The rights and equitable treatment of shareholders and employeesShareholder powers
What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?
In France, the ‘limited liability company’ concept covers different corporate forms of vehicles.
- Public limited company (SA): most functioning rules are provided for by the Commercial Code and are compulsory. The SA is the only type of vehicle (apart from the limited partnership) that may be listed.
- Joint-stock company (SAS): functioning rules are predominantly decided by the shareholders in the articles of association.
- Limited company (SARL): functioning rules are provided for by the Commercial Code and are compulsory. The SARL structure is generally reserved for small businesses.
- Limited partnership (SCA), organised by the Commercial Code and, to a certain extent, by the articles of association: a sort of limited partnership with share capital, where two types of members coexist, namely general partners, who are liable on their personal assets for the SCA’s debts, and limited partners, who basically are shareholders. The SCA form is chosen by listed companies as a poison pill against hostile takeover bids.
In an SA with either a one-tier structure (a board of directors) or a two-tier structure (an executive board and a supervisory board), the shareholders always have the power to remove members of the (supervisory) board with a simple majority vote in a meeting, even if this matter has not been included in the agenda.
SCAs are managed either by a general partner or a third person whose rules of appointment and removal are freely set in the articles of association. SCAs also have a supervisory board whose role is to control management and that may exercise a veto right on the appointment of managers. The power of shareholders in these companies is limited: every decision must be confirmed by the general partners, with the exception of the appointment of the members of the supervisory board.
Shareholders of an SAS benefit from large flexibility to draft the articles of association, especially as regards governance rules, which is why investors who need to address specific governance issues and tailor peculiar corporate functioning rules generally choose this legal form. Appointment and removal rules of executives and directors are provided for in the articles of association.
SARLs do not have a board of directors per se, as management and executive functions are combined in a single type of duty. The appointment and removal of managers are decided by the shareholders at a simple majority unless the articles of association provide for a qualified majority. Shareholders may also request the removal of the managers with cause to the courts.
When consulted on a specific question, a shareholders’ vote is binding (with a few exceptions). However, apart from their removal right regarding the board or legal action, shareholders have no direct way to require the board to pursue a particular course of action.
The right of a director to be indemnified in the event of a dismissal depends on the types of corporate form and duties, bearing in mind that dismissal in vexatious circumstances or where the director cannot defend him or herself may give rise to specific damages.Shareholder decisions
What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?
Shareholders’ approval is required for the following decisions:
- approval of the company’s (and consolidated) annual accounts;
- dividends allocation;
- appointment of the (supervisory) board members and allocation of the global amount of their attendance fees, the (supervisory) board having the exclusive power to split the fees between members;
- appointment of the statutory auditors;
- approval of the report of the statutory auditors on transactions between the company and its related parties;
- amendments to articles of association (eg, increase or reduction of the share capital, mergers and change of corporate form or nationality); and
Listed companies' shareholders’ meetings also vote each year on all components of the compensation packages of the executive officers and board members for both the current year and the past year.
The articles of association may also provide that certain other decisions require the shareholders’ prior approval, but these restrictions cannot be opposed to third parties, and agreements concluded without such a prior approval remain binding. The company’s representatives can, however, be held liable for the loss suffered by the company as a result of these agreements. The same solution applies regarding transactions with related parties when the shareholders have refused to approve the statutory auditor’s report.Disproportionate voting rights
To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?
The ‘one share, one vote’ principle generally applies subject to several exceptions.
In listed SAs and SCAs, a double voting right is automatically granted to registered shares after a two-year period of uninterrupted holding (unless otherwise provided for by the articles of association).
In non-listed SAs and SCAs, as well as in SASs, preference shares with multiple voting rights may be issued.
Companies may also issue preference shares deprived of voting rights, usually in consideration of the entitlement to preferred dividends. These preference shares are limited to a quarter of the total amount of shares in listed companies (half in non-listed companies). On the contrary, some preference shares benefit from double voting rights or a veto right for certain decisions.
A cap on the votes may also be implemented for each shareholder, it being specified that the articles of association of listed companies may suspend this limit in the event of a takeover bid.Shareholders’ meetings and voting
Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?
Shareholders must justify ownership of their shares two business days prior to the meeting for listed companies (record date), and either this date or the date of the meeting for non-listed companies (as provided for in the articles of association of such companies).
Shareholders who cannot attend the meeting may vote beforehand (by mail or using an electronic platform if the articles of association authorise this option) or give a proxy. This proxy is either given to a specific person, who may be a shareholder, or sent to the company with no specific proxy holder’s name, which corresponds to a vote in the way recommended by the board. In companies that have adapted their articles of association accordingly, shareholders may also vote electronically.
Although French law allows shareholders to participate virtually in meetings if the articles of association so provide, professional associations and law professionals do not, at present, recommend using such an option. To date, only one listed company (with a limited number of participating shareholders) has experienced the format of a digitalised shareholding meeting with online voting.
Shareholders of an SA are not allowed to act by written consent without a meeting. Shareholders in companies of another form may do so if this is expressly permitted in the articles of association.Shareholders and the board
Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?
Shareholders’ meetings are generally convened by the board.
All shareholders may request the court to force a board to convene the annual shareholders’ meeting in the event of the board’s failure to do so as and when legally required. All shareholders may also request the court to appoint an agent who will convene a shareholders’ meeting in the event of an emergency. Shareholders holding at least 5 per cent of the share capital have the right to request the court to appoint an agent, who will convene a shareholders’ meeting on a given agenda. (They do not need to provide evidence of an emergency, but the judge will assess whether the request is consistent with the company’s interests.)
After a public takeover or a change of control of a company, majority shareholders may also convene a shareholders’ meeting.
Before a meeting, minority shareholders (holding at least 5 per cent of the voting rights in companies with a share capital not exceeding €750,000, less if it does) may force the board to put a matter on the agenda, including director nomination, which will be discussed during the shareholders’ meeting. They may justify their action in a statement, which will be transmitted to the shareholders. Otherwise, shareholders cannot force the board to circulate any statement.Controlling shareholders’ duties
Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?
French law does not provide for any duties owed by controlling shareholders to the benefit of the company or to minority shareholders. However, case law prevents majority shareholders from voting in favour of resolutions taken against the company’s interests with the sole purpose of favouring their own interests to the detriment of other shareholders. When this is characterised by the judge, the disputed vote may be declared null and void, and the majority shareholders may be sentenced to pay damages.Shareholder responsibility
Can shareholders ever be held responsible for the acts or omissions of the company?
The responsibility of shareholders is normally limited to the price paid for their shares.
However, the corporate veil may be pierced when a shareholder has de facto replaced a chief executive and committed mismanagement (eg, commingling its own assets with those of the company or causing the company’s insolvency by obvious misconduct).
In addition, parent companies may be held liable for damage caused by their subsidiaries: as regards environmental losses, if a mismanagement action can be assessed against the parent company; and if they belong to a large group (employing 5,000 persons in France or 10,000 worldwide), as regards human rights abuses, physical injuries or environmental losses, if the parent company has failed in the setting-up of a specific prevention plan and if a loss directly arises out of this failure.