October 08 2001
The updating of the French Company Law has been under discussion since 1996, as most professionals concluded that the 1966 Company Law was no longer appropriate to the changing economy and had to be thoroughly revised. Concepts such as corporate governance, minority rights and transparency were extensively debated by various members of the legislative bodies who prepared several amendment proposals, all of which were postponed because of more pressing matters on the political agenda. Finally, a law was passed on May 15 2001. This law does not significantly affect the framework of the 1966 Company Law, but modifies some of its provisions. This update briefly describes the major changes brought about by the new law, particularly as regards the following:
Most French sociétés anonymes (limited liability companies) adopt an organizational structure that comprises a board of directors appointed by the shareholders and headed by a chairperson.
Traditionally, the chairperson of the board also performs the functions of a managing director, hence the title of président directeur général, which is inaccurate from a legal standpoint and which has been criticized as confusing. The law of May 15 2001 attempts to shed light on the respective status of both the chairperson of the board and the managing director. Section L 225-51-1 of the Commercial Code now provides that the board of directors decides on the management structure of the company.
Under the new law the board of directors chooses between a chairperson with no managerial power and a chairperson with extensive powers of representation and management, in line with the traditional French management structure. If the board of directors elects the first option it must appoint a managing director, together with one or more co-managing directors, with unlimited powers (except for those granted by law to the shareholders and the board of directors) to act on behalf of the company. The managing director and the co-managing directors may be dismissed at any time by the board of directors. The new law provides that if the dismissal is decided without good cause the general manager or the co-managing director is entitled to compensation.
Another important issue in connection with chairpersons and managers of companies concerns the mandatory disclosure of their remuneration and benefits in kind in the schedules to the annual statements of accounts.
The law of May 15 2001 contains a provision to facilitate meetings of the board of directors and shareholders. It states that both meetings may be validly held via video conference. Unfortunately, the new law expressly excludes board of directors' meetings relating to the election or dismissal of the chairperson and managing officers, and shareholders' meetings relating to the approval of the annual report, from this provision. Consequently, only meetings held to discuss minor issues may be validly held through video conference.
Article L 225-231 of the Commercial Code provides that shareholders representing 5% of the voting rights, instead of 10% as previously, either individually or acting together through an entity, may ask in writing any question relating to any business decision involving the company or its subsidiaries. In the absence of any response or communication of satisfactory information within one month, these shareholders may seek to obtain an interim order to have an expert appointed in order to report on the challenged business decisions.
The law of May 15 2001 amends the Labour Code in order to allow a workers' committee to do the following:
According to recent legislation in relation to employee pension funds, every time a société anonyme decides to increase its share capital the shareholders meeting should consider the possibility of reserving part of the newly issued shares for employees that contribute to the company pension fund.
The law of May 15 2001 has considerably extended the range of intercompany agreements that must be approved by the board of directors of the relevant company before their execution. Pursuant to the new law, if a société anonyme intends to enter directly, or through a third party, into an agreement with either its managing director, co-managing directors, directors, any of its shareholders holding more than 5% of the company's voting rights or a third company controlling such company, the execution of the agreement must receive the prior approval of the board of directors.
The same procedure applies to any other agreement entered into between the société anonyme and another company, if the managing director, one of the co-managing directors or the directors of the société anonyme is also an owner, a partner with full liability, a manager or a director of the other company.
Unfortunately, the law of May 15 2001 does not constitute an improvement to the rules governing sociétés anonymes in France. It is merely a list of remedies whose main purpose is probably more political than business-orientated. As far as businesspersons and lawyers are concerned, this new law should add more complications without doing anything to revamp the old provisions.
For further information on this topic please contact Daniel Azan at Paul Hastings Janofsky & Walker LLP by telephone (+33 1 42 99 04 50) or by fax (+33 1 45 63 91 49) or by email (D.Azan@moquet-borde.com).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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