1. Société Anonyme (SA)
The SA is one of the two most common types of corporations in France. For all practical purposes it may be compared to a corporation in the United States of America.
1.1 General Structure
The stated capital of a SA is divided into shares. As a matter of principle, the shareholders’ liability for the debts and obligations of the SA is limited to their capital contributions. A SA must have at least seven shareholders, and the law sets no maximum. A shareholder may be either a legal entity or an individual, a French national or a foreign national.
If the SA trades publicly, the capital must be at least 225,000 €. If the SA is not listed on a stock exchange, the stated capital must be at least 37,000 €. Only the latter form of SA will be discussed below as listed corporations would require significant specific developments and they are generally not used as an initial investment vehicle.
The shareholders’ contributions may be made in cash or in kind, such as tangible assets or intellectual property, but not by way of services and know-how (apports en industrie). An expert appraiser (Commissaire aux apports) must be appointed by the Commercial Court to assess the value of the shareholders’ contributions in kind. Contributions in kind must be effected immediately. At least half of the contribution in cash must be paid in immediately, and the rest must be paid for within five years from the date of the incorporation.
1.2 Management Structure
There are two types of management structures possible in a SA, either with a general manager (Directeur général) and a Board of Directors (Conseil d’administration), or a Directorate (Directoire) and a Supervisory Council (Conseil de surveillance).
In the most traditional and frequent situation, the corporation is managed by a Board of Directors which appoints the general manager, a natural person. In the dual structure, the management consists of a Directorate, made up of physical persons who may or may not be shareholders and who are in charge of the management of the company and a Supervisory Council made up of either natural persons or legal entities, that must be shareholders and whose role is essentially to appoint the members of the Directorate and to review their decisions.
Traditional Management Structure
The Board of Directors
Members of the Board of Directors are elected at the General Meeting of shareholders. There must be between three directors and eighteen directors. However, up to twenty-four members are allowed in the event the company merges with another one. A director may be either a natural person or a legal entity. If it is a legal entity, it must appoint a permanent representative to attend the meetings. The mandate of the directors appointed upon incorporation may not exceed 3 years, while the mandate of those named subsequently by the General Meeting of shareholders may not exceed 6 years. A salaried employee may be appointed to the Board, but a Director may not become a salaried employee.
Members of the Board must each hold a minimum number of shares (at least one) set in the articles of incorporation. It should be noted that articles of incorporation are far from being standardized, although statutory law imposes a number of provisions which must appear therein.
Termination or revocation of the Board may be exercized at any moment by the shareholders without cause, within certain limits. Vexatious or injurious revocation may entitle the revoked party to damages.
The Board determines the course of action of the corporation and oversees its activities. It convenes the General Meeting of shareholders; adopts the annual and consolidated accounts; drafts the management report; names and revokes the Chairman of the Board, the general manager and any deputy general manager; and approves the guarantees given on behalf of the company.
Members of the Board may be held individually or jointly and severally liable to the corporation or to third parties because of a breach of the articles of incorporation or of laws and regulations applicable to SA’s as well as for grave mismanagement. Criminal liability is incurred for violations of law committed in the administration and management of the corporation.
The Chairman and the General Manager
The Chairman (Président du Conseil d’administration) is elected and may be revoked by the Board. His compensation is also decided by the Board. In no way does he represent the company in dealings with third parties. He represents the Board, organizes and supervises its work, produces a report on internal control and ensures that the corporate bodies function porperly. Like directors, he may be held personally liable.
The general manager (Directeur général) is appointed by the Board which determines his compensation. He exercises the broadest powers in the company, and represents it in dealings with third parties. He may bind the company even if his action is beyond the corporate purpose (objet social), unless the third party knew or should have known, given the circumstances, that the action was not within corporate purpose. He maybe be liable for the same reasons as the one of the directors.
The general manager may be assisted by up to five deputy general managers. The deputy general manager(s) do not have to be shareholders or directors of the company. Their powers are determined by the Board of Directors in agreement with the general manager. With regard to third parties, the deputy general manager(s) has the same powers as the general manager.
The general manager and the deputy general manager(s) may be revoked at any time by the Board of Directors. However, they may seek damages if their revocation is without just cause.
The Board of Directors may appoint the same individual to the positions of Chairman and General Manager, which is often the case in practice. Otherwise, the Chairman represents the Board and the general manager represents the company with regard to third parties and the latter is vested with the broadest powers in the corporation.
Dual Management Structure
Alternatively, the management of the corporation may be entrusted to a Directorate subject to a Supervisory Council.
The Directorate is made up of two to five members, either French or foreign individuals. In an SA with a capital below 150,000 €, only one member of the Directorate may be appointed. Unlike members of the Board of Directors or the Supervisory Council, they do not need to be shareholders. Members of the Directorate are appointed by the Supervisory Council to serve for a term of three to six years, as set forth in the articles of incorporation, and may be revoked by the General Meeting of Shareholders or by the Supervisory Council if the articles of incorporation so provide. Unlike members of the Board of Directors or the Supervisory Council, the members of the Directorate can only be revoked for cause.
The Directorate has the broadest powers and binds the company in dealings with third parties, subject to the powers granted to the General Meeting of shareholders and to the Supervisory Council. The company is bound even if the action is beyond the corporate purpose unless the third party knew or should have known so, given the circumstances.
The Directorate is headed by a Chairman or a general manager who is appointed by the Supervisory Council and who is authorized to represent the company in transactions with third parties.
The Supervisory Council reviews actions taken by the Directorate. It authorizes, inter alia, all issuances of securities and guarantees, appoints the members of the Directorate, determines their compensations, and approves sales of the company’s real estate.
Members of the Supervisory Council are elected at the General Meeting of shareholders and may be revoked in the same conditions as the members of the Board of Directors. The Supervisory Council is composed of at least three and at the most eighteen members that may be French or foreign nationals, legal entities or natural persons. Council members may be held liable individually for their acts, but they are not liable for management acts and they are not jointly and severally liable for those committed by the Directorate or the Supervisory Council as a whole. The members of the Supervisory Council may not serve on the Directorate.
1.3 Shareholders’ Rights
Shareholders have a range of rights, such as voting rights and the right to payment of dividends. The right to vote must be proportional to the number of shares held. Shareholders may also place questions on the meeting agenda, subject to certain limitations and certain information must be provided to them.
The shareholders of an SA are required to meet in an Ordinary General Meeting within six months of the end of each fiscal year in order to approve the company’s annual accounts. At a General Meeting, there must be a quorum of one-quarter and a majority of one-half of the shareholders in order to, inter alia, appoint and revoke members of the Board, approve the company’s accounts and decide the distribution of benefits, appoint the statutory auditors, and more generally, to take any decision which does not modify the articles of incorporation.
To amend the articles of incorporation (such as to the increase or decrease of the stated capital, to change of the corporate name, or to transform the corporate structure), there must be a quorum of one-third and a majority of two-thirds of the shareholders, gathered in the Extraordinary General Meeting. In no way may the liability of the shareholders be changed from limited to unlimited, even through a change of the corporate structure.
The transfer of shares between existing shareholders is unrestricted; however, the articles of incorporation may limit the transfer of shares to third parties (right of first refusal, prior board of directors approval, etc.).
1.4 Statutory Auditor
A statutory auditor (commissaire aux comptes) and a deputy statutory auditor (Commissaire aux comptes suppléant) must be appointed by the shareholders for a renewable term of six years. The statutory auditor is independent from the corporation, even though he is compensated for his services. He must be impartial in the exercise of his duties.
The auditor is required to issue various financial reports to the shareholders, including an annual report on the company’s financial accounts and an annual report disclosing certain regulated transactions (conventions réglementées).
The statutory auditor may be held liable to the company or third parties in cases of inadequate performance.
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