A company can be set up in France by undertaking the following broad steps: choice of the company name; selecting business premises or at least the address of the registered office; depositing share capital with a bank or notary; opening a bank account; drafting the company articles of association or by-laws; appointment of the legal representatives and auditors (if the latter are required); filing with the Company and Commercial Register. On completion of the formalities, a company certificate (K-Bis) will be delivered and the company will have legal personality.
In terms of a long-term presence, it is first necessary to distinguish between a branch and a subsidiary.
A branch would be an extension of the foreign company in France: the branch would be the same legal person as the foreign company. The liabilities of the branch would be coterminous with the liabilities of the foreign company.
A subsidiary would be a separate company from the foreign parent. It would be a means of hiving off liability if a limited liability company is chosen.
In France, there are three main types of limited liability company:
- The SA – société anonyme which is generally fitted for more complex corporate structures, including listed companies
- The SAS – société par actions simplifiée which is generally seen as the most flexible corporate vehicle. The SAS is the simplest vehicle for 100% controlled subsidiaries
- The SARL – société à responsabilité limitée which is a more closed company and traditionally used for smaller business with a close relationship between shareholders.
Takeovers fall broadly into two categories: a purchase of the goodwill and assets or the purchase of shares in the company.
The purchase of the goodwill and assets in principle does not involve the taking over of liabilities from the vendor with the exception of employment contracts and perhaps the commercial lease. Because the change of owner means that creditors of the vendor need to be protected, French law has a specific procedure and rules for the sale of goodwill and a going concern. Contracts with third parties are not in principle transferred.
The purchase of shares entails a full transfer of assets and liabilities and contracts with the company would in principle remain in place. The target company would continue in operation. Because the purchaser would be taking over the liabilities of the company, it is recommended that due diligence, prior to completion, should be more wide-ranging.
The main corporate obligation which is recurrent is to prepare and approve the annual accounts by the shareholders. However, there will also be regular VAT (Value-Added Tax) filings, annual tax returns.
This broad question involves several further questions. First, the type of product or service could involve regulatory or quality issues (e.g. technical products or food or medical products). Secondly, the type of customer needs to be identified: is it a public-sector agency? – are the sales subject to calls for tenders? Are they consumers? – in which case French consumer protection rules will come into play. Or it is a business-to-business transaction?
The form of sales network will also have a bearing on the legal issues: sales through physical outlets or over the internet. The general terms and conditions of sale will need to be adapted to each type of sales medium and category of customer.
At the simplest level, distribution can involve a commercial agent or commercial representative who would act on behalf of the principal to promote the sale of goods and services in France (or other markets) or it could involve the appointment of a distributor or reseller in the French or regional market, who would buy and sell the products or software.
Building on that simple basis, the type of distribution network and structure can become more complex (franchise, licencing) but also be set in a more structured and regulated framework with annual negotiations with central purchasing departments of large retail chains.
It is important to take care in terminating a commercial agreement in France. The contract itself needs to be examined and well as the factual background to the envisaged termination. The applicable law and jurisdiction should be identified notably in an international contract.
Commercial agents are given protection and are entitled to compensation on termination of their contracts.
Although in principle it is possible to terminate a sale or distribution agreement without providing grounds, French law has introduced provisions which seek to provide protection against sudden terminations of long-standing commercial relationships.
As a general principle, insolvency law is conducted under the auspices of the local Commercial Court. There are three main types of insolvency protection: the sauvegarde (safeguard) procedure, when a debtor is in serious financial difficulties but not technically insolvent; the recovery procedure (redressement judiciaire) when a debtor is insolvent but the business might be able to financial vialibility; the liquidation proceure (liquidation judiciaire) when there is no hope of recovery.
If a contracting party has an unpaid receivable with the debtor, it will be necessary to register a claim with the insolvency practitioner appointed by the court. Care should be taken as there are strict time-bars for making claims both initially and at later stages when the claim could be subject to challenge.
If a contracting party has an ongoing contract with the debtor, the decision about whether the contract should continue to be performed lies with the insolvency practitioner.
If a contracting party has goods or machines or inventory at the premises of the debtor a specific procedure will need to be followed in order to be able to retake possession of those assets.
There are many forms of security over assets of a company in France. The first question to be asked is to whom do the assets belong? This preliminary question is important as French law pays particular attention to the corporate interest of the legal person providing the security. Why is the security being given and in what way is it in the corporate interest? Should a subsidiary provide security within the framework of a facilities agreement to which the parent and other group companies are parties?
Security can be taken, inter alia, over shares in a French company, or over its goodwill and assets or inventory.
Factoring or assignments of receivables are common in favour of banking or financial institutions.
Commercial disputes, including shareholder disputes, can be resolved through mediation, arbitration or recourse to the court system. The French civil court system includes commercial courts comprised of non-professional judges but with a business background. Certain types of litigation may however be directed to the ordinary civil courts (for example, in regard to intellectual property) The second-tier of the court system are the courts of appeal staffed by professional judges; there is a move towards giving certain courts of appeal sole jurisdiction on certain issues (for example the sudden termination of ongoing commercial relations).
The final tier of the civil system is the Cour de Cassation which only hears appeals on points of law.