Companies, acquisitions and succession

A commitment by the seller, in the share purchase agreement, to compensate the buyer if a liability arising before the sale appears afterwards, or if an asset turns out to be overvalued. The cap, threshold, duration and security (bank guarantee or escrow) are all negotiated.

In both cases, shareholders' liability is in principle limited to their contributions. The SARL follows rules largely set by law and has at most one hundred members; its majority manager falls under the self-employed social security regime. The SAS offers great freedom in the articles of association to organise governance and the entry of investors; its president is treated as an employee for social security purposes. The choice depends on the project, taxation and how managers are paid.

For a SARL or an SAS, the amount of share capital is freely set by the shareholders and can be as low as one euro. For a public limited company (SA), the minimum capital is €37,000. Too little capital can however harm the company's credibility with banks and partners, and the capital should remain consistent with the needs of the business.

A sale of the business (fonds de commerce) covers the elements of the activity (clientele, name, lease, equipment); the selling company keeps its liabilities, and publicity and creditor-opposition formalities apply. A share sale transfers the company itself, with its assets and debts, which often justifies an asset and liability warranty. In companies with fewer than 250 employees, employees must in principle be informed of the sale beforehand.

A director may incur civil liability towards the company or shareholders for mismanagement or breach of the law or the articles, and towards third parties for a fault separable from their duties. They may also incur criminal liability, for example for misuse of corporate assets. In compulsory liquidation, they may be ordered to bear all or part of the asset shortfall if they committed a management fault that contributed to it.

The simplest solution is a negotiated buy-out of their shares. In an SAS, the articles may provide for an exclusion clause, provided its procedure is strictly followed. Where serious disagreement paralyses the company, a shareholder may ask the court for early dissolution on just grounds. Careful drafting of the articles and shareholders' agreement upfront avoids many of these deadlocks.