infopaksm joint ventures international transaction guide ... · joint ventures international...

By in-house counsel, for in-house counsel.®

Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200

Washington, DC 20036 USA tel +1 202.293.4103, fax +1 202.293.4701

www.acc.com

By in-house counsel, for in-house counsel.®

Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200

Washington, DC 20036 USA tel +1 202.293.4103, fax +1 202.293.4701

www.acc.com

InfoPAKSM

Joint Ventures International Transaction Guide: France

Sponsored by:


Copyright © 2015 Practical Law Company (PLC) & Association of Corporate Counsel

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August 2015

Provided by the Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200 Washington, DC 20036 tel +1 202.293.4103 fax +1 202.293.4107 www.acc.com

This InfoPAKSM provides a practical guide to joint ventures, including practice notes and standard documents for cross-border deals with detailed drafting notes highlighting the main legal, commercial and negotiating issues. The standard documents and drafting notes are specifically adapted from the UK versions to provide a plain English, jurisdiction-neutral starting point for local counsel to adapt for cross-border deals.

Country-specific commentaries on the practice notes giving a step-by-step guide to each stage of the joint venture are available for Australia, Canada, China, France, Germany, Hong Kong, India, Italy, Japan, Mexico, The Netherlands, Russia, Singapore, UK and US (New York).

The information in this InfoPAKSM should not be construed as legal advice or legal opinion on specific facts, and should not be considered representative of the views of PLC or of ACC or any of its lawyers, unless so stated. This InfoPAKSM is not intended as a definitive statement on the subject but rather to serve as a resource providing practical information for the reader.

This material was developed by PLC. For more information about PLC, visit their website at http://www.practicallaw.com/.

Contents

I. Structures .......................................................................................................................................... 8

A. What Are the Most Common Legal Structures for Joint Ventures? .......................................................................... 8

B. Are There Different Forms of Corporate Entity? If so, Which Form Is Most Likely To Be Used for a Joint Venture? ..................................................................................................................................................................................... 8

C. Are There Any Minimum/Maximum Capital Requirements? ......................................................................................... 8

D. Can Shares Be Issued in Consideration for the Contribution of Assets or Services (Present or Future)? Are Any Formalities Required if Shares Are Issued for Non-Cash Consideration? ................................................ 9

E. Are There Any Specific Restrictions on the Form of Management Structure? ....................................................... 10

F. Are There Any Restrictions on the Age, Nationality or Identity of Directors or Managers? ............................. 11

G. Do Employees or Shareholders Have the Right to Appoint a Certain Number of Directors? .......................... 12

H. What Formalities Are Required for the Establishment of a Partnership? ................................................................ 13

I. Are There Any Restrictions on the Age, Identity or Number of Partners? ............................................................ 14

J. What Is the Extent of Each Partner's Potential Liability in Respect of the Partnership Business? ...................... 14

K. In What Circumstances Is a Partnership Structure More Likely to Be Used than a Company for a Commercial Joint Venture? ................................................................................................................................................. 14

L. Are There Any Circumstances in Which a Contractual Joint Venture Could be Categorised as a Partnership (and the Parties Therefore Become Jointly Liable in Relation to the Substance of the Contract)? ................................................................................................................................................................................ 15

M. Is It Possible to Have a Limited Partnership in Your Jurisdiction? If so, What Are the Main Characteristics of a Limited Partnership? ...................................................................................................................................................... 15

N. What Formalities Are Required for Establishing a Limited Partnership? .................................................................. 16

O. Are There Any Restrictions on the Identity of Partners or Their Role in a Limited Partnership? .................... 16

P. In What Circumstances Is a Limited Partnership Structure More Likely to Be Used than a Company for a Commercial Joint Venture? ................................................................................................................................................. 16

II. Shareholders' Agreement and Bye-laws ...................................................................................... 17

A. What Are the Main Documents that Regulate the Constitutional Arrangements and Day-to-Day Operation of a Joint Venture Company Incorporated in Your Jurisdiction? (Please Answer This and Other Questions in Respect of the Corporate Vehicle That Is Most Likely to Be Used for a Private Joint Venture with Two or More Corporate Shareholders.) ................................................................................................................................... 17

B. Is It Possible to Amend the Constitutional Documents of a Company? If so, What Are the Relevant Voting Requirements? ........................................................................................................................................................................ 18

C. Is Every Shareholder Automatically Bound by a Company's Constitutional Documents? ................................... 19



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D. Is It Necessary for a Company's Constitutional Documents to Be Registered and Open to Public Inspection? ............................................................................................................................................................................... 19

E. Is It Necessary for a Shareholders' Agreement to Be Registered and Open to Public Inspection? ................... 20

F. Is a Company Bound by Its Constitutional Documents? .............................................................................................. 20

G. Is It Common Practice for a Joint Venture Company to Be a Party to a Shareholders' Agreement Relating to the Joint Venture? ............................................................................................................................................................. 20

H. What Are the Remedies for Breach of a Shareholders' Agreement? ........................................................................ 21

I. What Are the Remedies for Breach of a Company's Constitutional Documents? ................................................ 21

J. In Which Document Would You Commonly Insert the Following Provisions: ..................................................... 21

K. In the Event of a Conflict Between a Shareholders' Agreement and a Company's Constitutional Documents, Which Document Is Likely to Prevail? ...................................................................................................... 23

L. About the Authors of Section II ......................................................................................................................................... 24

III. Control and Minority Protection .................................................................................................. 26

A. In the Absence of Specific Provisions in the Shareholders' Agreement or Bye-Laws of a Company, What Protections Are Automatically Given to a Minority Shareholder under Local Law? ............................................. 26

B. Are Specific Voting Majorities Required by Law for Any Corporate Actions (for Example, Increasing Share Capital, Changing the Company's Constitution, Appointing and Removing Directors and so on)? ................... 27

C. Are There Any Statutory Restrictions on Quorum or Voting Requirements at Director and Shareholder Meetings? Do They Need to Be Proportionate to Shareholdings? ............................................................................ 28

D. Can Voting Majorities Required by Law Be Disapplied to Protect a Minority Shareholder (for Example, Through Class Rights or Weighted Voting)? ................................................................................................................... 29

E. About the Author of Section III .......................................................................................................................................... 29

IV. Competition .................................................................................................................................... 31

A. What Are the Triggering Events/ Jurisdictional Thresholds for the Application of National Competition Rules to a Joint Venture? ...................................................................................................................................................... 31

B. Is Notification Mandatory or Voluntary, and Is There an Obligation to Suspend? Where Notification Is Mandatory, What Is the Deadline for Notifying and What Sanctions Can Be Imposed for Failure to Notify?32

C. Who Notifies? ......................................................................................................................................................................... 32

D. What Authority Do You Inform? ....................................................................................................................................... 32

E. What Is the Substantive Test? ............................................................................................................................................. 32

F. What Is the Time Limit for the First Stage Decision? ................................................................................................... 33

G. What Is the Time Limit for a Final Decision and What Decisions Can Be Made? ................................................. 33

H. Who Do You Appeal to? ..................................................................................................................................................... 34

For more ACC InfoPAKs, please visit http://www.acc.com/infopaks

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I. What Are the Filing Fees? .................................................................................................................................................... 34

J. Can You Complain About Competitors? ......................................................................................................................... 34

K. What Are the Penalties for Implementing a Transaction Before It Has Received Clearance? ............................ 34

L. About the Authors of Section IV ....................................................................................................................................... 34

V. Employees ....................................................................................................................................... 36

A. What Level of Statutory Employment Protection Do Employees Receive in Your Jurisdiction? Are There Provisions of 'Mandatory Law' That Apply to All Workers in Your Jurisdiction, Regardless of the Choice of Law in the Employment Contract and the Identity, Place of Incorporation or Location of the Employing Entity? ....................................................................................................................................................................................... 36

B. Please Give Details of the Following in Your Jurisdiction (if Applicable): ................................................................ 37

C. What Statutory Rights Do Workers Have Against Dismissal in Your Jurisdiction? .............................................. 38

D. What Rights Do Workers Have to Be Consulted or Participate in the Management of Companies Incorporated in Your Jurisdiction? (In Particular, Do They Have to Be Consulted in Relation to Redundancies or Disposals)? ............................................................................................................................................... 39

E. What Is the Basis of Taxation of Employment Income in Your Jurisdiction? Please Distinguish Between Foreign Nationals Working in Your Jurisdiction and Nationals of Your Jurisdiction Working Abroad. .......... 40

F. What Is the Rate of Tax on Employment Income? Are Any Other Taxes (such as Social Security Contributions) Levied on the Employment Relationship? ............................................................................................ 41

G. If an Individual Employee Agrees to Transfer Employment to a New Entity, Should Any Formalities Be Followed to Prevent the Employee from Later Bringing a Claim in Respect of Termination of Employment? (Assume That the Transfer Is Not Part of a Transfer of a Business as a Going Concern.) ................................. 42

H. What Benefits (if Any) Does a Period of Continuous Employment Bring for an Employee in Your Jurisdiction? If an Individual Employee Is Transferred to a New Entity, in What Circumstances (if Any) Will the Employee Be Deemed to Retain His Continuous Period of Employment? (Assume That the Transfer Is Not Part of a Transfer of a Business as a Going Concern.) ........................................................................................ 43

I. What, if Any, Remedies Are Available to an Employer, if an Employee Refuses to Transfer to a Joint Venture Entity? (Assume That the Transfer Is Not Part of a Transfer of a Business as a Going Concern.) ... 44

J. If a Business Is Transferred from a Joint Venture Party to the Joint Venture Entity, Is There Any Statutory Protection of Employees Working in the Business? ...................................................................................................... 44

K. If Employees Are Transferred to a Joint Venture Entity by Different Parties, Are There Any Legal Restrictions on Harmonising Their Terms of Employment? ....................................................................................... 45

L. Are There Any Restrictions in Your Jurisdiction on an Employer Seconding an Employee to Another Organisation on a Temporary Basis? ................................................................................................................................. 46

M. Does an Employer That Seconds an Employee to Another Organisation Remain Vicariously Liable for the Acts of the Employee (Even if the Employee Is Acting in Accordance with Instructions from the Other Organisation)? ......................................................................................................................................................................... 46



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N. If an Employee Creates Intellectual Property Rights in the Course of His Employment, Who Owns the Rights? Would the Answer Be Any Different if the Employee Is Seconded to Another Organisation When the Rights Are Created? ....................................................................................................................................................... 47

O. How Are Fees for Seconded Employees Taxed in the Hands of the Employing Company? Does Value Added Tax Apply to Secondment Fees? ........................................................................................................................... 47

P. Is It Common (or Compulsory) for Employees to Participate in Private Pension Schemes Established by Their Employing Company? Are Any Tax Reliefs Available on Contributions to Such Schemes (by the Employing Company and Employees)? .............................................................................................................................. 48

Q. Can Employees That Are Working Abroad and Employees of a Subsidiary Company in a Different Country Participate in a Pension Scheme Established by a Parent Company? Are the Same Tax Reliefs Referred to in Section V.P. Still Available in These Circumstances? .................................................................................................... 48

R. If an Employee Is Transferred as Part of a Business, Is the Transferee under an Obligation to Honour Existing Pension Rights or Provide Equivalent Rights? .................................................................................................. 49

S. Are Employee Share Option Schemes Common in Your Jurisdiction? If so, Are There Any Tax Benefits and Can Options Be Granted to Employees of Group Companies? ......................................................................... 49

T. If an Employee That Participates in a Share Option Scheme Is Transferred as Part of a Business, Is the Transferee under an Obligation to Provide an Equivalent Scheme? If so, How Is This Dealt with in Practice?50

U. Do Foreign Nationals Require Work Permits and, if so, How Difficult Are They to Obtain and How Long Does the Process Take? ....................................................................................................................................................... 50

V. Are There Any Restrictions on Foreign Managers or Directors for Companies in Your Jurisdiction? ............ 51

W. Are There Any Circumstances in Which Directors or Managers Can Be Personally Liable in Respect of the Actions of a Joint Venture Company That Is Incorporated in Your Jurisdiction? .................................................. 51

X. About the Author of Section V .......................................................................................................................................... 51

VI. Tax ................................................................................................................................................... 53

A. Are Partnerships Tax Transparent in Your Jurisdiction? .............................................................................................. 53

B. Can Losses of a Foreign Partnership Be Offset Against the Profits of a Corporate Partner That Is a Tax Resident in Your Country? .................................................................................................................................................. 55

C. Do Partnerships That Are Tax Resident in Your Country Generally Receive Similar Benefits to Companies under Double Tax Treaties? ................................................................................................................................................ 55

D. Does Your Country Have Rules That Restrict the Proportion of a Company's Capital That Is Comprised of Loans by Affiliates (Thin Capitalisation Rules)? If so, Please Explain in What Circumstances These Rules Apply and Whether They Can Be Circumvented. ......................................................................................................... 55

E. If a Company That Is a Tax Resident in Your Country Transfers Assets (Including Shares) to a Company That Is Tax Resident in Another Country, What Taxes Might Arise? Are Reliefs Potentially Available? (Please Distinguish, if Relevant, Between Assets That Are Located in Your Country and Assets Located in a Foreign Country.) ............................................................................................................................................................... 58

F. Is Any Tax or Duty Payable on the Issue of Shares by a Company That Is Incorporated in Your Country? .. 60

G. What Rate of Tax Do Companies Pay in Your Jurisdiction and How Is It Assessed? ........................................... 60


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H. Can Losses of a Company That Is Tax Resident in Your Country Be Surrendered for Tax Purposes to Another Company? If so, What Conditions Apply? Can Losses Be Carried Forward for Tax Purposes? ....... 62

I. Are Interest Payments Tax Deductible in Your Country? ........................................................................................... 62

J. Are Withholding Taxes Applied to Dividends, Interest and/or Other Payments Made by a Company That Is Tax Resident in Your Country to a Foreign Company? If so, What Rates Apply? Can They Be Reduced or Eliminated in Any Circumstances? ................................................................................................................................ 63

K. What Is the Tax Treatment of Dividends Paid by a Company That Is Tax Resident in Your Country to a Corporate Shareholder (Domestic or Foreign)? ............................................................................................................ 65

L. What Is the Tax Treatment of Dividends Received by a Company That Is Tax Resident in Your Country from a Foreign Company? .................................................................................................................................................... 66

M. Are There any Circumstances in Which (Undistributed) Profits of a Company in a Foreign Country Can Be Imputed to a Corporate Shareholder in Your Country by Tax Authorities (Controlled Foreign Company Rules)? .................................................................................................................................................................... 66

N. Does Your Country Have Transfer Pricing Rules? If so, Please Explain Broadly How They Apply? ................. 67

VII. Deadlock and Termination .................................................................................................................. 68

A. In the Absence of Specific Provisions in a Company's Bye-Laws or a Shareholders' Agreement, Are Any Remedies Available at Law in the Event of an Unresolved Dispute Between Shareholders Resulting in Deadlock? ................................................................................................................................................................................. 68

B. Is It Common Practice Expressly to Provide for a Dispute Resolution Process in a Joint Venture Company for an Unresolved Dispute Between Shareholders Resulting in Deadlock? If so, Are Any Procedures Commonly Adopted? In Which Document Would the Relevant Provisions Commonly Be Drafted? ............. 68

C. Is It Common to Provide for the Compulsory Transfer of Shares in a Joint Venture Company in Any of the Following Circumstances? In Which Document Are the Relevant Provisions Likely to Be Drafted and Are They Likely to Be Enforceable? (a) Insolvency of Shareholder. (b) Change of Control of Shareholder. (c) Material Breach of the Shareholders' Agreement or Bye-Laws. ................................................................................. 69

D. Is It Common in a Joint Venture Company to Impose Restrictions on the Transfer of Shares? If so, What Sort of Restrictions Are Commonly Imposed and in Which Document Are They Likely to Be Drafted? ...... 70

E. If Shares Are Transferred to a Third Party in Breach of Restrictions on Transfer (in a Shareholder's Agreement or Bye-laws), What Remedies Are Available to the Remaining Party? ............................................... 70

F. Is It Possible to Provide That in the Event of a Joint Venture Company Being Wound up, Certain Assets (such as Intellectual Property Rights) Will Be Transferred to a Specific Shareholder? Will such a Provision Be Enforceable in a Winding-up? ........................................................................................................................................ 71

G. About the Author of Section VII ........................................................................................................................................ 71



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I. Structures

A. What Are the Most Common Legal Structures for Joint Ventures?

Joint ventures are usually structured either as corporate entities (whether limited or unlimited liability companies) or as contractual arrangements.

B. Are There Different Forms of Corporate Entity? If so, Which Form Is Most Likely To Be Used for a Joint Venture?

The three most common forms of corporate entity are (all limited liability companies):

■ Société à responsabilité limitée (SARL) - SARLs are used for small and medium sized businesses. Although the rules applicable to an SARL are set out in the Commercial Code, they are more flexible than those applicable to an SA (a single partner is possible), and statutory restrictions on shares' transfers may be useful in joint ventures.

■ Société anonyme (SA) - The SA is not a flexible structure, as it is highly regulated by the Commercial Code. For instance, an SA must have at least seven shareholders.

■ Société par actions simplifiée (SAS) - The most frequent (and the most flexible) corporate form used joint ventures in France. The shareholders of an SAS have great flexibility to reflect in the articles of association their agreement in relation to corporate governance and restrictions on transfers of shares. An SAS can have a single shareholder.

C. Are There Any Minimum/Maximum Capital Requirements?

1. Société par Actions Simplifiée (SAS)

There is no minimum share capital for an SAS. It is freely determined by the company's articles of association, but at least one-half must be paid upon incorporation. Certain minimum capital requirements may exist for companies undertaking financial, investment or banking operations.


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2. Société Anonyme (SA)

An SA must have a minimum share capital of EUR37,000, with at least one half paid up on incorporation.

3. Société à Responsabilité Limitée (SARL)

There is no minimum share capital for an SARL. It is freely determined by the company's articles of association, but at least one-fifth must be paid up on incorporation. Certain minimum capital requirements may exist for companies undertaking financial, investment or banking operations.

D. Can Shares Be Issued in Consideration for the Contribution of Assets or Services (Present or Future)? Are Any Formalities Required if Shares Are Issued for Non-Cash Consideration?

As a general rule, shares in French companies may be issued in consideration for the following contributions: contributions in cash (apport en numéraire), contributions of assets (apport en nature) and contribution of services (apport en industrie).

SAS SA SARL

Cash contribution possible possible possible

Assets contribution possible possible possible

Services contribution possible not possible possible

When shares are issued for non-cash consideration, French corporate law requires a valuation report to be prepared (and submitted to the shareholders) by an independent court-appointed appraiser.

Société par actions simplifiée (SAS). Cash, assets and services contributions are possible in SASs. Shares issued for non-cash consideration, including services, are subject to valuation by an independent court-appointed appraiser who reports to the general meeting of shareholders, which will approve such contributions. The nature and term of the contributed services must be set out in the company's articles of association, together with the number of shares issued in consideration, it being specified that shares issued in consideration for the contribution of services are not taken account in the determination of the share capital of the company and cannot be assigned. These shares nevertheless grant their holder the quality of shareholder and, accordingly, certain associated rights (for example, voting rights in general meetings, entitlement to dividends and so on).



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Société anonyme (SA). Contributions to the share capital must be either in cash or in assets. Contribution of services are not permitted.

Société à responsabilité limitée (SARL). Cash, assets and services contributions are possible in an SARL. Non-cash contributions are subject to valuation under the same terms as in an SAS.

E. Are There Any Specific Restrictions on the Form of Management Structure?


An SAS is only required by law to have a Chairman (Président). Shareholders are free to choose the management structure (for example, General managers or a collegiate Executive Board) and set this out in the articles of association.

All power to bind an SAS lies with its Chairman, unless both:

• The articles of association grant the power to bind the company to one or several Managing directors (Directeur Général or Directeur Général Délégué).

• Details of such Managing directors are shown on the Kbis extract of the SAS.


An SA may elect opt for the following management structures:

• a Board of Directors (Conseil d'administration) made up of 3 to 18 members and chaired by a Chairman (Président). Managing directors (Directeurs Généraux or DG) (among which possibly the Chairman) are in charge of the general management of the company. This structure is the most widely adopted.

• A Management Board (Directoire) not exceeding five members (except when the company is admitted to trading on a regulated market) and a Supervisory Board (Conseil de surveillance) made up of three to 18 members chaired by a Chairman (Président).

The power to bind the SA lies with the Managing directors (or with the members of the Management Board). Decisions made out of the scope of the corporate purpose by the Managing Director (or by the members of the Management board) bind the company towards bona fide third parties. Limits on the powers of the Managing directors (laid down in the articles of association or by decision of the board) are not enforceable against third parties.


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SARLs must have at least one managing director (gérant) who may (but need not) be a shareholder. An SARL does not have a board structure (although one may be provided for by the articles of association if there is more than one gérant. Each gérant can bind the company.

F. Are There Any Restrictions on the Age, Nationality or Identity of Directors or Managers?

1. Age and Identity

■ Individuals and corporate entities may be Chairman or Managing directors of an SAS. There is no legal restriction with regards to their age.

■ In an SA, Board Members may be individuals or corporate entities. The Chairman and the Managing directors must, however, be individuals. No more than one third of board members must be aged 70 or above.

■ Managing directors of an SARL must be individuals.

2. Nationality

No restrictions apply with respect to citizens of a country of the European Union or member of the Organisation for Economic Co-operation and Development (OECD). Other nationals may need a temporary resident permit (carte de séjour temporaire) enabling the practice of a professional occupation in order to be:

■ Chairman of an SAS.

■ Chairman or Managing director of an SA (members of the Management Board and of Supervisory Board of an SA need not hold a business permit).

■ Managing directors of an SARL.

3. Incapacities

Persons who have been convicted of certain offences (any crime, offences related to corporate and commercial regulations and so on) cannot be Directors or Managing directors. Such a conviction, whether by a French or a foreign Court, implies an automatic incapacity unless otherwise provided for by the judgement. Certain professions (including lawyers) are excluded from specific positions as company officers. There are also industry-specific limitations on the nationality of directors (for example, press, defence and so on).



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4. Being a Shareholder

■ SASs are free to set out in their articles of association the obligation for managers to also be shareholders (but there is no legal obligation to do so).

■ SAs are free to set out in their articles of association the obligation for members of the Board of directors (including its Chairman) and of the Supervisory Board to also hold shares of the company (but there is no legal obligation to do so).

■ SARLs may include such requirements in their articles of association but there is no legal obligation to do so.

5. Being an Employee

Directors of an SA can only be employees of the company provided that the employment contract has been entered into prior to the appointment as director, that they are in a subordination situation, and that the employment position is effective and separate from the assignment as a director. In any case, not more than one-third of the directors may be employees of the company.

G. Do Employees or Shareholders Have the Right to Appoint a Certain Number of Directors?


The appointment of management is freely determined in the articles of association. In SASs where both a Work council (Comité d'entreprise (CE)), compulsory in all incorporated companies with more than 50 employees) and a Board of directors exist, the Work council must be represented in the Board although it has no voting right.


Members of the Board of directors (or of the Supervisory Board) are appointed by a decision of the shareholders with simple majority.

■ The articles of association may provide for the right for employees to appoint a certain number of directors (which cannot be more than four - five if the company is listed - or represent more than one-third of the total number of directors).

■ Where employees hold more than 3% of the share capital of a listed SA, the company must appoint one or more employee shareholders (salariés actionnaires) as Directors.


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■ Two members of the Work council (if any) have the right to attend Board meetings in a consultative role (without voting right).


Unless provision to the contrary is made in the articles of association, Managing Directors are appointed by the shareholders holding more than half of the shares. Even where an SARL has more than 50 employees, there is no specific requirement for the Work council to be represented at management level.

H. What Formalities Are Required for the Establishment of a Partnership?

The bodies closest to a partnership under French law are unlimited liability companies such as the société en participation (SEP) or the société en nom collectif (SNC).

1. Société en Participation (SEP)

The SEP is a very flexible instrument as it has no legal personality and is not registered - it is entirely governed by its articles of association (like a mere contract). It is usually set up by partners as a temporary vehicle.

2. Société en Nom Collectif (SNC)

An SNC has a legal personality. Its corporate purpose is always of a commercial nature. The articles of association must contain prescribed information (name of the company, business, duration, head office, capital, and so on). Contributions are free (contribution in cash, contribution of assets or contribution of services). There is no minimum share capital and no statutory requirement relating to the amount to be paid-up on incorporation. The SNC must be registered with the company commercial registry and its incorporation must be published in a legal gazette.



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I. Are There Any Restrictions on the Age, Identity or Number of Partners?


An SEP must have at least two partners, whatever their age or identity.


All partners (at least two and no maximum) must be commerçants (which roughly translates as businessmen - and excludes professionals for whom similar structures also exist). There is no age restriction unless the articles of association provide otherwise.

J. What Is the Extent of Each Partner's Potential Liability in Respect of the Partnership Business?


Non-managing partners cannot, in principle, be held liable vis-à-vis third parties, while partners who represent (and manage) the company are jointly and severally liable (when the SEP has a commercial business) or not jointly and severally liable (in other cases).


Each partner is jointly and severally liable for the debts and other liabilities of the SNC. Partners remain liable to third parties for debts incurred before their departure even after the sale of their shares.

K. In What Circumstances Is a Partnership Structure More Likely to Be Used than a Company for a Commercial Joint Venture?

The main feature of the SEP is that, to the extent it does not need to be registered with the commercial court, its existence can remain undisclosed and unknown by third parties. Also, the establishment and running of a joint venture under the form of an SEP or an SNC is less costly. Finally, SNCs and SEPs are both tax transparent.


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L. Are There Any Circumstances in Which a Contractual Joint Venture Could be Categorised as a Partnership (and the Parties Therefore Become Jointly Liable in Relation to the Substance of the Contract)?

Contractual arrangements can be categorised as an unlimited liability company (société créée de fait) if the parties have in fact acted between themselves and vis-à-vis third parties as if they are partners When a plaintiff (for example the tax administration or one of the partners) petitions a court to do so, the following three criteria must be fulfilled:

■ Partners contributed to a capital (in cash, assets or services).

■ Partners have shared (or intended to share) profits and losses.

■ An affectio societatis can be proven (which merely means in this case that a business has been developed by partners).

The consequence is that the arrangement is treated as if it were a SEP.

M. Is It Possible to Have a Limited Partnership in Your Jurisdiction? If so, What Are the Main Characteristics of a Limited Partnership?

Two types of company are similar to limited partnerships: the société en commandite simple (SCS) and the société en commandite par actions (SCA). However, SCSs are rarely used for joint ventures.

An SCA is made up of two distinct categories of partners:

■ Limited partners (commanditaires) who may not be involved in the management of the entity, and whose liability is limited to their contribution.

■ General partners (commandités) who are in charge of the management of the company and have a joint and several liability.

An SCA must have at least four partners (one general partner and at least three limited partners).



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N. What Formalities Are Required for Establishing a Limited Partnership?

The formalities for constitution of an SCA are essentially the same as for an SA.

Articles of association must be agreed upon by all partners before being registered with the company commercial registry and published in a legal gazette.

Contributions to the minimum share capital of an SCA (which is the same as in an SA) are usually made by limited partners and must be in cash or in assets. However, general partners may equally contribute in services. Their contribution as general partners is represented by specific shares that are not included in the composition of the share capital.

O. Are There Any Restrictions on the Identity of Partners or Their Role in a Limited Partnership?

Management and capital are clearly separated in an SCA. Limited partners cannot participate in the management of the company.

The management is entrusted with the general partners who may veto the appointment or removal of any managing directors. Partners can be either French or foreign individuals, or legal entities.

P. In What Circumstances Is a Limited Partnership Structure More Likely to Be Used than a Company for a Commercial Joint Venture?

SCAs are often attractive to those (often family run) businesses that wish to widen access to capital but where the founders wish to secure management control.


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II. Shareholders' Agreement and By-laws

A. What Are the Main Documents that Regulate the Constitutional Arrangements and Day-to-Day Operation of a Joint Venture Company Incorporated in Your Jurisdiction? (Please Answer This and Other Questions in Respect of the Corporate Vehicle That Is Most Likely to Be Used for a Private Joint Venture with Two or More Corporate Shareholders.)

1. General

In 1994, in order to facilitate international joint ventures, a new form of company, the Société par actions simplifiée (SAS), which is mainly conceived as a contractual grouping of its members, was established under French law. Because of its flexible contractual nature, the SAS is generally the most appropriate legal vehicle for an international joint venture in France, although it generally cannot offer shares or bonds to the public or be listed on a stock market, and has to remain a private company (except under very specific circumstances).

The answers below primarily relate to the rules applicable to a SAS. However, some joint venture parties still elect to set up their company in the more traditional and burdensome form of the Société anonyme (SA). The choice between the two types of company is made on a case-by-case basis and is in any event not final, as a SAS could be transformed into a SA and vice versa.

1. By-Laws (Statuts)

The bye-laws of a SAS or a SA contain a certain number of mandatory provisions, some of which are fairly straightforward:

■ The company's form.

■ The company's object.

■ The share capital (minimum EUR37,000 (as at 4 October 2012, US$1 was about EUR0.77) for a SA since 1 January 2002. There is no legal minimum amount for a SAS since 1 January 2009).

■ The par value of the shares. In a SA or a SAS, at least half of the nominal value of shares issued for cash must be paid up on incorporation of the company; the other half of the shares must be paid up within five years from registration.



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Due to the large contractual freedom offered to the members of a SAS - which can be set up by a single shareholder - its bye-laws can contain a large variety of provisions applicable to most aspects of the company's day-to-day management and administration, most of which, in the case of a SA, would have to be set forth in a shareholders' agreement. For example:

■ Limitations on the transfer of shares.

■ Determination of the composition of the company's management and appointment of the first President. Note that with the sole exception of the President - who can be a company and has to be appointed since he/she/it represents the company vis-à-vis third parties - the bye-laws of the SAS can provide for any type of management rules and structure (President acting alone, management committee, veto rights for minority members, and so on).

The President of the SAS is legally vested with full power to represent and bind the company vis-à-vis third parties. In addition, the bye-laws may provide for the appointment of managing director(s) (Directeur Général). The powers of the managing director should be defined, and could be the same as those of the President.

Should a committee style of management be set up, the SAS bye-laws may freely determine for example:

• the minimum and maximum number of members of the management committee;

• the name and the organisation of the management committee;

• the appointment requirements of officers;

• the distribution of powers among officers; and

• the decisions procedure.

■ Powers of the shareholders' meetings (except for some decisions that, by law, must be taken by the shareholders' meetings, for instance, in case of capital increase or merger).

■ Distribution policy.

■ Exclusion of a shareholder.

■ Restrictive covenants.

B. Is It Possible to Amend the Constitutional Documents of a Company? If so, What Are the Relevant Voting Requirements?

In a SAS, the bye-laws can be altered according to the rules and procedures set forth therein.


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In a SA, the extraordinary shareholders' meeting has sole competence to amend the bye-laws (requiring a majority of at least two-thirds of the shares present or represented).

In any case, as a general French law principle a unanimous vote of the shareholders is required when amending the bye-laws would increase the shareholders' duties notwithstanding the corporate form of the company (SA or SAS).

C. Is Every Shareholder Automatically Bound by a Company's Constitutional Documents?

Yes.

The fact that a breach of the bye-laws is generally null and void is one of the two main reasons why a SAS is often preferred to a SA for joint ventures (for instance, enforceability). Most of the provisions that are generally part of a shareholders' agreement, breach of which would generally lead to damages and not nullity in the case of a SA, are included in the bye-laws of a SAS.

However, some courts have recently ruled that a breach of certain provisions of a shareholders' agreement can lead to nullity under certain specific circumstances but this remains an exception and not the general rule.

The other main reason is, as mentioned above, the large flexibility given to the shareholders of the joint venture as to management organisation and structures which can be part of the bye-laws.

D. Is It Necessary for a Company's Constitutional Documents to Be Registered and Open to Public Inspection?

Yes. The bye-laws have to be registered with the Clerk of the Commercial Court (Greffe du Tribunal de commerce) having jurisdiction over the company's place of incorporation. They are open to public inspection.



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E. Is It Necessary for a Shareholders' Agreement to Be Registered and Open to Public Inspection?

No, except if the joint venture is a listed company (which is only possible for a SA). However, as mentioned above, the bye-laws of a SAS may contain provisions that are normally to be found in a shareholders' agreement.

Should the joint venture be set up in the form of a SA, then the role of the shareholders' agreement - which would allow for some flexibility in the management of the company as well as in the relationships between shareholders - would be crucial and in most cases would remain strictly confidential except in the event that a specific legal text requires disclosure of the agreement (for example, in the case of listed companies) or in the case of disputes between shareholders.

F. Is a Company Bound by Its Constitutional Documents? The bye-laws bind the company and the shareholders. However, as a rule of thumb, limitations on the President or Managing Director's powers set out in the bye-laws, be it a SA or a SAS, are not binding on third parties who are deemed to be unaware of those limits. Consequently, any act performed by the President or the Managing Director that is beyond such limits is generally legally binding as against third parties.

G. Is It Common Practice for a Joint Venture Company to Be a Party to a Shareholders' Agreement Relating to the Joint Venture?

No legal impediment would prevent the joint venture company from being a party to a shareholders' agreement provided that adherence to the agreement does not prove to be detrimental to the company's social interest or limit its powers. In practice, the joint venture company is a party to the shareholders' agreement governing it only in order to have its commitment that it will refuse to register a transfer of shares that is not achieved in accordance with the shareholders' agreement provisions.

In addition, as mentioned above, this would not be relevant in the case of a SAS since most of the provisions to be found in a shareholders' agreement can be inserted in the bye-laws.


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H. What Are the Remedies for Breach of a Shareholders' Agreement?

Although judicial remedies can be available in some specific circumstances (and, in particular, nullity of the transfer of shares achieved in breach of the shareholders' agreement provisions, when specific circumstances are met), the most common remedy is damages (see Sections II.C and VII.E).

I. What Are the Remedies for Breach of a Company's Constitutional Documents?

Courts can declare a decision or an act that is breaching the bye-laws of the company null and void or grant damages depending on the case. However, nullity can only be declared if the applicable laws expressly provide for nullity.

J. In Which Document Would You Commonly Insert the Following Provisions:

There are few hard and fast rules but the following would, generally speaking, be possible.

1. Object and Scope of the Company.

SAS: bye-laws.

SA: bye-laws and shareholders' agreement.

2. Capitalisation and Funding.

Capitalisation: for SAS and SA bye-laws.

Funding: for SAS bye-laws ; for SA shareholders’ agreement.

3. Board Composition and Management Arrangements.

SAS: bye-laws.

SA: shareholders' agreement.



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4. Distribution of Profits (Including Dividend Policy).

SAS: bye-laws.

SA: bye-laws and shareholders' agreement (for dividend policy).

5. Provisions for Dealing with Deadlock.

SAS: bye-laws.


6. Termination Provisions.

SAS: bye-laws.


7. Restrictive Covenants.

SAS: bye-laws.


8. Rights to Appoint and Remove Directors.

SAS: bye-laws.

SA: bye-laws and shareholders' agreement.

9. Quorum for Board and Shareholder Meetings.

SAS: bye-laws.

SA: bye-laws.

10. Procedures for Shareholders' Meetings.

SAS: bye-laws.

SA: bye-laws.


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11. Division of Shares into Classes.

SAS: bye-laws.

SA: bye-laws.

12. Chairman's Casting Vote.

SAS: bye-laws.

SA: bye-laws.

13. Notice Provisions.

SAS: bye-laws.

SA: bye-laws.

14. Share Transfer Provisions.

SAS: bye-laws.

SA: bye-laws or shareholders' agreement.

15. Minority Protection (Veto Rights and so on).

SAS: bye-laws.

SA: bye-laws (in case of class rights) or shareholders' agreement.

K. In the Event of a Conflict Between a Shareholders' Agreement and a Company's Constitutional Documents, Which Document Is Likely to Prevail?

Generally speaking, bye-laws prevail over the conflicting provisions of a shareholders' agreement.



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L. About the Authors of Section II

1. Thomas Bortoli, Senior Associate

CMS Bureau Francis Lefebvre

T +33 1 47 38 43 77 F +33 1 47 38 41 10 E [email protected] W www.cms-bfl.com

Professional qualifications. Admitted to the Nanterre Bar in February 2004.

Areas of practice. Private M&A including LBO transactions and joint ventures.

Non-professional qualifications. Holds a postgraduate degree (DESS) in business law (Paris XI) and graduated from HEC Paris.

Recent transactions

■ Advising Bridgepoint on the acquisition of Groupe Mezzo di Pasta.

■ Advising Circor group (US company listed at the NASDAQ) on the acquisition of Bodet Aéro and AND.

■ Reorganising the Circor group in France.

■ Advising Pochet group on the acquisition of Lisi Cosmetics.

■ Advising Groupe Bernard Julhiet on the acquisition of Datiss, Capital Santé and Selexens.

Languages. French, English.

2. Jacques Isnard, Partner


T +33 1 47 38 55 00 M +33 6 85 67 65 91 E [email protected] W www.cms-bfl.com

Areas of practice. Joint ventures; Mergers and acquisitions; Restructuring; Private equity; IPOs; General corporate; Stock exchange regulations.

Non-professional qualifications. Holds a Master degree in Economy (1976), a Master degree in Management (1978), and a Master degree in Private Law (1978) from the


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University of Panthéon Sorbonne (Paris) and a diploma from The Institute for International and Comparative Law - Texas, USA (1984). He graduated from the I.N.S.E.A.D (1992).

Recent transactions

■ Advising on the acquisition of General Motors Strasbourg by Punch Metals International. The acquisition was made with a number of ancillary commercial and financial agreements, in particular with Punch's future client the ZF group.

■ Advising on the sale of Novelis Foil France, Novelis Luxembourg and certain assets located in Germany.

■ Advising Zodiac Aerospace on the acquisition of 100% of the share capital of ACC La Jonchère (a company dedicated to ducts and flexible joints).

■ Advising Vishay Intertechnology on the acquisition of MCB Industries SA.

■ Advising MAG group on the acquisition of MAG Americas and Forest-Liné Industries by Fives Cinetic.

■ Advising on the investment by CM-CIC Investissement (subsidiary of CM CIC Capital Finance) in the holding company (Netherlands newco) of Primus group (main plant in the Czech Republic).

■ Advising Mori Seiki on the setting up of a joint venture company in Switzerland with the Gildemayer group .

■ Advising RWE Harpen on a joint venture with Total.

Languages. French, English, Spanish.

Professional associations/memberships. He is a member of the French Association of Corporate Legal Advisors (ACE).



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III. Control and Minority Protection

A. In the Absence of Specific Provisions in the Shareholders' Agreement or Bye-Laws of a Company, What Protections Are Automatically Given to a Minority Shareholder under Local Law?

1. Right to Information

In a SA (société anonyme) shareholders are provided with a wide range of information prior to any shareholders' meeting and can also request that the directors answer any question or request they may have during shareholders' meetings. Additional information made available to shareholders at least once a year includes, for example:

■ The inventory of assets and liabilities.

■ Annual accounts.

■ Reports of the statutory auditors.

In a SAS (société par actions simplifiée), such a legal right to information is much more reduced. However, the bye-laws may provide for a similar right to information to that in a SA.

2. Petition for the Appointment of a Judicial Representative (Mandataire de Justice) or for an Expert Appraisal of Management (Expertise de Gestion)

Holders of at least 5% of a company's shares can file a petition for the appointment of:

• In a SA, a mandataire de justice who can in turn convene a general meeting of the company; or

• In both a SA and in a SAS, one or more experts responsible for submitting a report on one or more management transactions in the form of an expert appraisal of management (expertise de gestion).

3. Abuse of Majority

In principle, minority shareholders can seek the annulment of a decision taken by the majority shareholders in their own interest, and against the minority shareholders' interest, which is detrimental to the company's interests. Damages may also be awarded.


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B. Are Specific Voting Majorities Required by Law for Any Corporate Actions (for Example, Increasing Share Capital, Changing the Company's Constitution, Appointing and Removing Directors and so on)?

1. SAS

Only a few corporate actions of a SAS need to be approved by shareholders' meetings. These include:

■ Increase in share capital.

■ Mergers and spin-offs.

■ Appointment of the statutory auditors.

■ Change to the bye-laws.

The bye-laws may identify other issues that should be decided by shareholders' meetings, such as the appointment of the President, the managing director (if any) and so on.

The bye-laws should provide for the voting majority required for different resolutions, depending on the nature of the resolution. But as a general principle under French law, a unanimous vote is always required for a change to the bye-laws that will increase the obligations of shareholders notwithstanding the corporate form (SA or SAS) of the company concerned.

2. SA

In a SA, there are two sorts of shareholders' meeting with specific voting majorities:

■ Ordinary meetings where a simple majority is required (that is, a simple majority of the shares present or represented). An ordinary meeting will deal with the following issues:

• approval of annual accounts;

• dividends;

• appointment and removal of board members;

• appointment of the statutory auditors (not removal);

• ratification of any agreement or arrangement entered into by the company and any of its directors, or a shareholder holding at least 10% of the company's shares; and



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• issue of bonds (if provided for in the bye-laws, otherwise the decision should be made by the board, unless the shareholders decided against this).

Quorum: the shareholders present or represented at ordinary meetings must own at least one-fifth of the company's shares having voting rights. If such a quorum is not reached, a second meeting is to be convened, for which no quorum is required.

■ Extraordinary meetings where a two-thirds majority is required of the shares present or represented. Extraordinary meetings deal with all amendments or modifications to the bye-laws and, in particular, the following decisions:

• increase and decrease of share capital;

• mergers, hive downs and contributions;

• change of fiscal year or of company name; and

• creation or suppression of a class of shares.

Quorum: the shareholders present or represented at extraordinary meetings must own at least one quarter of the company's shares having voting rights on first convocation of the meeting. If such a quorum is not reached, a second meeting is to be convened, at which shareholders owning at least one fifth of the company's shares having voting rights must be present or represented.

C. Are There Any Statutory Restrictions on Quorum or Voting Requirements at Director and Shareholder Meetings? Do They Need to Be Proportionate to Shareholdings?

1. SAS

With the exception of a very few cases in which unanimous decisions of the shareholders are required, there are no statutory restrictions on the quorum and voting requirements for meetings of shareholders of a SAS. The relevant requirements can therefore be determined flexibly and will be set out in the company's bye-laws. Similarly there are no quorum and voting restrictions or requirements for meetings of the board of directors or management committees (if these have been created).

There is also great flexibility in the granting of voting rights to shareholders and board members (if any) (for example, class rights, veto rights and so on).


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2. SA

The quorum for board meetings is at least half of the board members. The voting requirement is generally a simple majority (but the bye-laws may provide for a higher majority).

The quorum and voting requirements for shareholder meetings are fixed by law and depend on the nature of the meeting (ordinary or extraordinary) (see Section III.B).

D. Can Voting Majorities Required by Law Be Disapplied to Protect a Minority Shareholder (for Example, Through Class Rights or Weighted Voting)?

1. SAS

As discussed in answers to earlier questions there is great flexibility in voting requirements and so on which can give adequate protection to minority shareholders (provided the protections are agreed and documented in the bye-laws). A minority can, for example, have extensive veto rights and even full management of the company.

Statutory voting requirements cannot be disapplied but can be circumvented.

2. SA

Shares held by some shareholders may be preferred shares (actions de préférence). These can in practice give some protection to minority shareholders.

E. About the Author of Section III






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Non-professional qualifications. Holds a Master degree in Economy (1976), a Master degree in Management (1978), and a Master degree in Private Law (1978) from the University of Panthéon Sorbonne (Paris) and a diploma from The Institute for International and Comparative Law - Texas, USA (1984). He graduated from the I.N.S.E.A.D (1992).

Recent transactions












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IV. Competition

A. What Are the Triggering Events/ Jurisdictional Thresholds for the Application of National Competition Rules to a Joint Venture?

A concentration is defined in terms similar to those of the EU Merger Regulation. It means that a joint venture performing all the functions of an autonomous economic entity on a lasting basis constitutes a concentration.

Article L. 430-2 of the French Commercial Code states that concentrations that do not fall within the exclusive jurisdiction of the European Commission under the EU Merger Regulation and which exceed the following thresholds require notifications:

■ The combined aggregate worldwide turnover of the parties to the transaction is greater than EUR150 million.

■ The turnover achieved in France by each of at least two of the undertakings is greater than EUR50 million.

The Law on the Modernisation of the Economy of 4 August 2008, which came into force in March 2009, lowered the thresholds for undertakings active in the retail sector to worldwide turnover of EUR75 million and turnover of EUR15 million achieved in the retail sector by each of at least two of the undertakings.

This law also lowered the thresholds for entities and undertakings active in French overseas departments and collectivities to:

■ Worldwide turnover of EUR75 million.

■ Turnover of EUR15 million achieved by each of at least two of the undertakings in at least one overseas department or collectivity. In the retail sector, the turnover to be achieved by each of at least two of the undertakings in at least one overseas department or collectivity is EUR5 million (this latter threshold was modified by a law of 20 November 2012).

A concentration that exceeds these thresholds must be notified prior to closing.

For the creation of a new joint venture, the undertakings concerned are each parent company that will exercise a decisive influence over the joint venture post-transaction, but not the joint venture itself.

For the acquisition of an interest in an existing business that will be jointly controlled post-transaction, the undertakings concerned are the joint venture and each undertaking that will exercise control post-transaction.



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B. Is Notification Mandatory or Voluntary, and Is There an Obligation to Suspend? Where Notification Is Mandatory, What Is the Deadline for Notifying and What Sanctions Can Be Imposed for Failure to Notify?

Notification under the law is mandatory. There is no deadline for filing, but the undertakings concerned cannot implement the transaction until they have obtained merger clearance.

A contemplated transaction can be filed for clearance, as long as the project is sufficiently complete for the authorities to carry out their analysis. This includes cases in which the undertakings have signed an agreement in principle or a letter of intent. The assessment of the sufficiently complete nature of the project is made on a case-by-case basis.

Infringement of this obligation may lead to a fine of up to 5% of the undertaking's total turnover in France, and individuals involved may each be fined EUR1.5 million. In addition, the Competition Authority may order the parties to make periodic penalty payments until notification of the transaction is submitted, or the transaction is declared invalid.

C. Who Notifies? The parties acquiring joint control.

D. What Authority Do You Inform? The Competition Authority (Autorité de la concurrence).

E. What Is the Substantive Test? The French substantive test is neither a pure "dominance test" nor a "substantial lessening of competition" test, but rather a combination of both. It is whether the transaction is likely to have "effects on competition, notably by way of creation or strengthening of a dominant position, or creation or strengthening of a purchasing power placing the supplier in a situation of economic dependency". In practice, the test is similar to the "significant impediment of effective competition" (SIEC) test implemented by the European Commission.


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F. What Is the Time Limit for the First Stage Decision? As is the case under the EU Merger Regulation, in practice, the review process is preceded by an informal 'pre-notification' phase highly recommended to ensure that the notification form is complete as of the date of the formal notification (the requirement that triggers the launch of the examination period).

In Phase I, the basic reviewing process lasts for 25 working days following the filing of a complete notification plus five working days during which the Minister can ask the Competition Authority for the opening of a Phase II review.

If the parties submit commitments during Phase I (any time from notification to the end of Phase I), the review period is extended by an additional 15 working days to allow the Competition Authority to market test the commitments and to assess the proposed remedies.

In addition, in the case of 'specific necessity', including the finalisation of commitments, the parties can ask the Competition Authority to suspend the regular review timeframe (following a 'stop the clock' process) for up to 15 working days.

G. What Is the Time Limit for a Final Decision and What Decisions Can Be Made?

If the Competition Authority decides to open a Phase II examination pursuant to Article L.430-7 of the Commercial Code, the basic reviewing process lasts for 65 working days plus 25 working days during which the Minister may rule on the case. The Minister may decide to take over the case on public interest grounds (for example, industrial development, competitiveness with regards to international competition or the creation or protection of employment). The Minister has indicated that this procedure is only to be implemented in 'exceptional circumstances'.

If the parties wish to submit commitments during the Phase II review period, they must do so at least 20 working days before the end of the 65 working-day review timeframe (that is, within the first 45 working days of the Phase II review). The review period will then expire 20 working days after the receipt of the commitments. It follows that the review period may last 65 working days if remedies are proposed on the 45th day but the review period may be shorter if they are proposed earlier.

In addition, and if necessary, during a Phase II examination, a 'stop the clock' procedure of 20 working days may be requested by the parties (for example, to allow them to finalise commitments). The Competition Authority may also stop the clock if:

■ The parties have failed to inform the Authority of new facts.



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■ The parties have not provided some requested information.

■ The parties or third parties have not been able to answer questions for reasons attributable to the relevant parties.

In this case, the 'stop the clock' procedure ends when the information is provided to the Competition Authority.

H. Who Do You Appeal to? The French Supreme Administrative Court (Conseil d’Etat).The Phase II review period time limit is 90 calendar days.

I. What Are the Filing Fees? There are no filing fees.

J. Can You Complain About Competitors? Yes.

K. What Are the Penalties for Implementing a Transaction Before It Has Received Clearance?

The undertakings concerned may be fined up to 5% of their total turnover in France and individuals involved may each be fined EUR1.5 million.

L. About the Authors of Section IV

1. Marie de Drouas, Senior associate

Clifford Chance Europe LLP


35

T +33 1 44 05 59 34 F +33 1 44 05 52 02 E [email protected] W www.cliffordchance.com

Professional qualifications. Paris Bar (Avocat).

Areas of practice. Telecommunication and energy sectors.

Non-professional qualifications. LLM in European Business Law (Sceaux University, Paris XI).

Recent transactions

■ Advising an energy company on different anti-trust litigation cases before the French Competition Authority for alleged cartel offences and collective abuse of dominant position.

■ Advising an industrial company before the EU Tribunal (in relation to car glass).

■ Advising a telecoms company in several anti-trust proceedings before the French Competition Authority (in relation to margin squeeze and price discrimination).

■ Advising a retail company in anti-trust proceedings before the French Competition Authority regarding its franchise network.

■ Advising on the notification of merger operations to the European Commission and the French Competition Authority.

■ Advising companies in relation to the creation of joint ventures.

■ Conducting anti-trust audits.

Languages. French and English.

Publications

■ Corporate Finance and Capital Markets Law Review, Listed Companies' Communication on Enquiries, October 2013.

■ Concurrences Journal, interview of Emmanuel Combe: Competition policy, a tool for economic growth and employment, No. 1-2013.

■ Concurrences Journal, the advisory practice of the French Competition Authority, No. 3-2011.

■ Concurrences Journal, the French Competition Authority, one year on: Users’ points of view, No. 2-2010.



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2. Patrick Hubert, Partner

Clifford Chance Europe LLP

T +33 1 44 05 53 71 F +33 1 44 05 52 02 E [email protected] W www.cliffordchance.com

V. Employees

A. What Level of Statutory Employment Protection Do Employees Receive in Your Jurisdiction? Are There Provisions of 'Mandatory Law' That Apply to All Workers in Your Jurisdiction, Regardless of the Choice of Law in the Employment Contract and the Identity, Place of Incorporation or Location of the Employing Entity?

1. Level of Statutory Protection

In France, employees are afforded considerable safeguards, both during performance, and on discharge, of their employment contract. This relates not only to individual rights, but to collective rights, and staff representation.

There are three different levels of such safeguards, owing to the major role played by negotiations with the trades unions (known as négociation collective):

■ Statutory safeguards. Essentially the Labour Code, and those defined by regulations, these represent the "bottom line".

■ Safeguards arising from collective negotiations. In France, a major role has been given to such negotiations by Parliament; they may take place at branch, or company level. In general, collective negotiations will lead to an agreement (known as a collective agreement or Collective Bargaining Agreement (convention


37

or accord collectif de travail)). In certain areas, collective negotiations are mandatory (for example, annual company-wide wage negotiations); other areas are dealt with entirely through collective negotiations (for example, intermittent workers). Derogations from statutory safeguards are permissible if, in principle, collective negotiations are seen as improving such safeguards.

■ Safeguards arising from the employment contract. This expresses the parties' intentions, although nothing in the contract may be less advantageous to the employee than the law, or the relevant collective agreement.

2. Mandatory Law

No matter where the employer is based, if the employment contract is performed in France, most safeguards designed to protect workers will apply.

Where, however, the employment contract, though performed in France is an international one, and (validly) defines a governing law other than French law, notwithstanding that choice the employee will be covered by:

■ The mandatory terms of French law most advantageous from the worker's standpoint, under circumstances where French law would automatically have applied pursuant to Article 8.1 of Regulation (EC) No 593/2008 (in particular when the employee habitually carries out his work in France in accordance with the contract). What these mandatory terms might be remains unclear; in the light of recent case law, this would appear to mean, at the very least, the law pertaining to dismissal, paid holidays, and the minimum wage (SMIC).

■ Whatever the law governing the employment contract, whether or not the parties have made a choice of governing law, the employee will be afforded the safeguards of French rules of public policy (lois de police) (Article 9, Regulation (EC) No 593/2008). In the light of applicable case law, this refers essentially to state law on working conditions for foreign workers, and the right to strike.

■ Lastly, there are minimum safeguards for workers on temporary secondment to France to perform services (this relates essentially to remuneration, working hours and conditions of seconded workers).

B. Please Give Details of the Following in Your Jurisdiction (if Applicable):

1. Maximum Working Week

The upper limit is twofold:



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■ It is forbidden for anyone to work beyond 48 hours per week, save under exceptional circumstances and with the Labour Inspector's authorisation.

■ The other upper limit is 44 hours per week on average over a single twelve-week stretch. Under certain circumstances, this may be raised to 46 hours per week.

These upper limits do not apply to top management (cadres dirigeants). Executives (cadres) who are covered by a lump sum agreement in days (forfait jours). and whose working week is not counted in hours, but rather in the number of days worked per annum are also exempted from this upper limit in principle, but the issue is under discussion following several decisions by the French Supreme Court.

2. Minimum Wage

The statutory minimum wage (SMIC) is based on a gross hourly rate, subject to annual review. From 1 January 2014, it stands at EUR9.453 gross per hour (as at 1 October 2014, US$1 was about EUR0.79). All workers of both sexes, aged over 18 and fit to work, are entitled to be paid the SMIC. The minimum wage is lower for workers under the age of 18.

3. Minimum Holiday Entitlement

25 week days (jours ouvrés), that is, five weeks' paid leave, in addition to Bank (public) Holidays which are, as a rule, between one and ten days per annum. As for paid leave, no worker may, in principle, waive his right to take holidays and accept pay in lieu, except on leaving the company.

C. What Statutory Rights Do Workers Have Against Dismissal in Your Jurisdiction?

Workers are entitled to many safeguards on dismissal. These concern the grounds put forward by the employer, and procedure.

■ Grounds for dismissal. There must be real and serious grounds for dismissal (cause réelle et sérieuse). In principle, an employee can be dismissed on personal grounds (that is, grounds related to the worker as an individual (misconduct, incompetence and so on) or on economic grounds unrelated to the worker as an individual (elimination/transformation of the job, change to the employment contract owing to economic hardship, restructuring required to safeguard the company's competitiveness, technological changes, closing down the business). For dismissal to be deemed fair, the grounds alleged, whether personal or economic, must comply with the guidelines laid down by the courts.

As a rule, where the employer lacks real and serious grounds, damages may be awarded against him and under certain circumstances, there is a minimum


39

award (see Section V.H). In a limited number of cases, dismissals may be declared null and void by the courts, and the employee may be reinstated by court order; the employer will be ordered to pay arrears on wages and benefits from the date of dismissal.

Staff representatives enjoy special safeguards. In particular, authorisation from the Labour Inspector is required before they may be dismissed.

■ Dismissal procedure. The formalities are defined by the Labour Code, and by certain Collective Bargaining Agreements. For example, the worker must be summoned to a preliminary meeting, unless more than nine workers are to be made redundant. In the latter case, the procedure is far more complex and has been substantially changed by the Law of 14 June 2013: the Works Council must be consulted, due notice must be given to the labour authorities and, where relevant, a collective redundancy scheme must be drafted and submitted for approval to the labour administration. Disregard for the procedure will, in principle, make dismissal wrongful (licenciement irrégulier), and the workers concerned may be awarded damages. Where the company is under a duty to draft a collective redundancy scheme, but has failed to comply with the formalities, the redundancies may be declared null and void, if the labour administration does not approve the content of the collective redundancy scheme.

D. What Rights Do Workers Have to Be Consulted or Participate in the Management of Companies Incorporated in Your Jurisdiction? (In Particular, Do They Have to Be Consulted in Relation to Redundancies or Disposals)?

1. Consultation

In the main, the workforce is consulted through the Works Council, which is chaired by the employer, and composed of elected staff representatives. The Works Council's role is to ensure that the workforce has a collective voice, and that its views are taken into account on an ongoing basis. The Works Council must be informed and consulted in at least 85 specific situations. Examples include:

■ Collective redundancies.

■ Decisions affecting the company's structure (any major change to production structures, or to the company's economic or legal structure, for example, a merger, transfer or sale of the company itself and so on).



40

■ Decisions relating to the company's general operations (company research and development policy, working hours, company rules and regulations and so on).

Works Council approval is not required.

2. Right to Participate in the Management of Companies

Again, it is the Works Council, rather than the workforce as such, which enjoys certain rights in certain corporate structures (notably the société anonyme). Under the Labour Code, in a société anonyme, the Works Council must necessarily be represented each time the Advisory Board or Board of Directors (conseil de surveillance, conseil d'administration) meet. But at these meetings, the Works Council only plays a consultative role and does not take an active part in managing the company.

Since an Act dated 15 May 2001 came into force, the Works Council may also be represented at the Shareholders' General Assembly, where it can, in particular, require that certain resolutions appear on the agenda.

A specific right for the representation of workers to the Board of Directors has been created by the Law of 14 June 2013 in very large companies and groups (those employing at least 5,000 permanent workers in France (if the head offices are all in France) or 10,000 in France and abroad).

Specific information. The Law of 31 July 2014 sets up for certain companies employing less than 250 workers an obligation to inform the employees in the case of transfer of an ongoing concern (fonds de commerce) or of the majority of the voting rights. In principle, notice shall be given at least two months before the signing-up. The penalty for non-compliance with this obligation is the nullity of transfer.

E. What Is the Basis of Taxation of Employment Income in Your Jurisdiction? Please Distinguish Between Foreign Nationals Working in Your Jurisdiction and Nationals of Your Jurisdiction Working Abroad.

All French residents are liable to income tax (impôt sur le revenu), no matter what their nationality. A person will be deemed to be a French resident if, for example, his personal or family residence lies in France, or if his main place of residence is in France. His main place of residence will be deemed to be in France, if he resides in France for over 183 days in a single calendar year.

In principle, income tax is calculated on all income, including from sources abroad, although liability may be reduced under a double tax treaty. In particular, all emoluments of employment are potentially subject to income tax (for example, salary, bonus, benefits in


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kind), on their net amount. "Net" means after national insurance has been levied, although certain other mandatory levies are added back for the tax computation.

Certain non-residents may nonetheless be liable for income tax in France, but only on income from French sources. In such cases, a withholding tax of up to 20% would apply (subject to double tax treaties that can reduce such a rate).

Foreign staff members seconded to France to work in a salaried capacity, or to take up certain types of company-officer position, may, under certain circumstances and for a restricted time, be exempted from paying national insurance contributions on the extra remuneration paid to them on account of expatriation. However social security contributions (CSG/CRDS) would apply at an 8% rate on foreign income received by foreign staff members whilst living in France.

Subject to certain requirements, national insurance contributions paid in the country of origin into social security schemes, contingency and complementary pension schemes, will be deductible from the gross amount of taxable income in respect of foreign staff members seconded to France who began to work in France.

Where certain conditions are met some foreign income received by foreign staff members is not subject to French individual income tax. This exemption may apply if two cumulative conditions are fulfilled:

■ The recipient must not have been a French tax resident during the five years preceding his/her taking of the position in France.

■ The recipient must be a French tax resident as from the date he/she takes the position in France.

F. What Is the Rate of Tax on Employment Income? Are Any Other Taxes (such as Social Security Contributions) Levied on the Employment Relationship?

1. Rates

Income tax is assessed per calendar year, on total income for the previous year, by progressive brackets. The higher the income bracket, the higher the rate. At the present time, there are six brackets, and five different rates. The rate varies from 0% (for individuals whose income lies under EUR6,011) to 45% (applying to the portion of income over EUR151,200).

An exceptional contribution on high income applies in addition. The rates are as follows:



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Income received Single Couple (common tax basis)

From EUR250,001 to 500,000 3 % -

From EUR500,001 to 1,000,000 4% 3%

Above EUR1,000,000 4% 4%

Please note that the French government announced, in the Finance Bill for 2015, the cancellation of the first bracket (rate of 5.5%). The new first bracket will concern taxable income above EUR9,690 at a rate of 14%. Please note that it is also envisaged to upgrade all brackets by 0.5% for the fiscal year 2015 (income received in 2014). These modifications have not yet been enforced.

2. Other Taxes and Levies

Individuals in salaried employment pay national insurance dues, and levies known as CSG and CRDS (at an 8% rate), adding up to roughly 25% of remuneration on average. The employer also pays national insurance dues, corresponding to about 45% of the worker's gross remuneration.

G. If an Individual Employee Agrees to Transfer Employment to a New Entity, Should Any Formalities Be Followed to Prevent the Employee from Later Bringing a Claim in Respect of Termination of Employment? (Assume That the Transfer Is Not Part of a Transfer of a Business as a Going Concern.)

Where a worker is transferred outside the framework of a transfer of a business (transfert d'entreprise), his employment contract with the original employer will be discharged only if the worker has explicitly and unambiguously agreed so. Although in principle, nothing need be set down in writing, it is advisable to do so for evidential purposes. Lack of a written document may complicate things for the employer, as the worker might contend that the initial contract had simply been suspended, and that it should come back into force, at the point the new employer discharges the contract.

In practice, a transfer will generally be formalised by a tripartite agreement between the worker, the original employer, and the new employer. This type of agreement usually provides that the new entity will take over the length of service accrued by the employee in the course of his previous employment.

That being said, signing such an agreement implies no waiver, on the worker's part, of all rights to sue for reasons arising from performance or termination of the original contract.


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The only arrangement that would serve to do so is a settlement agreement, drafted so as to formalise settlement of the dispute and define mutual concessions. In practice, however, once a transfer agreement has been signed, such disputes seldom arise.

H. What Benefits (if Any) Does a Period of Continuous Employment Bring for an Employee in Your Jurisdiction? If an Individual Employee Is Transferred to a New Entity, in What Circumstances (if Any) Will the Employee Be Deemed to Retain His Continuous Period of Employment? (Assume That the Transfer Is Not Part of a Transfer of a Business as a Going Concern.)

1. Length of Service

Under the Labour Code, the main advantages are:

■ On dismissal, save in the event of serious or gross misconduct, workers with between six months and two years' service are entitled to at least one month's notice. Workers with at least two years' service are entitled to two months' notice.

■ All employees are entitled to severance pay, provided that they have one year of service and are not being dismissed for serious misconduct

■ In the event of unfair dismissal (licenciement sans cause réelle et sérieuse), workers with at least two years' service in companies with 11 or more staff members will be entitled to an award corresponding to at least six months' gross wages.

■ Workers with at least one year's service have the right to take parental leave.

Collective Bargaining Agreements frequently provide for additional benefits such as length-of-service bonus, additional paid leave, longer notice (cadres will be entitled to three to six months' notice) and larger severance pay.

2. Retaining Length-of-Service on Transfer (Other Than on the Transfer of a Business)

In principle, a transferred worker cannot carry over a length-of-service acquired with a former employer, to the new employer. However, the relevant Collective Bargaining Agreement or the initial employment contract or the transfer agreement may provide for carry-over.

In practice, it is recommended that length-of-service is carried over.



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I. What, if Any, Remedies Are Available to an Employer, if an Employee Refuses to Transfer to a Joint Venture Entity? (Assume That the Transfer Is Not Part of a Transfer of a Business as a Going Concern.)

An employee's approval must be obtained unless a transfer qualifies as a transfer of a business.

If the worker refuses to transfer, and the employer wishes to dismiss him, he will have to adduce grounds other than that refusal, otherwise the dismissal can be declared unfair.

J. If a Business Is Transferred from a Joint Venture Party to the Joint Venture Entity, Is There Any Statutory Protection of Employees Working in the Business?

1. The Automatic Transfer Principle

The employment contracts in force will transfer over automatically, pursuant to Section L. 1224-1 of the Labour Code, if the transfer qualifies as a transfer of a business in French law.

A transaction qualifies as a transfer of a business, where there is a transfer of an independent economic entity (entité économique autonome), the business of which carries over, or is taken over, and the entity retains its own identity after transfer. Transfer must also imply a change to the employer's legal situation. The French Supreme Court (Cour de cassation) has defined an independent economic entity as an organised unit made up of persons and tangible or intangible items that make it possible to pursue a business endowed with its own purpose. This is a wide definition, and the notion of transfert d'entreprise thus covers a great many possible situations in French law.

2. Special Protection Against Dismissal

Where a transfert d'entreprise takes place, special safeguards have been instituted to protect the workforce against dismissal, designed to circumvent the automatic transfer of their


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employment contracts. Dismissal under these circumstances will be deemed unfair and may even be deprived of any effect.

3. Informing and Consulting with Employees

The transferor and transferee must consult staff representatives (Works Council) before the transaction both on the transfer scheme itself and on its impact (notably on the labour force). Consultation with the health and safety committee may also be required. There is no duty on the employer, however, to inform or consult the workforce directly.

K. If Employees Are Transferred to a Joint Venture Entity by Different Parties, Are There Any Legal Restrictions on Harmonising Their Terms of Employment?

1. Harmonising Individual Status (Employment Contract)

As a general rule, it is the transferee who will harmonise the employment contracts or working conditions after transfer. This process is governed by the following rules:

■ Where harmonisation would entail altering employment contracts (that is, making changes to a fundamental contractual term such as wages, position, place of work, length of the working week, non-compete clause), the Labour Code's stipulations on changing employment contracts for economic reasons must be complied with. This will involve notifying the workers concerned by letter (sent by recorded delivery against acknowledgement of receipt) allowing them one month's time to reflect, consulting the Works Council beforehand if two or more workers are to be affected and drawing up a collective redundancy scheme (plan de sauvegarde de l'emploi) where relevant. If a worker refuses the change, the employer will either have to withdraw the proposal, or make him redundant (licenciement économique). If the employer lacks a sufficient economic rationale, dismissal will be deemed unfair.

■ Where harmonisation entails a mere change to working conditions, in other words, where it has no impact on a fundamental contractual term, the worker may not object. If he does so, the employer would be entitled to dismiss him on personal grounds (licenciement pour motif personnel).



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2. Harmonising Collective Status (Notably Collective Bargaining and Other Collective Agreements)

The Labour Code defines the requirements for harmonising transferred workers' new collective status with that enjoyed before the transfer. The new employer must, in principle, enter into negotiations with a view to harmonising their status within the new company, should this be required. There are special rules for issues such as profit-sharing (intéressement participation) and complementary pension schemes.

L. Are There Any Restrictions in Your Jurisdiction on an Employer Seconding an Employee to Another Organisation on a Temporary Basis?

The employer must obtain the employee's consent, and an addendum to the employment contract must be signed. Both employers must consult with their respective employees representative in advance of the secondment.

The Labour Code has restrictively defined the employer's right to second workers. It provides that the secondment cannot be for profit, in other words no compensation must be paid apart from wages, social contributions and professional fees (section L 2241-2).

The Labour Code thus prohibits placing workers at another firm's disposal:

■ Where the operation's sole aim is to hire out manpower, rather than performing a given task.

■ Where the net result would be to cause prejudice to the worker, or to circumvent the law, regulations, a Collective Bargaining or other Collective Agreement. Such arrangements constitute an offence known as délit de marchandage, or trafficking in manpower.

M. Does an Employer That Seconds an Employee to Another Organisation Remain Vicariously Liable for the Acts of the Employee (Even if the Employee Is Acting in Accordance with Instructions from the Other Organisation)?

Where a worker commits an offence whilst on secondment, or while at the disposal of the host firm, civil liability will be incurred by the company that the worker had been reporting to at the time the offence occurred. Under exceptional circumstances, both the host firm and the firm that seconded the worker, may incur joint liability.


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N. If an Employee Creates Intellectual Property Rights in the Course of His Employment, Who Owns the Rights? Would the Answer Be Any Different if the Employee Is Seconded to Another Organisation When the Rights Are Created?

1. Who Owns the Rights?

Where inventions are developed by an employee whose duties necessarily imply research or a standing assignment to invent (mission inventive), his inventions are company property. In all other cases, the property rights in inventions belong to the employee, although the employer may have those rights, or the enjoyment of them, assigned to him by paying the worker a fair price (juste prix), provided those inventions bear a direct relation to the company, and more especially, to its own line of business.

2. In Case of Secondment

The same applies.

O. How Are Fees for Seconded Employees Taxed in the Hands of the Employing Company? Does Value Added Tax Apply to Secondment Fees?

1. Taxation of the Employing Company

If secondment involves placing Employer A's workers at the disposal of Employer B and invoicing Employer B for their services, tax will be levied on any fees that Employer A is paid. A withholding tax may be levied in such circumstances.

2. VAT

In principle, VAT is levied on such services. There are, however, some derogations, especially where the services in question are rendered and used outside France, or within a group (subject to conditions).



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P. Is It Common (or Compulsory) for Employees to Participate in Private Pension Schemes Established by Their Employing Company? Are Any Tax Reliefs Available on Contributions to Such Schemes (by the Employing Company and Employees)?

1. Participation in Private Pension Schemes

In France, few companies afford their workers the benefit of private pension schemes. Collective Bargaining Agreements, as a rule, do not compel the employer to set up such schemes. Where they have been set up, the main beneficiaries will normally be senior executives and managers (cadres supérieurs, dirigeants).

However, the Act dated 21 August 2003 relating to Pension Reform was designed to promote pension savings-schemes by creating several products that companies could offer their workforces.

2. Tax Relief

Under certain circumstances, and within certain limits, the company's contribution to financing pension schemes may be exempt from national insurance dues and may also be tax deductible. The same applies to workers. That being said, tax is levied on pensions.

Q. Can Employees That Are Working Abroad and Employees of a Subsidiary Company in a Different Country Participate in a Pension Scheme Established by a Parent Company? Are the Same Tax Reliefs Referred to in Section V.P. Still Available in These Circumstances?

1. Employees Working Abroad/Employees of Foreign Subsidiaries

It all depends on the terms of the pension scheme.


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2. Tax Relief

Yes, provided the requirements are fulfilled.

R. If an Employee Is Transferred as Part of a Business, Is the Transferee under an Obligation to Honour Existing Pension Rights or Provide Equivalent Rights?

Where workers are transferred as part of a transfer of a business (see Section V.J), the transferee becomes liable, in principle, to contribute to statutory pension schemes on their behalf, but only from the date the transfer actually comes into effect.

Where the transferred workers are covered by a private pension scheme, whether the transferee has a duty to honour existing pension rights or provide equivalent rights will depend essentially on the employment contract's terms (is this a fundamental contractual term, or not?). Under certain circumstances, the transferee may be under a duty to maintain the benefits on a temporary basis. This will depend on whether they arose through company custom, a collective agreement and so on.

S. Are Employee Share Option Schemes Common in Your Jurisdiction? If so, Are There Any Tax Benefits and Can Options Be Granted to Employees of Group Companies?

1. French Companies

French companies have increasingly tended to set up stock option subscription or purchase schemes, although they will generally be restricted to senior management. Under certain circumstances, employees who have been granted a share option scheme may benefit from lower individual income taxation, provided that the scheme qualifies and conditions are met. Therefore tax deductions may be available to the company (tax relief on companies tax).

In principle, the company will be entitled to such relief solely on options granted to its own workforce, although exceptions do exist for employees of another group company.



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2. Foreign Companies

Under certain conditions, these tax breaks may be available where the options are issued by a foreign company and granted to the employees of a French company (group of companies).

T. If an Employee That Participates in a Share Option Scheme Is Transferred as Part of a Business, Is the Transferee under an Obligation to Provide an Equivalent Scheme? If so, How Is This Dealt with in Practice?

Whether the transferee would be under a duty to provide an equivalent scheme will depend, essentially, on the employment contract's terms (is this a fundamental contractual term or not?).

If the original company from which the workers are transferred is absorbed by another company, the merger agreement will often, in practice, state that the company effecting the takeover will stand in for the original one, and meet any undertakings the latter may have made in respect of stock option beneficiaries.

U. Do Foreign Nationals Require Work Permits and, if so, How Difficult Are They to Obtain and How Long Does the Process Take?

A work permit is, in principle, required unless the individual is:

■ A citizen of a state within the European Economic Area.

■ A citizen of a state with which France has an agreement, eliminating the need for work permits.

Whether or not a residence permit will be required, may also depend on how long the worker is expected to stay in France.

In practice, obtaining a work permit may prove to be a difficult exercise. The requirements are very strict, and the authorities have considerable discretion. Obtaining one will take at least three months.


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V. Are There Any Restrictions on Foreign Managers or Directors for Companies in Your Jurisdiction?

No. But in certain cases, the individual may be barred from taking up his duties, until he has obtained a permit known as a carte de commerçant étranger (foreign trader's permit).

W. Are There Any Circumstances in Which Directors or Managers Can Be Personally Liable in Respect of the Actions of a Joint Venture Company That Is Incorporated in Your Jurisdiction?

1. Civil Liability

A manager may incur civil liability for the company's deeds, although this is exceptional. As a general rule, a claimant must be able to show that there has been some form of personal error or negligence imputable to the manager as an individual, save where the company has filed for bankruptcy. In practice, company managers will often be sued where the company has become insolvent. On the other hand, there are many instances where a manager may incur liability personally, on account, not of the company's actions, but of his own conduct (for example, managerial error).

2. Criminal Liability

Criminal prosecutions of directors are more frequent, as there are few cases in which a company may, as such, incur liability.

In general, a manager may be prosecuted, unless he has delegated his powers for:

■ Breach of regulations governing companies (labour law, environmental law).

■ Offences arising from negligence or lack of due care (imprudence).

X. About the Author of Section V

1. Alexandra Stocki, Partner

Bird & Bird

T +00 33 1 42686055 F +00 33 1 42686011



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E [email protected] W www.twobirds.com

Professional qualifications. Paris bar, 1998; Paris Business School, (ESCP Europe); Master's degrees in commercial law and public law.

Areas of practice. Employment law, particularly collective issues (consultation with employees' representatives, collective bargaining, working time, reorganisation and job protection plans).

Languages. French, English.

Publications

■ Criminal sanctions with regard to labour negotiations on strategic workforce planning [GPEC], JCP S, no 19, 10 May 2011.

■ Moves towards an extension of the prerogatives held by employee representatives over the company's strategic choices, ANI 11 January 2013, JCP S, no 6, 5 February 2013, no 1065.

■ Information and consultation of the Works Council on the consequences of restructuring by a third party company, Cahiers sociaux, 1 April 2013, no 251, p. 121 et s.

■ What criteria for information and consultation of the Works Council?, Semaine sociale Lamy, 8 April 2013, no 1579.

■ Direct participation of employees in corporate governance organs, Semaine sociale Lamy, 8 July 2013, no 1592.

■ Has a new equilibrium resulted from legislation on job protection and information and consultation of the Works Council ?, Les Cahiers sociaux no 254, July 2013.

■ Fixed-term contracts – the latest news in 2013, Les Cahiers sociaux, no 255, August-September 2013.

■ The Mory Ducros case : uncertainty raised by the decisions of the Cergy Pontoise Administrative Court [Tribunal administratif de Cergy Pontoise], Les Cahiers sociaux no 267, October 2014.


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VI. Tax

A. Are Partnerships Tax Transparent in Your Jurisdiction?

1. French Partnerships

French partnerships are not fully transparent. Although each partner is liable to tax in respect of its pro rata share of income, the partnership as a whole is not entirely disregarded for tax purposes as, among other things, such pro rata share of income is calculated at the partnership level (so-called "translucidité fiscale", the Translucency Approach).

As each partner is liable to tax in respect of its pro rata share of income, profits and losses accrue directly to the partners (unless the partnership elects to be subject to corporation tax), and the partnership itself is not subject to French taxation, with some limited exceptions where a partner is a non-French tax resident.

However, because of the Translucency Approach, the pro rata share of income a non-French resident partner of a French partnership is entitled to as a result of an activity carried out in France is subject to French taxation, notwithstanding the provision of any applicable double tax treaty. Treaty benefits are only available to the entity carrying out the activity that gave rise to the income, in other words, the partnership itself.

2. Foreign Partnerships

The French tax authorities (FTA) have issued administrative guidelines (Bulletin Officiel des Finances Publiques-Impôts BOI-INT-DG-20-20-20-10-20120912 and BOI-INT-DG-20-20-30-20120912, dated 12 September 2012) (the Administrative guidelines) providing for a specific treatment of foreign partnerships.

Before the release of the Administrative guidelines, the FTA did not want to take into account the tax position of the partners within the partnership. and therefore taxes were assessed at the partnership's level. The FTA had to determine whether or not the foreign partnership qualified as a resident for treaty purposes, by reference to French domestic law.

In this respect, the foreign partnership was compared to French entities based on certain criteria provided by French company law (such as the type of liability of the partners). The foreign entity would then be treated in a similar way as the model French entity. For treaty purposes, France denied treaty benefits to those partnerships which were tax transparent in their state of organisation to the extent these partnerships were not subject to tax (see below, Section VI.C for some of the exceptions). In addition, the FTA would not verify whether or not the partners themselves qualified as resident for treaty purposes, although the test has been applied by French courts.



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Under the Administrative guidelines, the FTA may, under certain conditions, treat foreign partnerships as tax transparent entities (the Transparency Approach) in relation to French-source passive income (dividends, interest and royalties) derived by foreign and French-resident partners of a foreign partnership. Accordingly, France would abandon to a certain extent the method under which the foreign partnership is classified by reference to French entities. The Administrative guidelines only cover foreign entities treated for tax purposes as tax transparent in their jurisdiction of establishment (UCITS, pension funds, and legal structures similar to family foundations or trusts are however not covered ).

The Transparency Approach applies in situations where a French or foreign resident partner derives income through a foreign partnership. If all the requirements provided for in the Administrative guidelines are met (see below), French-source passive income derived by a foreign resident partner will be subject to the reduced withholding tax rate provided in the double tax treaty entered into between France and the country of residence of the foreign partner. Conversely, French-source passive income received by a French-resident through a foreign partnership should not be subject to withholding tax in France (subject to the withholding tax rules described, see below, Section VI.J).

The scope of the Administrative guidelines is limited to French-source passive income (in other words, dividends, interest and royalties) derived through a foreign partnership; business income or income deriving from French immovable property are not covered by the Administrative guidelines.

Four requisites must be met to benefit from the Transparency Approach:

■ The foreign partnership must be located in a country with which France has entered into a double tax treaty providing for administrative assistance to prevent fraud or tax evasion.

■ The partners must be, for tax purposes, resident in either France or a country with which France has entered into a double tax treaty providing for administrative assistance to prevent fraud or tax evasion.

■ The jurisdiction of organisation of the partnership and the jurisdiction of residence of the partners must both consider the French-source passive income as the partners' income, and the partners must be effectively subject to tax.

■ The foreign transparent partnership's member should not be itself a tax transparent partnership.

In addition, the following documents must be filed with the FTA:

■ A tax treaty form for each of the non-resident partners.

■ A certificate of residency (Form 5000 (Cerfa n°12816*01)) for each French-resident partner.

■ A document certified by the legal representative of the foreign partnership confirming the percentage of rights held by each partner in the partnership and the tax transparency of the partnership.


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■ A document certified by the FTA of the residence state of the partners stating that the French-source income is subject to tax in the hands of the partners, without any exemption.

B. Can Losses of a Foreign Partnership Be Offset Against the Profits of a Corporate Partner That Is a Tax Resident in Your Country?

No, losses of a foreign partnership cannot be offset against profits of a French resident corporate partner, unless such losses can be attributed to a French permanent establishment of the foreign partnership.

C. Do Partnerships That Are Tax Resident in Your Country Generally Receive Similar Benefits to Companies under Double Tax Treaties?

French partnerships do not meet the "subject to tax" test as their partners are those liable to tax. However, a partnership will receive treaty benefits because it is deemed by the FTA to be tax resident for the specific purpose of double tax treaties entered into by France. Since the 90s, France has signed several double tax treaties expressly providing for such treatment (for example, the US/France, the UK/France and the Australia/France double tax treaties).

D. Does Your Country Have Rules That Restrict the Proportion of a Company's Capital That Is Comprised of Loans by Affiliates (Thin Capitalisation Rules)? If so, Please Explain in What Circumstances These Rules Apply and Whether They Can Be Circumvented.

The thin capitalisation rules included in the Tax Code (FTC) provide that the deduction of interest paid by a French company to related parties will be fully or partly disallowed if all three tests outlined below are satisfied. In addition, the so-called “anti-hybrid mismatch rules” disallow the deduction of interest if the lender is affiliated with the borrower and is not liable to tax on this interest.



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1. Definition of Related Parties

The interest deduction limitations only apply to the extent the lender and the borrower are related parties, in other words:

• One holds, directly or through one or more intermediary entities, the majority of the share capital of the other or exercises a de facto power of decision within the latter; or

• They are both under the control of a third person.

Thin-capitalisation rules also apply to interest payments made by a French company to a third party, to the extent that the financing such interest payments are connected to is guaranteed by a related party as defined above (or by a third party which is itself guaranteed by a related party), with the exception of:

• Public bond offerings. • Financings guaranteed exclusively by a pledge of the borrower's shares or claims, or, in a

French tax consolidated grouping, of the borrower’s parent company’s shares. • Financings set up as a result of the repayment of a prior financing which, itself, is the

mandatory contractual consequence of the change of control of the borrower. • Financings arranged before 1st January 2011 as part of leverage buy- out transactions (or

their refinancings).

2. Interest Rate Test

The maximum deductible rate for interest payments made between related parties is the higher of:

■ The annual average of effective rates used by financial institutions for variable rate loans with a maturity of more than two years (2.79% for 2013); or,

■ The interest rate that the borrower could have obtained from an independent financial institution under similar circumstances. Any interest expense in excess of this rate is non deductible.

3. Limitation Tests

The deductibility of the interest paid to related lenders is limited if the three following criteria are met simultaneously:

■ The debt/equity ratio of the borrower, vis-à-vis related lenders, exceeds 1.5:1.

■ The interest represents more than 25% of the current taxable income of the borrower (without taking into account, among other things, interest payments to related parties, amortisations, leasing fees and so on).

■ The interest exceeds the interest received by the borrower from related parties.


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If all three tests are met, the portion of interest which exceeds the highest of the amounts outlined under the three bullet points above is not tax deductible (unless it is less than EUR150,000) (as at 1 May 2015, US$1 was about EUR0.92). Such non deductible portion may however be carried forward with no limits, subject to a reduction of 5% per year, and to the limitation tests.

4. Exceptions

The above limitations do not apply, among other things, to entities managing a cash pooling arrangement and to interest payable by certain financial institutions. In addition, the limitation does not apply if the borrower can prove that the debt/equity ratio of the group to which it belongs is equal to, or higher, than its stand-alone debt/equity ratio. There is also an exemption for qualified loans made by affiliated lenders which are licensed as banks in the EU and, under certain conditions, for interest free loans made to a French partnership by its French corporate shareholders.

5. Anti-Hybrid Mismatch Rule

For fiscal years ending on or after 25 September 2013, interest deduction is possible only to the extent that the French borrower is able to demonstrate, upon request from the FTA, that the lender is, for the current fiscal year, subject to income tax on the interest equal to at least 25% of the income tax determined under standard French rules (including CIT additional surcharges, see Section VI.F). With respect to certain funds and partnerships, the “subject to tax” condition is determined, as the case may be, at the level of the share/unit holder or the group of share/unit holders (provided that the fund is controlled by such holder).



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E. If a Company That Is a Tax Resident in Your Country Transfers Assets (Including Shares) to a Company That Is Tax Resident in Another Country, What Taxes Might Arise? Are Reliefs Potentially Available? (Please Distinguish, if Relevant, Between Assets That Are Located in Your Country and Assets Located in a Foreign Country.)

1. Income/Gains Tax

A French company is liable to corporation tax on any gain made on the sale of assets located anywhere in the world (subject to the provisions of relevant double tax treaties), except if the assets are to be attributed to a non-French permanent establishment. Special rules may apply to capital gains made on the disposal of shares (see Section VI.G).

Special rules may allow for tax deferral in relation to mergers, demergers and contributions of activities (fusion, scission, apport partiel d'actif). These rules, however, only apply to entities that are subject to corporate income tax.

Finally, the transfer of assets made between two companies that are members of the same French tax group may be neutralised. However, in the event that one of the companies ceases to be consolidated, or that the asset is resold outside of the tax group, the neutralised gain is re-captured.

2. Stamp Duty

Rates vary depending on the nature of the assets transferred:

■ 0.1% on the transfer of shares in:

• French listed companies organised as an SA, SAS and SCA, where the transfer is made by way of a deed executed in France or abroad (subject to the non-application of FTT) (see below);

• French non-listed companies organised as an SA, SAS and SCA.

■ 3% on the transfer of shares in companies organised as an SARL, SNC or other kind of partnership. In this case, a rebate equal to the difference between the amount of EUR23,000 and the total number of shares in the company per share transferred applies.

There are some exemptions from the 0.1% and the 3% taxes for intragroup transfers, acquisitions of shares in companies subject to insolvency proceedings and share buyback programmes in the context of an employees’ saving scheme (under certain conditions).


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■ The transfer of shares in a non-French entity on the basis of a transfer deed executed in France would be taxed as if the non-French entity was a French entity.

■ 5% on the transfer of shares in French or foreign companies whose assets mainly comprise real estate in France (Real Estate Companies). For transfers taking place between 1 January 2012 and 30 December 2014, the tax basis is equal to the difference between the fair market value of the real estate directly or indirectly held by the Real Estate Company minus the debt liabilities pertaining to the acquisition of the relevant real estate. For transfers taking place from 31 December 2014, the tax basis is equal to the consideration of the transfer (or, if higher, the fair market value of the shares transferred).

■ 5.09% on transfers of real estate located in France. French local administrative districts (départements) are allowed to raise this rate. In departments which choose to raise their local rate, the global transfer tax rate on the sale of real estate properties is brought from about 5.09% to 5.81%. In certain circumstances a reduced transfer tax rate of about 0.715% could be levied instead.

■ 3% (of the consideration between EUR23,000 and EUR200,000) and (as the case may be) 5% (of the consideration that exceeds EUR200,000) on the transfer of a business as a going concern and on successive agreements.

No stamp duty is payable upon the contribution of assets in exchange for shares (other than real estate located in France) by a company subject to French corporate tax to a company which has its effective place of management or registered office within the EU.

3. Value Added Tax

Value added tax usually applies to the transfer of assets (other than shares and certain real estate assets), but the transfer of an entire business as a going concern benefits from VAT relief. The standard VAT rate is 20% as of 1 January 2014.

4. Tax on Financial Transactions

A tax on financial transactions (the Financial Transaction Tax or FTT) has been introduced as from 1st August 2012.

The FTT is imposed on acquisitions of certain French shares listed on a regulated market and certain assimilated securities (in other words, shares and other securities giving access to the capital or voting rights of the issuer, whether issued under French or non- French law) where the relevant issuer's stock market capitalisation exceeds EUR1 billion on 1 December of the year preceding the relevant tax year ((list published by the FTA, see BOI-ANNX-000467, dated 26 December 2014). The FTT rate is 0.2% of the acquisition price of the transaction.



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There are a number of exemptions. For example, the FTT does not apply to acquisitions of shares by entities acting in the course of their market making activities, or acquisitions of securities under a temporary transfer of securities such as certain securities lending and sale and repurchase agreements.

In addition, the FTT does not apply to subscriptions of newly issued shares. A transaction which is exempt from FTT may be subject to the stamp duty (see above). The FTT is due by the investment service provider executing the purchase order (or in the absence of such investment service provider by the custodian of the purchaser). The FTT cost is charged to the investor.

F. Is Any Tax or Duty Payable on the Issue of Shares by a Company That Is Incorporated in Your Country?

Not insofar as it results from simple contributions of cash, securities or receivables (a nominal fee amounting to EUR375 - or EUR500 if the company's share capital after contributions exceeds EUR225,000 – may however be payable).

Relief from some of these taxes may be available. For example, under the EC Mergers Directive (90/434/EEC as amended by Directive 2005/19/EC), relief from capital taxes may be available on the transfer of a business located in one EU member state to a company located in another. But the Mergers Directive is silent on transfer duties and VAT (although the recast VAT Directive 2006/112/EC permits the transfer of a business as a going concern to be left outside the scope of VAT).

G. What Rate of Tax Do Companies Pay in Your Jurisdiction and How Is It Assessed?

1. Corporate Income

The maximum rate of corporation tax is 38% (including additional surcharges).

For fiscal years closed from 31 December 2011 to 30 December 2015, companies with a turnover exceeding EUR250 million are subject to an exceptional contribution equal to 5% or 10.7% of the amount of the corporation tax for fiscal years closed as from 31 December 2013. This exceptional contribution is not deductible from the company's tax result.


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2. Capital Gains

a. Participation-Exemption Regime

Capital gains realised upon the sale of certain eligible securities (see below) held for at least two years are tax exempt for an amount of 88% of such capital gains from fiscal years opened on 1 January 2011 (the remaining 12% being deemed to represent deductible costs attached to the holding of the securities) resulting in an effective corporate income tax charge of 3.8% at the level of the seller.

Eligible securities are those listed below (although the securities for certain entities principally invested in real estate or financial assets may not qualify as eligible securities):

■ those securities which qualify as a substantial interest "titres de participation" for accounting purposes;

■ shares obtained by the initiator of a public tender;

■ shares which are eligible for to the participation-exemption regime for dividends (see Section VI.K).

This regime applies to gains realised upon the sale of shareholdings in French or foreign companies, whether they are subject to corporate income tax or tax-transparent.

b. Real Estate Companies

Capital gains realised upon the sale of shares of listed real estate companies (société à prépondérance immobilière cotée), in other words listed companies whose assets are predominantly composed of real estate property or rights relating to real-estate property (Listed Real Estate Companies) are subject to a 19% corporate income tax rate, provided those shares were held for a minimum two-year period.

Capital gains realised upon the sale of shares of non-listed real estate companies may not benefit from the exemption regime. Those gains are therefore taxed at the ordinary corporation tax rate (38%).

c. Non-Cooperative Jurisdictions

The participation exemption regime for capital gains is not available for the disposal of the shares of a company located in a Non-Cooperative State or territory (Etat ou territoire non coopératif) within the meaning of Article 238-0 A of the FTC (a Non-Cooperative Jurisdiction).

The 2014 list of Non-Cooperative Jurisdictions is as follows: Botswana, British Virgin Islands, Brunei, Guatemala, Marshall Islands, Montserrat, Nauru, and Niue.



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H. Can Losses of a Company That Is Tax Resident in Your Country Be Surrendered for Tax Purposes to Another Company? If so, What Conditions Apply? Can Losses Be Carried Forward for Tax Purposes?

Operating losses and capital losses of a French resident company may be surrendered to a French resident corporate shareholder if the company which incurs losses is a French partnership or a member of a tax group to which the corporate shareholder also belongs.

As from fiscal years closed on 21 September 2011, operating losses and capital losses (except on shares eligible to the participation-exemption, see above, Section VI.G) may be carried forward up to the limit of of EUR1 million increased by the amount of debt waivers granted to enterprises in difficulty, plus 50% of the taxable profits exceeding EUR1 million in a given offsetting year.

The fraction of losses that cannot be offset in this given year can be carried forward indefinitely under the same conditions.

The carry back is both:

■ Limited to the fiscal year preceding the year in which losses occur.

■ Capped at EUR1 million.

I. Are Interest Payments Tax Deductible in Your Country? Yes, provided they are at arm's length. There are some restrictions on the deductibility in the case of loans granted by related parties (see Section VI.D). In addition, the deductibility of interest payments may be challenged if interests are paid or accrued to a person domiciled or established in a low tax jurisdiction (in other words, where corporate income tax is levied at a rate which is less than 50% of the French corporate income tax rate) or if they are paid to a person domiciled or established in a Non-Cooperative Jurisdiction or paid in a Non-Cooperative Jurisdiction.

As from fiscal years opened on 1 January 2012, financial expenses relating to any loan entered into for the purposes of acquiring qualifying shares (titres de participation) are not deductible, unless the acquiring entity is able to demonstrate that both:

■ Decisions relating to the shares in the acquired entity are genuinely taken by the acquiring entity (or a French company related to the acquiring entity).

■ Where control or influence is exercised over the acquired entity, it is genuinely exercised by the acquiring entity (or a French company related to the acquiring entity).


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In order not to fall into the deductibility limitation, the French company must demonstrate its decision-making power and control or influence over the acquired entity. The non-deductibility applies over eight financial years. As a result, companies that acquired qualifying shares before 1 January 2005 do not fall within the new mechanism.

In addition, under the Finance Bill 2013, the net amount of financial expenses relating to sums lent to a company as from fiscal years closed on 31 December 2012 would be added back to the tax result for a fraction equal to 25% of its amount (in other words, only 75% of the net amount of financial expenses would be tax deductible.

The net amount of financial expenses is defined as the total amount of financial expenses paid in relation to sums lent to the company less the total amount of financial income received in relation to amounts lent by the company. Such expenses and income include rents net of depreciation, financial depreciation made by the lessor and costs and ancillary costs charged to the lessee in relation to financial leases (crédit-bail), leases with the option to purchase (location avec option d'achat) and leases of movable property entered into with related enterprises.

The deductibility limitation applies to the net amount of financial expenses reduced by the portion of financial expenses which are not deductible under the other deductibility regimes and, among other things, the thin capitalisation rules and the rules applying to loans entered into for the purposes of acquiring qualifying shares. This new limitation would not apply where the net amount of financial expenses does not exceed EUR3 million.

J. Are Withholding Taxes Applied to Dividends, Interest and/or Other Payments Made by a Company That Is Tax Resident in Your Country to a Foreign Company? If so, What Rates Apply? Can They Be Reduced or Eliminated in Any Circumstances?

1. Dividends

A withholding obligation of 30% applies (subject to the provisions of relevant double tax treaties and the exemption provided by the EU Parent-Subsidiary Directive as implemented under French tax law). However, if payments of dividends are made in a Non-Cooperative Jurisdiction, a 75% withholding tax would apply (subject to treaty relief, where available).

As of 17 August 2012, no withholding tax applies on dividends paid to Undertakings for Collective Investments in Transferable Securities (UCITS), unless:



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■ The dividends are paid out exempt of profits realised by SIIC, SPPICAV and their subsidiaries to French or foreign UCITS; or

■ The payment is made in a Non-Cooperative Jurisdiction.

Finally, dividends paid to eligible non-for-profits foreign organisations are subject to a 15% withholding tax.

2. Interest

As a general rule, interest payments are not subject to withholding tax in France. However, if paid or accrued to persons domiciled or established in a Non-Cooperative Jurisdiction, or paid in a Non-Cooperative Jurisdiction, interest payments:

■ May be subject to a 75% withholding tax (subject to certain exceptions and the more favourable provisions of any applicable tax double treaty).

■ May not be deductible from a company's taxable income.

Under certain conditions, any such non-deductible interest may be further re-characterised as constructive dividends, in which case the non-deductible interest may be subject to the withholding tax at the rate of 30% or 75%, subject to the more favourable provisions of any applicable double tax treaty.

However, the 75% withholding tax and deductibility exclusion will not apply if the entity making the payment can prove that the principal purpose and effect of the relevant transaction was not that of allowing the payments of interest to be made in a Non-Cooperative Jurisdiction.

3. Royalties

A withholding obligation of 33.33% applies (subject to the provisions of relevant double tax treaties and the exemption provided by the EU Interest-Royalties Directive, covering royalty payments between related companies located within the EU, as implemented under French tax law). If the royalties are paid to a person domiciled or established in a Non-Cooperative Jurisdiction, the applicable rate is 75% (subject to treaty relief, and unless the entity making the payment is able to demonstrate that the royalties are paid as consideration for a genuine transaction, and that the principal purpose and effect of the relevant transaction was not that of allowing the payments to be made in a Non-Cooperative Jurisdiction).


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K. What Is the Tax Treatment of Dividends Paid by a Company That Is Tax Resident in Your Country to a Corporate Shareholder (Domestic or Foreign)?

1. Corporate Tax/Participation Exemption

Dividends received by French corporate shareholders are subject to corporation tax unless they qualify for participation exemption relief. This relief provides for an exemption on 95% of dividends received provided (i) the French shareholder(s) own at least 5% of the share capital of the dividend paying company and (ii) the shares have been held for at least two years or were subscribed on issue. As from fiscal years opening on 1st January 2015, this relief is not available to the extent the distributed profits were tax deductible from the distributing company’s result.

2. Withholding Tax

Distributions made to foreign corporate shareholders may be subject to a 30% withholding tax, subject to the applicable double tax treaty or the exemption provided by the EU Parent-Subsidiary Directive as implemented under French law.

3. Tax on Dividend Distributions

A 3% tax applies to dividend (and assimilated income) distributions made as from 17 August 2012. The tax (based on the distributed amounts) must be paid by French or foreign companies or entities liable to corporate tax in France (but not collective investment vehicles and small and medium enterprises).

Exemptions apply to distributions made:

■ Between companies which belong to the same French tax group.

■ By real estate companies listed on the French stock exchange referred to as "Sociétés d'investissements immobiliers cotées" (SIIC). They must have elected a special exemption regime with respect to distributions made under their compulsory distributions requirements and applicable to their non-taxable sector.

■ By way of scrip dividends.

The 3% tax must be paid by the distributing company to the French tax authorities in the same way as the corporate tax.



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L. What Is the Tax Treatment of Dividends Received by a Company That Is Tax Resident in Your Country from a Foreign Company?

Foreign source gross dividends received by a French corporate shareholder are included in its taxable profits (that is, net dividend plus tax credit). The recipient is entitled to a tax credit in France which usually amounts to the foreign withholding tax paid (depending on the provisions of relevant double tax treaties). Foreign source dividends may also qualify for the participation-exemption (under conditions set out above, see Section VI.K). It should be noted that the Administrative Supreme Court ruled in a decision dated 24 November 2014 that dividends received by a French company from a US company through a US general partnership cannot benefit from the participation exemption regime, notwithstanding its tax transparency under US laws.

M. Are There any Circumstances in Which (Undistributed) Profits of a Company in a Foreign Country Can Be Imputed to a Corporate Shareholder in Your Country by Tax Authorities (Controlled Foreign Company Rules)?

Yes, France has controlled foreign company (CFC) rules provided by Article 209 B of the FTC (also see Bulletin Officiel des Finances Publiques-Impôts BOI-IS-BASE-60-10-20120912 to BOI-IS-BASE-60-10-50-20140523). Under the CFC rules, profits made by CFCs may be recaptured in the French parent's taxable basis if:

■ The parent company holds at least 50% of the share capital of the CFC entity, except where the CFC entity is held, directly or indirectly, by several French companies (and, in respect of a CFC listed entity, provided that the French companies are acting together), or by entities which are de facto or de jure under the control of a French company, in which case the threshold decreases to 5%; and

■ The local tax burden suffered by the CFC entity is less than 50% of that which it would have suffered in France, had it been a French company.

Profits made by the CFC entity are deemed to be distributed to the French parent (except for permanent establishments of the French parent, which should be protected against this legislation by double tax treaties, unless a clause clearly stating otherwise has been incorporated therein).

However, CFCs resident in an EU country (or a permanent establishment in such a country) are outside the scope of the CFC legislation, except where the participation in such a CFC


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would be characterised as an artificial arrangement set up to circumvent French tax legislation.

An exemption from the application of Article 209 B of the FTC may also be obtained where the profits of the CFC entity come from an existing industrial or commercial activity exercised in the territory in which the CFC entity is established. However, the CFC rules would still apply if the profits of the CFC entity included more than a defined percentage of passive and assimilated income, or if the CFC entity is located in a Non-Cooperative Jurisdiction, unless some specific conditions are satisfied.

N. Does Your Country Have Transfer Pricing Rules? If so, Please Explain Broadly How They Apply?

Yes, transactions between French companies and foreign affiliates or companies located outside France must be done on an arm's length basis in accordance with French transfer pricing legislation, which broadly conforms with the OECD transfer pricing guidelines. If not, all profits indirectly transferred outside France must be added back to the French company's profits. This is even more of an issue when the foreign company is located in a low tax jurisdiction as the burden of proof that the transactions were made at arm's length is on the tax payer.

Some companies (for example, companies with a turnover or gross assets over EUR400 million) must:

■ Maintain transfer pricing documentation, including general information on the group of affiliated entities and specific information on the entity subject to the documentation obligation. The entity must provide this documentation at the beginning of a tax audit. Failure to comply with the transfer pricing documentation requirements results in a penalty amounting to the greater of 0.5% of the value of the transactions whose documentation has not been made available to the FTA or 5% of the tax reassessed in relation to these transactions, in either case the penalty not being less than EUR10,000. As of 1 January 2014, rulings of a foreign tax administration granted to related parties form part of the required transfer pricing documentation.

■ As from 8 December 2013, submit a return including part of this information (Form 2257-SD (Cerfa n°15221*01)) within six months following the due date of their annual tax return. The return must also include a summary statement of all transactions made with other affiliated entities when if the transactions' aggregated amount is above EUR100,000. The FTA’s guidelines have exempted some entities from the obligation to present the tax return (see Bulletin Officiel des Finances Publiques-Impôts BOI-BIC-BASE-80-10-20). Any delay in submitting the



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return results in a EUR150 fine, and any inaccuracy or omission is sanctioned by a EUR15 fine.

In addition, transactions made with an associated entity situated in a Non-Cooperative Jurisdiction are subject to an additional documentation obligation (disclosure of financial statements of the associated entity).

VII. Deadlock and Termination

A. In the Absence of Specific Provisions in a Company's Bye-Laws or a Shareholders' Agreement, Are Any Remedies Available at Law in the Event of an Unresolved Dispute Between Shareholders Resulting in Deadlock?

French law provides that any shareholder of a company can file a petition to the court to liquidate the company. In practice, judges are reluctant to impose a liquidation. But if the deadlock paralyses the management of the company, a liquidation order may be granted.

B. Is It Common Practice Expressly to Provide for a Dispute Resolution Process in a Joint Venture Company for an Unresolved Dispute Between Shareholders Resulting in Deadlock? If so, Are Any Procedures Commonly Adopted? In Which Document Would the Relevant Provisions Commonly Be Drafted?

In practice, most joint ventures provide for a dispute resolution process in the event of unresolved deadlock.

For a société anonyme (SA), dispute resolution provisions are likely to be included in a shareholders' agreement and probably not in the company's bye-laws (statuts).

For a société par actions simplifiée (SAS), dispute resolution provisions are likely to be included in the company's bye-laws (statuts).

It is common to provide that one party can purchase the shares of the other. If the price cannot be agreed, it is common to provide under French law that the price will be determined by a third party arbitrator appointed by the court, the decision of which shall be final and binding upon the parties.


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C. Is It Common to Provide for the Compulsory Transfer of Shares in a Joint Venture Company in Any of the Following Circumstances? In Which Document Are the Relevant Provisions Likely to Be Drafted and Are They Likely to Be Enforceable? (a) Insolvency of Shareholder. (b) Change of Control of Shareholder. (c) Material Breach of the Shareholders' Agreement or Bye-Laws.

Yes for (a), (b) and (c). The concept of materiality in (c) will generally be restricted to some specific and well-defined facts.

In a SAS, it is possible to exclude a shareholder from the company under French law. When there is a decision to exclude a shareholder, there is in principle an implied obligation upon the excluded shareholder to sell its shares and the continuing shareholder(s) or the joint venture company itself to buy them. Exclusion clauses should therefore be carefully drafted, setting out in particular:

■ Circumstances in which the exclusion provisions arise (for example, change of control, insolvency, termination of a contract, and so on).

■ The procedure for exclusion.

■ Authority for the exclusion decision (shareholders' meeting, board, president, special committee, and so on). If the exclusion decision is to be taken by a shareholders' meeting, please note that the French courts have ruled that the shareholder whose exclusion is being considered is always allowed to vote on his own exclusion. If a shareholder can, given the stake percentage he owns, oppose at any time such an exclusion, alternative voting rules should be provided for in the bye-laws (for instance, when voting on exclusion of a shareholder, each shareholder can cast only one vote, notwithstanding the stake percentage he owns within the company's share capital).

■ Which party is under an obligation to buy the shares (for instance, the joint venture company itself or the other shareholder(s)).

Interim measures can also be provided for, such as a suspension of voting rights, while keeping the right to dividends and so on.



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D. Is It Common in a Joint Venture Company to Impose Restrictions on the Transfer of Shares? If so, What Sort of Restrictions Are Commonly Imposed and in Which Document Are They Likely to Be Drafted?

Restrictions on the transfer of shares are common.

The bye-laws of a SA can provide only limited restrictions such as pre-emption rights or prior consent of the Board or the shareholders' meeting. Note that:

■ A shareholder cannot be prevented from selling his shares indefinitely. Ultimately the shares will have to be acquired by a mutually agreed third party, the other shareholders or the joint venture company. If a price cannot be agreed, it will be fixed by a third party arbitrator appointed by the court, the decision of which shall be final and binding upon the parties. If the remaining shareholders or the company refuse to buy, the selling shareholder will be free to sell to any third party.

■ Any restrictions that go beyond those allowed in the bye-laws of a SA under French law will have to be incorporated in a shareholders' agreement.

■ Any restrictions can be part of the bye-laws of a SAS. The bye-laws of a SAS can also provide for a complete prohibition on any transfer of shares for a maximum duration of ten years.

E. If Shares Are Transferred to a Third Party in Breach of Restrictions on Transfer (in a Shareholder's Agreement or Bye-laws), What Remedies Are Available to the Remaining Party?

If the restriction is part of the bye-laws, the wrongful transfer will be null and void. (Any action breaching the bye-laws of a company is null and void if the law so provides.)

If the restriction is part of a shareholders' agreement, a plaintiff could request the Court to declare the transaction void. But in practice, judges are often reluctant to void a transaction and might only grant damages, although some courts have recently ruled that such a breach of the shareholders' agreement can justify nullifying the transaction. (See also Section II.C.)


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F. Is It Possible to Provide That in the Event of a Joint Venture Company Being Wound up, Certain Assets (such as Intellectual Property Rights) Will Be Transferred to a Specific Shareholder? Will such a Provision Be Enforceable in a Winding-up?

This is generally possible on a voluntary liquidation, but will not be enforceable on an insolvent liquidation.

G. About the Author of Section VII





Non-professional qualifications. Holds a Master degree in Economy (1976), a Master degree in Management (1978), and a Master degree in Private Law (1978) from the University of Panthéon Sorbonne (Paris) and a diploma from The Institute for International and Comparative Law - Texas, USA (1984). He graduated from the I.N.S.E.A.D (1992).

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