France: Legal framework and implications of shareholder withdrawal in variable share

In this case, the shareholders of a limited liability company with variable capital notified the company that they were exercising their right to withdraw as provided for in the articles of association. They also requested redemption of their shares, based on the financial statements for the current year. However, their requests were rejected by the company's general meeting.

The Court states that, when the withdrawal of a shareholder from a variable capital company results in the share capital falling below the statutory minimum, the only limitation to the immediate effects of such a withdrawal is of financial nature. Thus, the redemption of contributions is deferred if this would result in the share capital falling below the statutory minimum.

Therefore, as soon as a shareholder withdraws from the company, he ceases to be subject to the obligations arising from this status, even if the date of financial redemption of his shares is deferred.

Articles L. 231-1, L. 231-5 and L. 231-6 of the French Commercial Code on variable capital can be applied to all forms of commercial companies (except for joint-stock companies (“sociétés anonymes”)) and of cooperative companies (“sociétés cooperatives”). This solution should therefore also apply to a simplified joint-stock company (“société par actions simplifies”), general partnership (“société en nom collectif”), partnership limited by shares (“société en commandite par actions”), and cooperative companies with variable capital (“sociétés coopératives à capital variable”).

 

 

Unlike variable capital companies, there is no right of withdrawal in fixed capital commercial companies. This principle was confirmed by the Court of Cassation. It ruled that the shareholder of a limited liability company has no right of withdrawal, unlike other company forms and civil partnerships. This does not infringe the principle of equality before the law. The Court of Cassation considered that the shareholders of a limited liability company are not placed in a situation similar to other corporate forms. That is why the Court of Cassation refused to refer the priority ruling on the issue of constitutionality (“question prioritaire de constitutionnalité”) to the French constitutional Supreme court (“Conseil constitutionnel”) (ruling: Cass. com. 13 March 2024 n° 23-20.199 F-P). A shareholder in a limited liability company with fixed capital who wishes to withdraw must find a buyer and sell his shares.

Shareholders in a partnership (“société civile”) may withdraw from the partnership in whole or in part if this right is provided for in the articles of association, upon authorization by an unanimous decision of the other shareholders, or upon a court decision for just cause (art. 1869 of the French Civil Code).

In general partnerships (“société en nom collectif”), a statutory managing shareholder (and a non-statutory managing shareholder if all shareholders are managing shareholders) who is removed has a right of withdrawal (art. L. 221-12 of the French Commercial Code).

 

In the case of companies the shares of which are admitted to trading on a regulated market in a member state of the European Union or the European Economic Area, and where the majority group holds at least 90 per cent of the company's capital or voting rights, holders of securities conferring voting rights who do not belong to the majority group may ask the French Financial Market Authority (“Autorité des Marchés Financiers”) to require majority shareholders to file a public buyout offer (art. L. 433-4 I 1° of the French Monetary and Financial Code and art. 236-1 of the Financial Market Authority General Regulation (“RG AMF”). If it grants this request, it will notify the majority shareholders of its decision, who will thus be required to file such a buyout proposal.

Lastly, it is important to highlight the importance of carefully analyzing the articles of association and the situation before becoming a shareholder in a fixed capital company, to avoid the risk of becoming trapped in the shareholding. The future shareholder can then, if necessary, request a modification to the articles of association or negotiate a shareholders' agreement providing for a right of withdrawal under certain conditions.