, if the person wishes to live in France and is not an EU citizen, he or she will need to obtain a resident permit.

The most challenging step for foreign players is to open a French bank account, which is a requirement to incorporate a company. If the establishment of a business is through the acquisition of an existing French entity, foreign players should check whether the business of the target is likely to be subject to the French foreign direct investment regulations, which have a very broad scope.

Business can be operated in France through commercial agents. The status of commercial agent is closely regulated in France (Articles L134-1 and following of the Commercial Code – the Law of 25 June 1991), as a result of EU Directive 86/653/CEE, with various provisions that aim to protect commercial agents. For example, agents are entitled to compensatory indemnity for loss suffered in case of termination of the relationship by the principal.

Selective, exclusive distribution or franchising agreements are also common under French law, with specific rules applicable to each agreement.

Please see the table in question 2.1.

Since 2008, audit committees have been mandatory for:

• listed companies;
• banks; and
• insurance companies.

For other companies, specialist committees such as audit committees, compensation committees or appointment committees are not mandatory but can be recommended depending on the size of the company.

Some companies also implement new specialised committees such as:

• strategy committees;
• technology committees; and
• environmental, social and governance committees.

In a société par actions simplifiée (SAS), although the only mandatory corporate body is the president, if there are several shareholders, it is common to create other committees – such as an executive or strategic committee – to govern the company.

In a société anonyme (SA), a company is legally required to appoint:

• a board of directors with a minimum of three directors; and
• at least one general managing director, who can also assume the functions of president of the board of directors.

There can be one or several deputy managing directors. The SA can also be formed with a management board and a supervisory board. Directors can be legal entities (however, a permanent representative must be appointed in this case), but managing directors must be natural persons.

In a société par actions simplifiée (SAS), shareholders have the power to freely determine the organisation of the management bodies in the articles of association and can thus decide to create different corporate bodies and appoint the members of such corporate bodies. However, shareholders:

• must at least appoint a president who represents the company in its relationships with third parties; and
• may appoint general managing directors and delegate general managers.

The following cannot be appointed as corporate officers:

• persons who have been disqualified from acting as a director or manager; and
• persons without legal capacity to act (ie, mentally impaired or non-emancipated minors).

Directors or managers need not hold qualifying shares. However, the articles of association may include such a requirement. In listed companies, however, it is recommended that directors hold a significant number of shares.

The articles of association may also contain other requirements, such as:

• a requirement for specific skills (confirmed by a diploma or professional qualification); or
• an age limitation.

A director or manager need not be a French national; nor need he or she be resident in France.

In an SA with a board of directors, the board must be composed of between three and 18 members. The articles of association must specify a maximum age limit for these members. If not, the number of directors aged over 65 cannot exceed one-third of the directors in office. In an SA with a management board and a supervisory board:

• the supervisory board is also composed of between three and 18 members; and
• the management board is composed of between two and five members (seven for companies which are listed on a regulated market).

In an SAS, unless otherwise provided for in the articles of association, the managers and the president may be legal entities. In this case, the managers of the legal entity are subject to the same conditions as if they were president or manager in their own name.

The board of directors of an SA must reflect a certain degree of balance between women and men. Since 1 January 2017, in listed companies and in large and medium-sized limited companies that employed at least 250 employees during the last three consecutive fiscal years and whose turnover is at least €50 million, the proportion of directors of each gender cannot be lower than 40% on boards of directors or supervisory boards.

The election of board members representing employee shareholders is an obligation for:

• state-controlled companies;
• listed companies in which employees hold more than 3% of the share capital; and
• companies that employ more than 1,000 employees in France or more than 5,000 employees worldwide, including through subsidiaries.

In such cases, elections by employees must be organised to appoint one or two directors to represent them. There should be:

• one employee shareholder representative on any board with fewer than eight members; and
• two on boards with more than eight members.

The president and general managers of an SAS can be designated in the articles of association at the time of the company’s incorporation. If not, they can also be appointed by a shareholders’ meeting or a meeting of any other corporate body as provided by the articles of association.

The president and general managers of an SAS are removed in accordance with the procedure set out in the articles of association. The articles of association will determine whether the shareholders, a group of shareholders or a supervising body may have the right to dismiss the president or general managers or other appointed members of committees. A dismissal decision need not be justified unless required by the articles of association. In any case, such a decision:

• must be taken only after a ‘proper hearing’; and
• must not be taken in insulting or hurtful circumstances.

The articles of association may provide for the payment of damages in the event of a corporate officer’s removal and set out the basis of the payment. Corporate officers may resign at any time in accordance with the procedure set out in the articles of association (eg, complying with notice provisions).

Moreover, following the incorporation of an SA with a board of directors, the directors (other than directors elected by employees) are appointed by the ordinary general shareholders’ meeting. If there is a vacancy on a board of directors (through death or resignation), the board of directors can temporarily fill such vacancy. This decision will need to be ratified by the next shareholders’ meeting.

Directors are eligible for reappointment unless the articles of association provide otherwise. Upon the expiry of a director’s term of office, the board of directors of an SA must convene a general meeting to consider the vacancy.

In SAs with a management board and a supervisory board:

• the members of the supervisory board are appointed in the same way as directors; and
• the members of the management board are appointed by the supervisory board.

In an SA with a board of directors, directors, managing directors and deputy managing directors may be dismissed at any time:

• by the shareholders during an ordinary general meeting (for directors); and
• by the board of directors (for managing and deputy managing directors).

There is no need to provide reasons for the dismissal. However, such a decision:

• must not be taken in offensive or hurtful circumstances; and
• must be taken after a ‘proper hearing’.

Otherwise, the company could be liable to pay damages. Directors may resign at any time, without giving any reason.

In SAs with a management board and a supervisory board:

• members of the supervisory board are dismissed in the same way as directors; and
• members of the management board are dismissed by the supervisory board.

The removal does not put an end to the director’s or manager’s liability for the past. He or she can still be liable if he or she breached directors’ or managers’ duties prior to his or her removal.

An SA’s board of directors sets the company’s strategy and oversees its execution, keeping in mind the social and environmental impact of the business while also acting in the company’s best interests. Apart from matters specifically reserved by law or the articles of association for the general shareholders’ meeting, it has all the authority necessary to carry out the company’s corporate objective. In practice, the managing director exercises most of these powers.

The board of directors must receive all documents and information necessary from the chairman or managing director to carry out its duties. Nonetheless, the board has the exclusive authority to decide on:

• calling general meetings;
• preparing the company’s financial statements and yearly management reports;
• co-appointing directors; and
• designating and removing the managing director and chairman.

In SAs with a management board and a supervisory board, the latter plays a more limited role than a board of directors (eg, it only controls the accounts and does not draw them up). The management board manages the company in the same capacity as a managing director.

The following appointees represent the company in its relationships with third parties:

• the president of an SAS (and any manager empowered to do so by the articles of association);
• the managing director (and any deputy managing director) in an SA with a board of directors; and
• the president of the management board (and any of its members empowered to do so by the supervisory board) in an SA with a management board and a supervisory board.

These legal representatives have all the powers to fulfil the corporate purpose of the company in all circumstances and in the name of the company.

Nevertheless, the legal representatives’ authority to interact with the board of directors, the supervisory board and shareholders may be restricted by the articles of association. These limitations are not enforceable against third parties.

Please see question 3.6 – some matters and decisions are expressly reserved to the directors sitting on the board of directors. The duties, responsibilities and liabilities of directors may vary according to the different company forms. They are regulated:

• by the law as far as an SA is concerned; and
• by the articles of association as far as an SAS is concerned.

Directors have legal duties towards:

• the company;
• shareholders;
• employees; and
• third parties.

They have tax, social, personal data protection, health and security obligations. Each director owes duties to the company to promote its success for the benefit of its shareholders.

Directors or officers may be held liable for the following violations against the company, shareholders and third parties:

• violations of laws and regulations applicable to the company;
• violations of the articles of association; and
• mismanagement.

A director is personally liable to a third party which is not a shareholder if the director’s breach of duty:

• is intentional, wilful and material; and
• does not necessarily concern the exercise of his or her duties.

The director or manager is liable only if the offence that he or she committed causes personal injury to the victim. The liability of a managing director may be incurred individually or jointly and severally, depending on whether the managing director individually or several managing directors together have breached their duties as managing directors.

In addition, directors may be prosecuted for criminal offences committed in the performance of their duties. They may be held liable for certain offences, such as:

• misuse of corporate assets;
• abuse of power; and
• payment of fictitious dividends.

In the event of bankruptcy:

• special measures may be taken against directors or managers in case of mismanagement; or
• the proceedings may be extended to directors or managers in the event of confusion of their assets with those of the debtor or the fictitious nature of the legal entity; and
• the directors may be ordered to pay all or part of the company’s debts.

Shareholders must have the capacity to contract. The following restrictions apply:

• Insane/mentally incompetent persons: A distinction must be drawn between:
• • persons who have been adjudicated incompetent by a court and have had a guardian appointed, as only the guardian can purchase company’s shares on behalf of such persons; and
  • mentally incompetent persons who have not been so adjudicated, who can purchase company’s shares in their own name, although the contract is voidable by them.
• Minors: A distinction must also be drawn between:
• • emancipated minors, who can become shareholders if the company’s structure does not require that shareholders qualify as a merchant (eg, a société en nom collectif (SNC)); and
  • non-emancipated minors, as only their legal representative can purchase company’s shares on their behalf.

Some offences (eg, theft, money laundering), as well as bankruptcy, can lead to a management ban or a prohibition against carrying on a commercial activity. However, this does not prevent a person from becoming a company’s shareholder as long as he or she does not perform any management function.

The articles of association of a société par actions simplifiée (SAS) may also contain an age limitation.

Shareholders enjoy different rights about the company in which they have invested:

• They have a right to information, as follows:
• • They can ask to receive certain documents before the shareholders’ annual general meeting (balance sheet, profit and loss, management report, text of the draft resolutions and statutory auditor’s reports); and
  • They can consult certain documents at the company’s head office.
• They usually have a right to be convened and vote during all shareholders’ meetings, unless they hold securities that do not give them a right to vote.
• They have a right to dividends when the company makes profit and if a decision to distribute dividends has been voted.
• They have the right to defend the company’s interest by:
• • taking legal action to overturn an abusive decision decided during a shareholders’ meeting;
  • seeking a director’s dismissal if he or she committed a serious fault; or
  • requesting the appointment of a temporary administrator when the company faces difficulties. Three conditions must be met for a temporary administrator to be appointed:
  • • the company must be in imminent peril (even serious difficulties are not sufficient);
    • there must have been a failure to act or the directors must have committed acts intended to harm the company’s interests; and
    • the company’s recovery must still be possible, failing which the court will prefer to dissolve the company.

Shareholders exercise their rights through:

• general shareholders’ meetings (ie, the annual general meeting); or
• extraordinary shareholders’ meetings (ie, where it is necessary to modify the company’s articles of association).

In a société à responsabilité limitée (SARL), pursuant to Article L223-27 of the Commercial Code, a shareholders’ meeting may be called by one or several shareholders that:

• own half of the company’s shares; or
• represent at least one-tenth of the shareholders or the company’s shares.

One or more shareholders holding one-twentieth of the share capital may place draft resolutions on the general meeting’s agenda, which will be brought to the attention of the other shareholders of the SARL.

Any shareholder can take legal action to ask for the appointment of a proxy in charge of convening the annual general meeting and set the agenda. Pursuant to Article L227-9 of the Commercial Code, it is not mandatory in an SAS to organise a shareholders’ meeting to take collective decisions; this depends on the provisions of the company’s articles of association. However, some decisions such as a capital increase or a merger must be taken collectively.

In an SA, pursuant to Article L225-100 of the Commercial Code, the shareholders’ annual general meeting must take place at least once a year, within six months of the end of the financial year. If the shareholders’ annual general meeting has not been organised within this timeframe, the public prosecutor or any shareholder can take legal action to order the directors – subject to a fine – to convene the shareholders’ meeting or to appoint a proxy to do so.

Moreover, pursuant to Article L225-105 of the Commercial Code, in any SA whose share capital does not exceed €750,000, any shareholder representing at least 5% of the company’s shares can ask to place a draft resolution on the general meeting’s agenda.

In an SAS, the articles of association specify:

• the decisions which should be taken collectively by the shareholders; and
• the rules for taking these decisions (Article L227-9 of the Commercial Code).

However, the Commercial Code stipulates that certain decisions must be taken by the shareholders collectively – for example:

• approval of annual financial statements and appropriation of profits;
• capital increases, capital reductions and capital amortisation;
• dissolution of the SAS; and
• conversion of the SAS into a company of a different legal form.

In an SA:

• the first members of the board of directors are appointed by the shareholders; and
• those appointed members will then appoint the president of the board of directors.

In an SA with a management board and a supervisory board:

• the members of the supervisory board are designated by the shareholders; and
• they then appoint the management board’s members, one of whom is appointed president.

Therefore, the shareholders and the appointed members of board of directors or supervisory board influence the appointment of the other members.

In an SARL, the managers are appointed by the shareholders.

In an SAS, the company’s management bodies are freely determined in the articles of association. However, the president and the general managers, if any, are appointed by the shareholders.

As a general rule, shareholders do not have specific responsibilities towards the other shareholders or the company. In case of a limited liability company, the shareholders’ liability towards the company is limited to their contribution in the capital. However, shareholders of unlimited liability companies such as civil companies (eg, sociétés civiles immobilières, SNCs) are severally and jointly responsible for the company’s debts.

Moreover, even in limited liability companies, shareholders may also be held liable in some exceptional circumstances. For example, if a shareholder is considered to be de facto managing the company and has committed a mismanagement fault contributing to the company’s insolvency, the corporate veil may be pierced, which means that the shareholders may no longer benefit from the company’s shield and may be held liable for the company’s debts. Such a mechanism is provided for in Article L 651-2(1) of the Commercial Code, which provides as follows:

The action must be brought by the liquidator intervening in the proceedings, who must provide proof of:

• the existence of a management error; and
• its causal link with the increase in the shortfall in assets.

Although there is no exhaustive list, the commercial courts regularly find the following grounds for such fault:

• late declaration of cessation of payments;
• careless management of the company’s assets;
• abusive remuneration; or
• an executive’s lack of interest in the company’s affairs by abstaining from its management.

Also, shareholders may be held liable in exercising their voting rights, in case of majority or minority abuse, if they:

• impose a decision that is contrary to the company’s interest; or
• prevent a vote on a decision that is in the company’s best interests.

In terms of duties, shareholders must:

• comply with the company’s rules and articles of association; and
• act in the best interests of the company.

If a shareholders’ agreement has been concluded, they must also comply with it and honour their commitments.

In principle, the liability of the shareholders is limited to the amount of their contributions.

However, a shareholder may be civilly liable if it causes damages to a third party (eg, a party contracting with the company) by wrongfully exercising its rights, but only if it commits a particularly serious wilful fault which is incompatible with the normal exercise of the prerogatives attached to the shareholder’s status.

Shareholders may also be subject to civil liability in the following circumstances, even though they did not commit a serious wilful fault:

• abuse in the exercise of their voting rights;
• fraudulent dissolution of the company; or
• disparagement of a company’s director at or outside a general meeting.

The liability of the shareholders may be extended if one or more shareholders sign a deed of guarantee or a shareholders’ agreement. In addition, if a shareholder is deemed to be a de facto manager, he or she will bear the same civil and criminal liability as the manager of the SAS.

In terms of criminal liability, shareholders may be held liable for certain violations for example, an overvaluation of contributions in kind under:

• Article L241-3, 1° for a SARL;
• Article L242-2, 4° for an SA; and
• Article L243-1 for a société en commandite par actions (SCA); and
• Article L244-1 for an SAS.

Under French law, where a capital increase results in new shareholders joining the company, the articles of association may provide for a prior approval procedure which must be followed.

In addition, in joint stock companies, if this right is provided for in the articles of association, existing shareholders have a preferential right to subscribe for shares when the capital is increased. The preferential subscription right consists of offering shareholders the opportunity to subscribe to the capital increase in proportion to their existing rights.

By exercising their preferential rights, shareholders avoid having their shareholding diluted.

As this right is not a matter of public policy, shareholders may waive or transfer it. The general meeting that decides on the capital increase may also decide to cancel this preferential subscription right to reserve the capital increase to one or more expressly designated beneficiaries.

The cancellation of the preferential subscription right:

• must be the subject of a special report by the statutory auditor; or
• requires the appointment of an ad hoc statutory auditor if the company does not have one.

Pre-emption clauses may exist either in the articles of association of an SAS or a shareholders’ agreement which provides for the detailed procedure to be followed. It requires a shareholder that wishes to sell its shares to notify the other shareholders of its intention to sell, thereby giving them priority in the purchase of the shares.

The pre-emption right enables the shareholders to:

• control the entry of new shareholders; and
• avoid majority reversal if all shareholders benefit from the right.

However, there are circumstances under which pre-emption rights can be circumvented or waived.

In France, there are rules and regulations that govern the public disclosure of levels of shareholding and stake building. These regulations aim to:

• ensure the transparency in the financial markets; and
• provide relevant information to investors.

The law imposes a disclosure obligation when an investor crosses – whether upwards or downwards – the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 33.33%, 50%, 66.66%, 90%, and 95% in the target’s share capital or voting rights. The target’s articles of association may provide additional disclosure obligations if certain thresholds between 0.5% and 5% are exceeded. In addition, the crossing of any of the 10%, 15%, 20% and 25% thresholds oblige the buyer to publicly declare in sufficient detail the objectives and strategy it intends to pursue over the next six months, including whether it plans to continue to purchase shares and take control of the target.

In France, there are several routes for obtaining working capital. The availability and feasibility of these options may vary depending on the size and nature of the business. Common routes for obtaining working capital in France are as follows:

• Bank loans: These are a common source of working capital. Businesses can approach banks and financial institutions to secure loans based on their creditworthiness and business plans.
• Government assistance programmes: In France, various government-backed programmes and initiatives provide financial support to businesses, including:
• • grants;
  • subsidies;
  • low-interest loans; and
  • issuance of bonds.
• Examples include the following:
• • The Aide à la création ou à la reprise d’une entreprise (ACRE) is a scheme designed to encourage entrepreneurs to set up or take over a business. ACRE beneficiaries enjoy a 12-month exemption from social security contributions. The exemption may be total or partial.
  • The business project support contract (Contrat d’appui au projet d’entreprise (Cape)) allows the economic viability of a project to be tested with the help of a support structure. It provides assistance as well as material and financial resources. In exchange, the entrepreneur undertakes to follow a business startup or takeover preparation programme. The Cape is not an employment contract, but it does afford social protection.
• Factoring: Factoring involves the sale of accounts receivable to a third party at a discount. This provides immediate cash flow for the business. Factoring companies take over the responsibility of collecting payments from customers.
• Trade credit: Negotiating extended payment terms with suppliers can be a way to free up working capital. However, this should be approached carefully to maintain good relationships with suppliers.
• Venture capital and private equity: For high-growth startups and businesses with significant potential, venture capital or private equity investment could be an option. This involves raising funds at a defined valuation in exchange for securities with preferential rights.

Several French and EU subsidies and other forms of aid aim to support investments and growth of business, particularly in innovative sectors.

• Dividends:
• • Advantages: Shareholders can receive a portion of the company’s profits.
  • Disadvantages: Dividends may be subject to withholding tax; the company must have distributable profits.
• Interest payments:
• • Advantages: Fixed income for debt investors.
  • Disadvantages: Interest income may be subject to withholding tax; debt investments carry their own risks.
• Liquidation or sale of assets:
• • Advantages: Realises value from the sale of company assets.
  • Disadvantages: Complex process; potential for market uncertainties.
• Royalties:
• • Advantages: Potential for ongoing income from IP rights.
  • Disadvantages: Dependence on the success of the underlying asset; potential legal and contractual issues.
• Share buybacks:
• • Advantages: Companies can repurchase their own shares, providing a return to shareholders.
  • Disadvantages: Regulatory restrictions; financial considerations for the company.

In France, the principle is that foreign investments are free. However, as an exception, some foreign investments are subject to prior authorisation from the Ministry of the Economy if they meet the following cumulative criteria:

• the presence of a foreign investor;
• an ‘investment transaction’ as defined in Article R151-2 of the Monetary and Financial Code; and
• intervention in a sensitive sector.

The definition of a ‘foreign investor’ is established in Article R151-1 of the Monetary and Financial Code (CMF). It encompasses:

• individuals of foreign nationality or tax residence;
• entities incorporated under foreign law; and
• entities incorporated under French law but that are controlled by one or more of the abovementioned persons or entities.

All persons and entities belonging to the investor’s chain of control (from the direct investor to the ultimate controller) are considered as ‘investors’ within the meaning of these regulations. A foreign investor controlling a target legal entity governed by French law will be subject to a filing requirement if it is active in a strategic sector, even if it is ultimately controlled by a French entity.

Pursuant to Article R151-2 of the CMF, the following are considered investment transactions:

• the acquisition of control, within the meaning of Article L233-3 of the Commercial Code, of an entity incorporated under French law or an establishment registered with the French Commercial Registry, whether or not the investor is part of the European Union/European Economic Area (EEA);
• the acquisition of all or part of a branch of activity of an entity governed by French law, whether or not the investor is part of the European Union/EEA;
• the crossing of the 25% voting rights ownership threshold, directly or indirectly, alone or in concert, if the investor is from outside the EU/EEA; and
• the crossing, directly or indirectly, alone or in concert, of the threshold of 10% of voting rights in a French company whose shares are admitted to trading on a regulated market (which has been definitively adopted).

The Decree of 28 December 2023 supplemented the above list on two levels:

• Foreign investments in branches in France of companies governed by foreign law will be taken into account; and
• The perpetuation of the threshold crossing for listed companies was perpetuated.

Article R151-7, Section I has been rewritten and now provides more concisely that:

According to the notice of the decree, this is a “simplification measure in terms of exemptions for intra-group reorganisations”.

However, this new wording should no longer allow the last exemption previously provided for – that is, the acquisition of control of an entity when the foreign investor had already exceeded the threshold of 25% of voting rights and was already authorised under the foreign investment (IEF) regulations – to come into play.

Finally, the investment must involve an entity incorporated under French law or an establishment registered with the French Commercial Registry that carries out a sensitive business in areas:

• listed in Article L151-3 of the CMF; and
• detailed by Article R151-3 of the code.

Article R151-3, II has been amended to include, among sensitive activities:

• the performance of prison security missions; and
• “the integrity, security or continuity of the extraction, processing and recycling of critical raw materials”.

The list of critical technologies also now includes photonics and technologies involved in the production of low-carbon energy, as provided for in:

• the Decree on Foreign Investment of 31 December 2019; and
• the Order of 10 September 2021.

As a result, research and development activities in these critical technologies will be considered sensitive whenever they are intended to be implemented in one of the sectors covered by the IEF regulations. Previously, the focus was on renewable energies; the term ‘low-carbon energy’ could have a broader meaning.

In October 2023, the French Treasury announced the creation of the IEF Platform as a “dematerialised channel for filing applications for authorisation and requests for prior review”.

The Decree of 31 December 2019 on foreign investments was amended accordingly by the Decree of 28 December 2023. Article 5 of the Decree of 31 December 2019 now stipulates that applications for authorisation and requests for prior review must be submitted to the French Treasury via plateforme-ief.dgtresor.gouv.fr.

In addition, the following should be sent electronically through the IEF Platform:

• the notification required when the 10% threshold is exceeded for listed companies governed by French law;
• the mandatory declaration required as soon as the authorised investment has been made; and
• any correspondence relating to IEFs.

Non-compliance with the authorisation procedure leads to severe sanctions:

• Any undertaking, agreement or contractual clause which directly or indirectly gives rise to a foreign direct investment without the prior authorisation required under the IEF regulations is deemed null and void.
• Injunctions may also be pronounced by the Ministry of the Economy against the investor (ie, filing an application for a regularisation permit, restoring the previous situation at its own expense and/or modifying the investment). Additionally, these injunctions may be accompanied by a penalty payment and/or protective measures.
• Criminal sanctions are also incurred by the investor (ie, five years’ imprisonment, confiscation of the property and assets resulting from the offence).

As part of the international effort to combat money laundering and the financing of terrorism, the French banking regulations have undergone several changes – as recommended by the Financial Action Task Force – that affect the handling of checks. New policy steps aim to:

• reduce anonymity in financial transactions; and
• reinforce the oversight mechanisms required of the financial community.

In addition to implementing EU common positions on terrorists or arms proliferators, France can use its powers under national law to execute asset freeze orders against terrorists. In general, all inward and outward payments must be made through approved banking intermediaries by bank transfers.

There is no restriction on the repatriation of capital, provided that the investment is authorised and is carried out through an approved bank. Similarly, there is no restriction on transfers of profits, interest, royalties or service fees, provided that the investment is authorised and made through approved banks.

Foreign-controlled French businesses:

• must have a resident French bank account; and
• are subject to the same regulations as other French legal entities.

The use of foreign bank accounts by residents is permitted.

Moreover, France has few controls on the use of foreign exchange. For exchange control purposes, foreigners are residents from the time they arrive in France. French and foreign citizens are subject to the same rules. Residents are entitled to an account in a foreign currency with a bank established in France. They can also establish accounts abroad.

Stakeholders play crucial roles in shaping business operations in France. Their interests and interactions influence various aspects of how a business operates. Stakeholder engagement in France has thus become an integral part to business success, transcending the conventional focus solely on profits. By recognising the importance of stakeholders, businesses can:

• harness their collective power, drive innovation and create sustainable value; and
• foster collaboration, enhance their competitive edge and thrive in an ever-evolving business landscape.

An overview of the roles that different stakeholders play is set out below.

Employees: Employees are a fundamental stakeholder group. Their skill, dedication and productivity contribute directly to a company’s success. Employee satisfaction, engagement and effective communication between management and staff are essential for a positive working environment and overall business success. Thus, the social and economic committee (CSE) is the employee representation body within the company. It must be set up in companies with 11 or more employees. In companies with at least 50 employees, the CSE must be informed and consulted and informed on changes to the economic and legal organisation of the company (Article L2312 II-2 of the Labour Code). The CSE has additional responsibilities relating to:

• economic matters (consultations and information on the organisation, management and general running of the company);
• health and safety conditions at work; and
• the management of social and cultural activities (former responsibilities of the works council).

CSE members have a right to an economic alert (Article L2312-63 of the Labour Code) and a right to a social alert (Article L2312-70 of the Labour Code).

Pensioners: As former employees, they may have interests tied to:

• pension plans;
• benefits; and
• the overall financial health of the company.

Creditors: Creditors have a significant interest in the financial stability of the business. Timely repayment of loans, adherence to financial agreements and transparent financial reporting are crucial for maintaining positive relationships with creditors.

Customers: Customers are vital stakeholders as they drive revenue and business growth. Meeting customer expectations through quality products, excellent service and competitive pricing is essential. Engaging customers through surveys, focus groups and online communities can uncover valuable insights, leading to the creation of products and services that truly resonate with their desires.

Suppliers: Suppliers are integral to the supply chain. Dependable suppliers are critical for the continuity of business operations.

‘Business operations’ refers to the activities, processes and systems that a company uses to:

• deliver its products or services to customers; and
• achieve its business objectives.

It includes everything from procurement and production to sales and customer support.

In France, conducting business operations requires careful consideration of various factors to ensure compliance with local regulations and cultural nuances:

• Legal structure: The appropriate corporate legal structure must be chosen depending on the business. It is important to ensure compliance with French company law and understand the implications of each business structure from a legal, tax and labour law standpoint.
• Registration and licensing: The business must be registered with the relevant authorities, such as the French Commercial Registry.
• Employment and tax regulations: Regarding general business operations, stakeholders must understand:
• • the French tax system, including corporate income tax and value-added tax; and
  • employment and social security regulations.
• Language: French is the official language of business and administration. While many business professionals speak English, a basic understanding of French can be beneficial; the Toubon Law of 4 August 1994 provides that a number of information and documents should be in French.
• IP protection: The availability of a corporate name and trademarks to be used should be checked with the National Institute for Industrial Protection. IP rights should also be safeguarded by understanding French IP laws and the ways in which these rights can be registered and protected.
• Banking and finance: A business bank account with a local bank should be opened, and the financial regulations and reporting requirements applicable to the business should be understood.
• Data protection and privacy: Compliance with the General Data Protection Regulation, which is applicable in France, is essential. Also, stakeholders should implement robust data protection measures to ensure the security and privacy of customer and employee data.

The primary accounting reporting obligations in France are governed by:

• French generally accepted accounting principles (GAAP);
• the regulatory framework established by the Autorité des Normes Comptables (ANC); and
• the Commercial Code.

Key accounting reporting obligations in France include the following:

• Financial statements: French companies must generally prepare annual financial statements, including:
• • a balance sheet;
  • an income statement; and
  • notes to the financial statements.
• Annual report: Companies in France typically prepare an annual report that includes:
• • the financial statements;
  • a management commentary; and
  • other relevant information about the company’s performance and financial position.
• Audit requirements: Larger companies and certain entities must have their financial statements audited by a statutory auditor. The auditor’s report is then included in the company’s annual report.
• Publication requirements: Certain companies – especially those listed on stock exchanges – may have obligations to:
• • publish their financial statements and annual reports in the Official Gazette; and
  • make them available to the public.

Directors in a société anonyme (SA) play a crucial role in ensuring compliance with accounting reporting obligations in France. Their responsibilities extend to:

• overseeing the financial reporting process;
• ensuring accuracy and transparency; and
• making decisions that impact the company’s financial statements.

Key aspects of the role directors play in fulfilling accounting reporting obligations include the following:

• Oversight of financial reporting: Directors are responsible for overseeing the preparation of the company’s financial statements. They must ensure that the financial information accurately reflects the company’s financial position and performance in accordance with applicable accounting standards.
• Approval of financial statements: Directors typically review and approve the annual financial statements before they are presented to shareholders. These include:
• • the balance sheet;
  • the income statement; and
  • accompanying notes.
• Internal controls: Establishing and maintaining effective internal controls is a key responsibility of directors. Internal controls help to ensure the reliability of financial reporting and prevent errors or fraudulent activities.
• Disclosure and transparency: Directors play a role in ensuring that the company provides adequate disclosure in the financial statements and annual report. This includes information on:
• • significant accounting policies;
  • related-party transactions; and
  • other relevant details.
• Risk management: Directors are involved in assessing and managing financial risks that could impact the accuracy of financial reporting. This includes identifying and mitigating risks related to:
• • financial processes;
  • transactions; and
  • external factors.

The accountants’ tasks include the following:

• Financial statement preparation: Accountants are responsible for preparing the financial statements in accordance with the relevant accounting standards (French GAAP or International Financial Reporting Standards). They:
• • compile financial data;
  • create reports; and
  • ensure the accuracy of financial information.
• Maintaining books of accounts: Accountants keep detailed records of financial transactions, ensuring that all relevant information is properly recorded and organised. This includes recording income, expenses, assets and liabilities.
• Internal controls: Accountants contribute to the establishment and maintenance of effective internal controls. These controls help to prevent errors and fraud, ensuring the reliability of financial information.
• Financial analysis: Accountants analyse financial data to identify trends, variances and areas of concern. This analysis helps management and stakeholders to make informed decisions about the company’s financial health.

The auditors’ tasks include the following:

• Independent verification: Auditors provide an independent and objective assessment of the company’s financial statements. They verify the accuracy and fairness of the financial information presented by the company.
• Compliance audit: Auditors ensure that the financial statements comply with applicable:
• • accounting standards;
  • legal requirements; and
  • regulatory frameworks.
• They also assess the company’s adherence to internal policies and procedures.
• Risk assessment: Auditors identify and assess financial risks that could impact the accuracy of financial reporting. This includes:
• • evaluating internal controls; and
  • making recommendations for improvements.
• Audit report: After completing the audit, the auditors issue an audit report that expresses their opinion on the fairness of the financial statements. This report is typically included in the company’s annual report.

When it comes to accounting reporting in France, there are several key concerns and considerations that businesses and professionals should keep in mind. These considerations encompass various aspects, including:

• legal requirements;
• financial standards;
• tax regulations; and
• broader economic factors.

Key concerns and considerations include the following:

• Compliance with French GAAP or IFRS: Ensure that financial statements are prepared in accordance with either French GAAP or IFRS, depending on the company’s requirements and obligations.
• Auditing requirements: Determine whether the company is subject to mandatory audit requirements. Larger companies and certain entities are often required to undergo an annual audit by a statutory auditor.
• Consolidation requirements: If the company is part of a group, assess whether consolidated financial statements are required. Groups may need to prepare consolidated accounts to provide a comprehensive view of the financial position and performance of the entire group.
• Related-party transactions: Disclose and appropriately account for any related-party transactions. Transactions with entities or individuals related to the company may require special attention and disclosure.
• Environmental, social and governance (ESG) reporting: Be aware of the increasing emphasis on ESG reporting. Companies may need to disclose information related to their ESG practices.
• Communication with stakeholders: Effectively communicate financial information to stakeholders, including shareholders, regulators and creditors. This involves providing clear and transparent information in financial statements and annual reports.
• Training and professional development: Keep accounting and finance professionals updated through ongoing training and professional development programmes to ensure awareness of the latest accounting standards and regulatory changes.

Company corporate executives may:

• receive remuneration in return of their duties; or
• perform them free of charge (société par actions simplifiée (SAS), société à responsabilité limitée (SARL)).

Remuneration may be set:

• in the articles of association;
• by the supervisory board or board of directors;
• through a collective decision of the shareholders; or
• at the general meeting.

In France, depending on the form of the company, corporate executives’ compensation is determined by:

• the articles of association;
• the board of directors;
• the shareholders; or
• a specific corporate body.

However, the articles of association can provide that these functions are performed free of charge.

SARL and entreprise unipersonnelle à responsabilité limitée (EURL): Remuneration of the manager(s) may be either set out in the articles of association or decided by the shareholders. In the case of a EURL, the sole shareholder must vote on the remuneration. The terms of remuneration will be set out in the articles of association or by decision of the shareholders and the same applies to the allocation of remuneration.

SAS/société par actions simplifiée unipersonnelle (SASU): The remuneration of the president and general manager(s) is either set out in the articles of association or decided by the shareholders.

SA: The rules differ as follows:

• The directors receive a fixed annual amount in directors’ fees. The annual amount is decided by the shareholders’ meeting and the board of directors distributes it among its members. In addition to attendance fees, directors may receive exceptional remuneration for any assignments that they undertake. The chairman of the board is the only person entitled to receive, in addition to directors’ fees, exceptional remuneration for his or her duties as chairman, which may be:
• • fixed;
  • proportional; or
  • a combination of both.
• This remuneration is decided by the board of directors.
• The system for remuneration of supervisory board members is the same as that for société anonyme (SA) directors.
• Each member of the management board receives remuneration for his or her duties, which is set by the supervisory board
• The remuneration of the managing directors is set by the board.

French companies in the form of an SA are subject to disclosure requirements regarding corporate executive compensation which must appear in the report to the annual general meeting. This report must provide an account of:

• the total remuneration and benefits of all kinds paid during the past financial year to each director; and
• the amount of remuneration and benefits in kind received by these directors from companies controlled by the company concerned (Article L225-102-1 of the Commercial Code, as amended by the New Economic Regulation Act.

In addition, all SAs and sociétés en commandite par actions, whether listed or not, must produce an annual corporate governance report drawn up by the board of directors or supervisory board, which must be presented to the general meeting.

This obligation was defined by Order 2017-1162 of 12 July 2017, issued in application of the Sapin 2 Law. The corporate governance report is drawn up by the board of directors and presented along with the management report to the general shareholders’ meeting. This report includes information on corporate governance, as well as numerous items relating to remuneration. The enactment of Ordinance 2019-1234 introduced new provisions on executive compensation policy in listed companies as follows:

• the inclusion in the remuneration policy of all corporate officers, including directors (who previously were not covered, unlike supervisory board members);
• publication of the remuneration policy on the company’s website on the business day following the vote for (at least) the entire period during which it applies; and
• an express penalty of nullity in the event of the allocation or payment of remuneration items that do not comply with the approved remuneration policy.

In France, for listed companies, the financial market authorities:

• monitors:
• • the financial information provided and information on the financial products provided to investors; and
  • the ways in which such companies are marketed;
• ensures that financial intermediaries comply with their professional obligations; and
• monitors financial markets and the conduct of market participants.

All limited companies, including listed corporations, have the choice between:

• a unitary formula with a board of directors; or
• a two-tier structure with a management board and a supervisory board based on a distinction between management functions and the supervision of this management.

Moreover, companies with a board of directors have a choice between separating and combining the offices of president and general manager. In France, most companies now have a one-tier board or a unitary board. Furthermore, the Commercial Code prohibits the number of directors bound to the company through a contract of employment from exceeding one-third of the board’s members. Moreover, boards are almost exclusively made up of non-executive directors. As a result of the significant powers conferred on it by law, the board of directors in its entirety must guarantee the balance that is essential for good governance.

Under French law, the chairman of the board of directors has an essentially administrative and leadership role.

In a two-tier structure, the supervisory board controls and monitors the management board.

The articles of association of an SAS offer significant flexibility and may provide for a supervisory committee or an executive committee. They may also provide for external audits to be carried out on a regular basis on legal, accounting and social issues. The terms and conditions of these controls are freely determined by the articles of association, apart from regulated agreements, which are governed by law.

Key concerns and considerations about executive performance and compensation in France include the following:

• Variable compensation and bonuses: Variable compensation components such as bonuses, stock options and warrants are common in executive packages and subject to strict legal regulation. Stakeholders must ensure that these align with both company performance and legal requirements
• Transparency: Transparency in executive compensation is crucial. Disclosures in annual reports and shareholder communications should provide a clear and comprehensive view of how executive pay is determined and aligned with company performance.
• Consultation with employee representatives: Remuneration may be freely set by the company, but prior consultation with employee representative bodies is required in the event of the introduction of a collective remuneration plan or modification of this plan (including its termination).

In France, employment law affords employees a good level of protection. Nevertheless, this legal environment is constantly changing because of government reforms and case law evolution.

First, all non-EU citizens need a work permit to work. Employers and employees are free to negotiate the terms and conditions of their employment relationship. However, employees have various minimum rights under the law, regardless of any provision to the contrary in their employment contract. Usually, employees work 35 hours per week. Only hours worked at the request of the employee’s superior will be regarded as overtime. Severance payments are awarded only:

• if the employee has the required minimum length of service; and
• pursuant to:
• • the law;
  • the relevant applicable collective bargaining agreement provisions; or
  • the employment agreement.

Statutory rest periods are:

• 24 hours a week; and
• 11 hours a day.

Annual leave in France is 25 paid days a year. In addition, collective agreements may provide for additional leave for a certain length of service or for special family circumstances (eg, the death of a relative).

In accordance with the Labour Code, the initial trial period is limited to a maximum of:

• four months for managers;
• three months for technicians; and
• two months for blue-collar workers.

However, collective bargaining agreements may provide for a different or longer trial period. Working time provisions in French employment contracts must always be drafted with the utmost care.

Trade unions are recognised in France. Their main objective is to defend the common professional interests of a group of people who share the same or similar professions. In 2019, 9% of employees were unionised, according to Ministry of Labour figures. In other European countries, the figures are totally different. Since the post-war years, the rate of unionisation has been falling steadily:

• 30% of French employees were unionised in 1949;
• 20% were unionised in 1969; and
• just over 10% are unionised today.

Behind this low rate of unionisation lie major disparities according to trade, job function and age. France is one of the least unionised countries in the European Union, falling far below the EU average (23%), according to figures from the Organisation for Economic Co-operation and Development. For example, in 2021:

• 69% of employees in Sweden were unionised;
• 16.7% of employees in Germany were unionised; and
• 58.8% employees in Finland were unionised.

When a company employs more than 50 employees, trade unions may be involved in a mass redundancy procedure to negotiate an ‘employment saving plan’ or social plan. Strong unions negotiate on behalf of workers to influence decisions on benefits, wages and working conditions. This ensures that when it comes to decisions that directly affect workers’ incomes, their voices are heard and considered. Close attention must be paid to safety and a deep comprehension of the legal requirements that French employers should meet to successfully navigate this marketplace.

Under the Labour Code, the employer must establish a real and serious reason to dismiss an employee. It may be:

• a personal reason – notably:
• • fault;
  • poor performance; or
  • the disability of the employee, where the employer is unable to relocate/deploy him or her to another position or make reasonable adjustments to the post; or
• an economic reason, such as economic difficulties.

The stages in the individual dismissal procedure are as follows:

• The employee is formally invited to a preliminary meeting.
• At least five business days after the formal invitation, a preliminary meeting is held during which the employer explains the reasons for the contemplated dismissal and listens to the employee’s explanation.
• The dismissal letter mentioning the ground for dismissal must be sent by registered letter with acknowledgement of receipt to the employee at least two business days after the meeting.

A special procedure (ie, involvement of the works council, meeting and notification of the dismissal) applies in the case of a dismissal for economic reasons involving at least two employees or when the dismissal concerns a ‘protected employee’ (eg, members of the social and economic council or trade union delegates). The procedure set out in Article 1233-8 of the Labour Code applies only to situations where the dismissal of more than 10 employees is being considered.

In case of mass redundancies (more than 10 employees in a company employing at least 50 employees), the following requirements apply:

• The employer has a duty to inform and consult the works council, involving at least two meetings (the works council may be assisted by an accountant in some cases). The duration of the consultation is regulated.
• An ‘employment saving plan’ (a social plan providing real alternatives and social measures accompanying the redundancy, such as redeployment, redeployment leave and/or training) should be drafted. There are two options for implementing this plan:
• • through a collective agreement negotiated with trade unions; or
  • unilaterally by the employer (only in the absence of trade unions in the company or if no agreement is found, and then only after consultation with the works council).
• The employment saving plan should then be sent to state authorities for validation (if agreed with trade unions) or homologation (if unilaterally drafted by the employer). If the state authorities do not agree with the plan, the employer may present another draft after consulting with the works council.

In groups with fewer than 1,000 employees in Europe or companies under judicial reorganisation or liquidation (irrespective of their size), the employer must propose a contrat de sécurisation professionnel (CSP) – a statutory outplacement programme – to employees considered for economic dismissal. If an employee accepts the CSP, he or she will have better rights in terms of unemployment benefits but will not be entitled to a notice period. (An equivalent amount will be paid by the company to the unemployment administration.)

There is a procedure to follow, as the employer is obliged to:

• inform the work administration;
• consult with employee representatives;
• look for alternative work for the employees who are to be dismissed within the company or the group; and
• offer the employees a reclassification scheme to help them find alternative employment.

Key strategies to attract international talent in France include:

• the new work long stay visas and residence permit or talent passport;
• the French tech visa, which is specifically tailored to the French tech ecosystem;
• shifting immigration policies;
• targeted incentives for specific occupation shortages;
• the offer of financial incentives and better benefits;
• facilitation of intra-company transfers;
• bilateral social security agreements; and
• expatriate tax systems.

The 35-hour workweek is one of the main principles of French labour law. Any hours worked beyond this threshold are considered overtime and typically require additional compensation.

The law places strong emphasis on paid leave, granting employees a minimum of five weeks of paid vacation per year. If ill, employees in France are entitled to paid sick leave. The duration and conditions vary, but generally employees receive a percentage of their salary during this period. Additionally, employers must provide a safe and healthy working environment, adhering to strict health and safety regulations. The minimum wage is set by law, with:

• equal pay for work of equal value;
• regular payment of wages; and
• protection in the event of the employer’s insolvency.

Since 1 January 2024, the gross minimum wage is €1,766.92 per month (€1,398.70 net).

Another essential component of French labour law is job security. Employers are subject to strict regulations in France when it comes to ending employment agreements. The procedure for dismissing employees without cause is intended to protect their rights, and can thus be challenging and complex. For dismissal for personal reasons, it is important to have a valid reason for termination, which may include personal circumstances or misbehaviour. Dismissal for economic reasons must be evidenced by financial difficulties, which must be justified and clearly documented.

Employees participate in the collective determination of working conditions, notably through representative trade unions. The law determines the conditions under which collective agreements may set standards that differ from those set out in the law and regulations. If the law so permits, in the event of a conflict of standards, the most favourable may apply to the employee. Similarly, a collective agreement that is less favourable than the contractual stipulations may take precedence over the latter if the law so provides.

On of the primary taxes that individuals in France must pay is income tax. In 2024, income tax can be as high as 45% for higher incomes, with an additional 3% to 4% surcharge for those earning above a certain threshold.

Apart from income tax and capital gains tax, another significant aspect of taxation in France is social charges. These charges are levied on various forms of income and cover social security contributions. The rate effective since 1 January 2019 stands at 17.2%, which includes healthcare coverage along with other benefits according to the French legal administrative website.

France also has an annual wealth tax known as ‘impôt sur la fortune immobilière’, which focuses solely on real estate assets rather than overall wealth accumulation. Individuals with real estate assets valued above a certain threshold are subject to a progressive scale ranging from 0.5% to 1.5% according to the French legal administration.

Inheritance tax is levied on the estate of a deceased person.

Investment income, including dividends received from French companies or foreign entities, is subject to taxation in France at a flat rate of 30%, consisting of:

• 12.8% income tax; and
• the remaining 17.2% as social charges.

In France, the taxation of investment income is an important consideration for individuals looking to invest or earn passive income.

France boasts competitive taxation of research and temporary exemption arrangements for innovative startups and new businesses. Businesses that spend money on research may be granted a tax credit which can be offset against their corporation tax. All industrial, commercial or agricultural businesses taxed based on their actual profits are eligible for the tax credit, regardless of business structure. The research tax credit (CIR) is designed to encourage companies to carry out research and development by covering part of the expenses incurred. The rate of this tax credit varies according to the company’s location. The CIR is available to any industrial, commercial or agricultural company, whatever its size or legal form, provided that:

• it is subject to a real (normal or simplified) corporate income tax or income tax regime; or
• it is tax exempt but falls within one of the following categories:
• • a young innovative company; or
  • a company created to take over a company in difficulty.

The research tax credit applies to:

• fundamental research (experimental or theoretical research to acquire new knowledge, with no particular application or use in view);
• applied research (to determine possible applications for the results of fundamental research); and
• experimental development activities (systematic work based on knowledge gained from basic and applied research).

Moreover, the Aide à la création ou à la reprise d’une entreprise (ACRE) is a scheme designed to encourage entrepreneurs to set up or take over a business (eg, where a micro entrepreneur launches an e-commerce business). ACRE beneficiaries benefit from a 50% exemption on their social security contributions until the end of the third calendar quarter following the date of company registration.

In certain areas, setting up a business provides an entitlement to exemption or relief on taxes on profits for the initial years of operation. To benefit, the business operations must be:

• commercial;
• industrial;
• craft-based; or
• non-commercial.

In theory, a full or partial exemption from tax on profits is granted for five years as from the date on which the business is set up.

Businesses and individuals should be aware of various key concerns to ensure compliance and optimise their tax positions. Key concerns and considerations related to tax in France include the following:

• Corporate income tax: Corporate income tax is levied on company profits. This tax, which exists in most countries, was created in France by the Decree of 9 December 1948. The standard rate was 50% until 1985, before falling to 33.3% in 1993. As of 1 January 2022, it stood at 22%. In 2023, this reduced rate applied to the portion of profits up to €42,500 and a rate of 25% above this threshold. In 2024, the corporate income tax rate is 25% for all companies, regardless of turnover.
• Tax residency: Residency plays a significant role in determining tax obligations. If you reside in France as your main home or spend more than 183 days in France within a calendar year, you will be considered a resident for tax purposes.
• Worldwide income: Once you become a resident of France for tax purposes, you are required to declare your worldwide income on your French tax return. This includes income from:
• • employment;
  • self-employment activities;
  • rental properties abroad (if any);
  • investments held outside of France; and
  • any sources of income.
• Wealth tax: Individuals with substantial net assets may be subject to French wealth tax (impôt sur la fortune immobilière). The threshold for this tax varies each year and it primarily targets real estate holdings in France. Seek professional advice to determine whether you are liable for this tax and how to manage your assets accordingly.

M&A transactions are primarily governed by:

• the Civil Code, which sets out general rules applicable to various agreements and all types of companies; and
• the Commercial Code, which sets out specific rules pertaining to:
• • commercial companies/activities; and
  • the acquisition of companies, assets and business activities.

The Labour Code also provides for a number of requirements to be complied with – in particular, the prior information and consultation of employee representatives through the social and economic committee – as part of an M&A transaction.

Further, M&A transactions may be subject to:

• the prior review of the French Competition Authority or the European Commission under applicable merger control regulations, depending on the turnover of the parties;
• the prior approval of other relevant French regulatory authorities in specific industries; and/or
• the scrutiny of the European Commission under the newly enforceable EU foreign subsidies regulations.

In addition, investments in sensitive industries require the prior approval of the Ministry of Economy under the foreign direct investment (IEF) regulations set out in the Monetary and Financial Code.

As a matter of principle, financial relationships between France and foreign countries are unrestricted and even encouraged. Foreign buyers may invest in and acquire a French business or all types of stocks or securities issued by a French company, subject – where applicable – to:

• the IEF regulations;
• the EU foreign direct investment screening cooperation-based regulations;
• the EU foreign subsidies regulations; and/or
• the EU sanctions regime.

Comparable sector-specific rules may also apply.

Certain regulations applicable to specific sectors may:

• constrain or prevent foreign investors from controlling French entities operating in regulated sectors, such as the press industry; or
• require the prior approval of regulatory authorities, such as in the banking and insurance sectors, where an M&A transaction may be subject to the prior approval of the French Prudential Supervisory Authority, which oversees:
• • the stability of the financial system; and
  • the protection of customers.

Finally, some atypical entities – such as agricultural cooperative companies or government-owned companies – may be subject to further specific regulations.

Should an M&A transaction involve a listed company, French stock market regulations – as outlined in the Commercial Code, the Monetary and Financial Code and the General Regulation of the French Financial Markets Authority – will apply.

Parties must always act with good faith and loyalty during the negotiation phase of an M&A transaction. As such, they are bound, among other things, by:

• legal pre-contractual information; and
• basic discretion.

While they remain free to decide whether to proceed with, or terminate the negotiation of, a transaction until the execution of binding agreements, the parties must always act in good faith.

M&A transactions can consist of share deals, in which a buyer purchases or subscribes for shares of the target. If the buyer does not acquire 100% of the target’s share capital, the parties will often execute call and put option agreements allowing the buyer to purchase the remaining share capital of the target later.

In public M&A transactions, generally, if a person or a group of persons acting in concert acquires more than 30% of the share capital or voting rights of a target listed on Euronext Paris, or holds between 30% and 50% of the target’s share capital or voting rights and increases its stake by at least 1% within 12 months, it is required to launch a tender offer over the entire issued share capital and securities of the target. On Euronext Growth, a tender offer is generally mandatory only when the threshold of 50% of the target’s share capital or voting rights is crossed. M&A transactions can also be carried out by merging the target (the absorbed company) with the buyer (the merging company). The absorbed company ceases to exist as a legal entity, transferring all its assets and liabilities to the merging company.

Finally, M&A transactions can also include asset deals, in which assets, goodwill or business activities are purchased.

Most combinations with foreign groups take the form of a share purchase or exchange, or occasionally a contribution of French assets in exchange for shares in a foreign company. Transfers of assets are generally preferred for the sale of smaller businesses. Mergers and contributions are more frequently used:

• for internal reorganisation purposes; or
• in the case of strategic combinations of companies or businesses or joint ventures.

Spinoffs are generally used when necessary to carve out a specific business to be sold from the overall activities of a seller.

Mergers and acquisitions are regulated from a competition perspective by the Competition Authority, which is an independent administrative authority responsible for enforcing competition law. The Competition Authority assesses the impact of the proposed transaction on competition in the relevant markets. The goal is to prevent mergers that may substantially lessen competition in France.

The Competition Authority has jurisdiction in international mergers where all of the following thresholds are met, irrespective of the nationalities of the parties and/or the ‘centre of gravity’ of the transaction (ie, the authority will not look at the location of the business headquarters or its corporate documents):

• The parties to the merger have a combined annual worldwide turnover, exclusive of tax, of more than €150 million;
• The French annual turnover, exclusive of tax, achieved individually by each of at least two parties to the merger exceeds €50 million; and
• The European merger control thresholds are not met.

In France, mergers and acquisitions are regulated from an employment perspective by both labour and corporate law. Generally, where a business is acquired through a share or asset sale, the management of the target must inform and/or consult the employees and, if applicable, the CSE.

Under the terms of Article L2312-8 of the Labour Code, projects concerning the organisation, management and running of the company must be preceded by consultation of the CSE in companies with at least 50 employees. This applies to any project that will modify the economic or legal organisation of the company. ‘Consultation’ means that the CSE must give its opinion (positive or negative) – it being specified that a negative opinion is not an obstacle to the operation (the CSE has no right of veto). The consultation process must take place between one and three months before any binding agreement is signed. Failure to consult the CSE may result in a criminal offence of hindrance, punishable by fines.

The Hamon Law (Law 2014 856 of 31 July 2014) obliges small and medium-sized employers to inform employees directly before a proposed sale of at least 50% of the shares or the business of the employer, with a view to allowing them to make an offer to buy the shares or business. No priority or pre-emption right is granted to employees; the seller has no obligation to consider an offer made by an employee and the refusal to accept an offer need not be justified. Moreover, this obligation applies even where no consultation of the CSE is required. Companies which have no CSE consultation requirement (companies with fewer than 50 employees according to the Labour Code) must inform all employees of the proposed sale at least two months before any binding agreement related to the sale is signed. The sale cannot take place before the end of this two-month period unless all employees have informed the company that they have waived their right to make an offer. Since Law 2015-990 of 6 August 2015 was introduced, only the sale of enterprises is covered, to the exclusion of other property transfer transactions (eg, mergers, contributions, exchanges), which were covered under the previous regime.

Companies with a CSE and with between 50 and 250 employees which fall into the category of a small or medium-sized enterprise (ie, companies with a turnover below €50 million or a total balance sheet of €43 million) must inform employees of the proposed sale at the latest when the company’s CSE is informed and consulted on the proposed sale.

Non-compliance with these provisions is sanctioned by a civil fine of up to 2% of the value of the sale.

Issues that a foreign investor should be aware of will be determined by:

• the specificities of the transaction;
• the business and size of the target; and
• the number of shareholders and employees.

However, some key issues in due diligence of a French target include:

• employment law;
• compliance issues – especially in large companies since the entry into force of:
• • the Sapin II Law relating to transparency and anti-corruption; and
  • the Duty of Vigilance Law; and
• data protection.

One Civil Code principle is the obligation on the parties to negotiate in good faith. This duty applies both in pre-contractual negotiations and during performance of the contract. The duty includes the obligation to inform the buyer of relevant important facts that the buyer could not discover on its own. Also, where negotiations are at an advanced stage, giving rise to a reasonable expectation that the transaction will proceed, the unilateral termination of the negotiations by a party may give rise to damages if such termination is characterised as unfair/wrongful. It is crucial to consider whether French foreign investment law authorisation applies to the contemplated transaction, given:

• the very broad scope of the law; and
• the potential sanctions in case of non-compliance.

There is also a French mandatory merger control regime (in addition to the EU merger control rules) which must be considered in relation to an acquisition in France.

Other regulatory or governmental approvals must be evaluated on a case-by-case basis, depending notably on:

• the relevant industry; and
• the deal structure (eg, in case of the transfer of operational permits).

It is also vital to understand that an asset deal in France which involves the transfer of clientele qualifies as a transfer of goodwill which is subject to specific rules.

There are obligations to:

• consult the CSE prior to a transaction; and/or
• inform the employees, who have the right to make an offer under the Hamon Law.

Article 324-1 of the Criminal Code states that ‘money laundering’ is the act of:

• facilitating by any means the false justification of the origin of the assets or income of the perpetrator a crime or offence that has procured for the perpetrator a direct or indirect profit; or
• assisting in the investment, concealment or conversion of the direct or indirect proceeds of a crime or offence.

Money laundering is punishable by:

• five years’ imprisonment; and
• a fine of €375,000.

Also, the Criminal Code sets out provisions against other financial crimes. For example, where a person holding public authority or charged with a public accountant, a public depositary or one of his or her subordinates destroys, misappropriates or steals an act or title, or public or private funds, or effects, coins or securities in place, or any other object which was given to him or her, this crime is punishable by:

• 10 years’ imprisonment; and
• a fine of €1 million.

The fight against money laundering and terrorist financing in France seeks to strike a fair balance between:

• the preventive aspect, represented by financial and non-financial sector professionals and supervisory authorities; and
• the repressive aspect, represented by the investigating and prosecuting authorities.

The prosecution of complex cases of money laundering is the responsibility of specialised courts. Since 2004, the eight specialised inter-regional courts have had jurisdiction over cases involving:

• organised crime; and
• particularly complex financial crime.

In charge of the most complex cases, these courts have benefited from a significant increase in their staff.

The Law on Transparency, Action against Corruption and the Modernisation of Economic Life, known as the Sapin II Law, has considerably strengthened the means of combating corruption. It led to the creation of the French Anti-corruption Agency.

Under the Pacte Law, statutory certification of accounts by an auditor is compulsory only if the company exceeds two of the following thresholds:

• €8 million in sales;
• a balance sheet of €4 million; and
• 50 employees.

The law also abolishes the requirement for an auditor in the case of:

• unlisted limited companies, sociétés par actions simplifiée and sociétés par actions simplifiée unipersonnelle where they control or are controlled by more companies; and
• partnerships limited by shares (sociétés en commandite par action).

The appointment of an auditor becomes mandatory as soon two of the three thresholds mentioned in question 12.1 are crossed. The statutory auditors are appointed for a six-year mandate by the ordinary general meeting and cannot be removed before the end of their mandate.

Their appointment ends:

• upon the expiration of the mission (there is no tacit renewal);
• in case of non-renewal requested by the shareholders during the annual general meeting;
• if the auditor dies or is struck off from the professional body; or
• if a company changes its legal form, even though its mandate has not ended.

Companies which must establish consolidated accounts must designate two statutory auditors independent from each other.

When the statutory auditor’s mandate comes to an end, the company has the right not to renew it. The term of the mandate is six years, renewable, or three years in the case of voluntary appointment.

Article L821-54 of the Commercial Code forbids any interference by the auditor in the management of the company.

There are rules and regulations that govern the remuneration of auditors, particularly in relation to the provision of non-audit services. These aim to ensure the independence and objectivity of the audit function. The regulations primarily derive from EU directives and French law, and oversight is exercised by regulatory bodies. The most recent directive is Directive 2014/56/EU, which has been implemented into national law. The Pacte Law of 22 May 2019 addresses auditor independence and governs the provision of non-audit services, among other things.

The High Council for Statutory Auditors, through its recommendations, seeks to ensure the independence and integrity of auditors. Moreover, France aligns its audit regulations with international standards, including the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Boards. The ISA include principles relating to independence and non-audit services.

Thus, while regulations and recommendations emphasise the importance of auditor independence and set out guidelines on the provision of non-audit services, specific caps on remuneration for such services may not be explicitly defined. Instead, the focus is on ensuring that the auditors maintain their objectivity, integrity and independence.

‘Voluntary cessation of activity’ refers to companies which have not experienced a ‘cessation of payments’, in which case they would need to file for bankruptcy. Formalities must be carried out to dissolve the company. In the month following the decision to dissolve the business and appoint a liquidator, the liquidator must declare the voluntary dissolution to formalites.entreprises.gouv.fr. The liquidator will:

• sell any movable property and buildings owned by the company;
• pay the creditors; and
• allocate any available balance left over among the shareholders according to their respective contributions.

In the case of a company that is exclusively held by another company, the best way to wind up is through a dissolution without liquidation – a universal transmission of assets (TUP). The constraints are light and relate mainly to the protection of creditors’ interests, as the major consequence of a TUP is the transfer of all assets and liabilities of the dissolved company into the hands of the sole shareholder.

The termination of business activities in France involves several legal, financial and practical considerations. It is crucial to follow the relevant regulations and procedures to avoid legal issues and ensure a smooth exit.

Key concerns and considerations include the following:

• Legal structure: Determine the legal structure of the business and understand the specific regulations governing its dissolution and winding up.
• Employee consultation: If the company has over 50 employees, French law may require consultation with employee representatives or an employee works council before making any decisions.
• Tax obligations: Inform the relevant tax authorities about the termination and follow the required procedure.
• Intellectual property: Safeguard the IP rights and consider whether any licences or agreements should be terminated or transferred.
• Notice periods and contracts: Comply with French labour laws on the termination of employment contracts and the requisite notice periods for employees. Check whether there are any specific contractual obligations with suppliers, landlords or other business partners that need to be addressed.

Once the company has been dissolved, the assets must be liquidated and then expunged.

Ten years ago, France was on the verge of falling behind Germany and the United Kingdom. By adopting a more coherent economic and fiscal strategy, consolidating its strengths and attempting to correct its weaknesses, France has regained the confidence of investors to the point where it has overtaken its competitors. For the fifth year in a row, France retained its number-one position in the European attractiveness rankings for 2023. For several years, the United States has been the first foreign investor in France, ahead of Germany. Numerous government subsidies and incentives have been established to promote and attract foreign direct investment in France.

However, there has been considerable political uncertainty since the results of the European elections in June prompted the French government to dissolve the National Assembly and hold a snap election shortly thereafter; a new government was appointed very recently. The open question is whether a shift in the political agenda will directly affect the attractiveness of the French economy.

Two years ago, the France 2030 investment plan was unveiled. Worth €54 billion – of which €21 billion has already been invested – the plan aims to:

• address France’s industrial lag;
• promote massive investment in innovative technologies; and
• support the ecological transition.

Five hundred and fifty nine of the projects listed in the 2023 Bilan Report on International Investment in France, published by Business France, concern priority segments targeted by France 2030. In 2023, these projects came from 56 different countries, although the vast majority originated from Europe (65% of projects and 56% of jobs). The United States remains in first place, with 305 projects (17,000 jobs), ahead of Germany, with 272 projects (6,815 jobs). The United Kingdom rounded out the list of countries investing in France, with 173 projects (4,435 jobs).

Since Autumn 2023, France has been rolling out a ‘Make it Iconic’ campaign to promote the France brand, drawing on its strengths in terms of:

• industrial and economic dynamism;
• innovation potential; and
• cultural and artistic vitality.

Investors and talents from all over the world are invited to come and create in this country of innovation.

Doing business in France can be rewarding but may also take time. Here are some tips for doing business in France, along with potential sticking points to be aware of:

• Building relationships is crucial in France. Take the time to understand the French business culture, which may differ across regions and industries. While English is widely spoken in business settings, a basic understanding of French can be beneficial and appreciated. Negotiations may also take time in France and decisions are often made collectively. Be patient and focus on building consensus. Be aware of the importance of hierarchy. Hire locally.
• France has bureaucratic processes. To do business smoothly in France, companies must be prepared to:
• • navigate administrative procedures; and
  • ensure compliance with French regulations.
• Moreover, having a local office or representation can enhance your credibility and facilitate relationship-building with clients and partners.
• If the business involves a tech or innovative project, delve into the dynamic French startup ecosystem by exploring incubators and innovation hubs in the Paris region – and key players in those hubs, such as Station F, France Digitale and BPI France – and explore the French tech startup ecosystem. Be aware of the French and EU subsidies and financial aid aimed at supporting investments and the growth of business, in particular in the innovative sectors – notwithstanding the very attractive French tax research credit system.