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FRANCE – THE SIMPLIFIED JOINT STOCK COMPANY / SOCIÉTÉ PAR ACTIONS SIMPLIFIÉE (SAS)

The Simplified Stock Company (Société par actions simplifiée – “SAS”), is a hybrid company created by the Law of January 3, 1994 (sections L. 227-1 to L. 227-20 and L.244-1 to L. 244-4 of the Commercial Code).

One of the main advantages of the SAS is its flexibility and the possibility to dissociate capital from power.

1 –The rules of incorporation

I- The shareholders

The SAS can have one (Société par Actions Simplifiée Unipersonnelle, SASU) or more shareholders; they can be physical or legal persons.

A SAS shareholder can be a French or foreign person, including foreign corporations. There is no maximum.

The SAS cannot be listed on a regulated market (stock market – section L. 227-2 of the Commercial Code) but is authorized to make offers to qualified investors or to a restricted circle of investors (section L.227-2-1 of the Commercial Code).

Regarding the shares transfer, they can be free or subject to approval (the agreement that must be given to sell to a third party, section L. 227-14 of the Commercial Code) and pre-emption (the right of the partners to buy back as a priority).

In the SAS, complex agreements can be statutory and, for the most part, mandatory (section L. 225-15 of the Commercial Code): inalienability of shares (or certain categories thereof for a maximum duration of 10 years: section L. 227-13 of the Commercial Code), mandatory exits (“calls” and “puts”, sections L. 227-16 and L. 227-17 of the Commercial Code), optional Or joint, deprivation of voting rights, penalties by exclusion…

II- The contributions and the share capital

The amount of share capital is fixed by the Articles of Association and there is no minimum amount.

Shareholders may make contributions in kind, cash and industry. For more flexibility, an SAS can be organized with variable capital.

For the contributions in kind, the future shareholders may decide unanimously that the use of an auditor will not be compulsory when the value of any contribution in kind does not exceed €30.000 and if the total value of all contributions in kind not subject to the valuation of a contribution auditor does not exceed one half of the share capital (section D. 227-3 of the Commercial Code).

2 –The management and control organs

I- The management

The only mandatory requirement is that the SAS’s shareholders must elect a unique chairman (Président) who will represent the SAS (section L. 227-6 of the Commercial Code / Legal or natural person).

The articles of association may lay down the conditions under which one or more persons other than the chairman, who may be the chief executive officer (CEO / Directeur général) or the deputy chief executive officer (Directeur général délégué), may exercise the powers conferred to him.

The SAS can decide to organize a committee or any other decision-making method.

Appointing and dismissal

The SAS articles of association freely determine the procedure for appointing and dismissing the chairman as well as fixing its remuneration.

In most cases, the competence to appoint a chairman is given to the shareholders. Sometimes, the shareholders decide to confer this power to a statutory body or to one named shareholder, or shareholders holding specific share classes (with auditory procedure).

Regarding the dismissal, the articles of association may provide for the causes and the compensation amount. The articles of association may also require the immediate termination of the chairman’s functions in certain cases.

The dismissal of the SAS chairman must not be abusive. The dismissal of an executive is considered to be unreasonable when it has been decided in circumstances that infringe:

  • Honor or reputation of the dismissed executive;
  • To the principle of adversarial proceedings.

The chairman dismissed without just cause is entitled to compensation depending on the actual loss suffered.

Powers

The Chairman is vested with the broadest powers to act in all circumstances in the name of the company within the limits of the company purpose (section L.227-6 of the Commercial Code).

The powers of the CEO are set out in the articles of association. If the CEO has the power to bind the SAS, it must be mentioned in the RCS and it will appear on the K-bis extract.

The rules governing the liability of members of the board of directors and of the board of directors of joint stock companies (SA) are applicable to the chairman and executives of the simplified joint stock company (section L.227-8 of the Commercial Code).

The same rules as for the SA regarding the prohibited conventions apply to the SAS (section L.227-12 of the Commercial Code).

The shareholders rights

The articles of association or an undisclosed shareholders’ agreement (“Pacte d’actionnaires”), may provide for specific provisions in order to organize the shareholders rights (Non-transferability of shares, Creation of Preferred Shares, etc.).

However, shareholders will not be able to include any provisions in the articles of association or shareholders agreement that are one-sided clauses (“clauses léonines”), which empowers one or more shareholders to the detriment of other shareholders.

1.According to section 1855 of the Civil Code: “the shareholders have the right to obtain, at least once a year, the disclosure of books and social documents“.

Failure to comply with these obligations is punishable by a fine of 1,500 euros (article 131-13 of the Criminal Code).

At any time during the year, any non-managing shareholder has the right to consult the following documents at the registered office of the company:

  • the company’s income statements, balance sheets and schedules,
  • the inventory, the reports submitted to the meetings and the minutes of these meetings relating to the last three financial years.

The shareholder can make copies with the exception of the documents relating to the inventory. An expert registered on the judicial lists of the Cour de Cassation or the Cour d’Appel may assist the shareholder.

Shareholders may also obtain a certified copy of the articles of association.

Non-managing shareholder must be able to know the legal procedures introduced by or against the company.

The law enables the non-managing shareholders, on the basis of the Decree of 3 July 1978 (Decree No. 78-704 on the application of Law No. 78-9 of 4 January 1978), to provoke a decision of the shareholders to guide the procedures in a direction more in line with the company’s interests.

2.On the basis of article 1856 of the Civil Code, “Managers must, at least once a year, report their management to the shareholders“.

The manager of the company is therefore obliged to send to each shareholder at least fifteen days before the annual general meeting by ordinary mail a set of documents that are also made available to the shareholders, 15 days before the meeting, at the registered office of the company.

3.Any shareholder or group of partners holding (together) at least 5% of the share capital is entitled to (section 1855 of the Civil Code):

  • To submit written questions twice a year to the chairman in the context of an alert procedure on any matter likely to compromise the continuity of the company’s operations;
  • To apply to the courts for the appointment of an expert to report on one or more management operations.

The manager’s reply, which must be given within one month, is then communicated to the auditor, if there is one.

If the manager does not communicate the documents, the shareholder can apply in front of the President of the court in summary proceedings to order the manager to communicate the documents and to appoint an agent to carry out the communication.

It also appears that if a decision is taken at the meeting when the shareholders have been totally deprived of information, the court may declare the decision null and void in case of prejudice arising from the irregularity.

4.Certain decisions must be taken unanimously such as (Section L227-19 of the Commercial Code): Provisions to adopt or modify the Articles of Association concerning the temporary inalienability of shares; The obligation of share transfer; The power to exclude a shareholder.

The shareholders are the only body entitled to take certain decisions such as: Annual approval of financial statements and allocation of net profits; Increasing or reducing or redeeming the share capital; Approving the annual financial statements and the appropriation of the profits; etc.

The majorities required for shareholders decisions are freely fixed in the articles of association (section L. 227-9 of the Commercial Code). Decisions taken in violation of the provisions of the Section L. 227-9 of the Commercial Code may be deemed void at the request of any interested party.

The articles of association freely choose the method of consulting the shareholders: consultation in assembly or by mail, act signed by all the shareholders.

The articles of association may also grant to certain shareholders a different number of votes than the one granted to the others by the multiple voting rights.

III- The statutory auditors

The shareholders may appoint one or more statutory auditors in accordance with section L. 227-9 of the Commercial Code.

At least one statutory auditor shall be appointed in every SAS which at the end of a financial year exceeds two of the following thresholds: the total of their balance sheet is €1,000,000, the amount of their turnover excluding tax is €2,000,000or the average number of their employees during the financial year is 20.

Also required to appoint at least one statutory auditor are simplified joint-stock companies which control, within the meaning of II and III of Section L. 233-16, one or more companies or are controlled, within the meaning of the same II And III, by one or more companies (the designation, for two successive financial years, of a majority of the members of the administrative, management or supervisory bodies of another company, or the right to exercise a dominant influence over a company by virtue of a contract or statutory clauses, where the applicable law so permits).

Even if the conditions provided for in the two preceding paragraphs are not met, the appointment of an auditor may be sought in court by one or more shareholders representing at least one-tenth of the capital.

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