Introduction to France's Commercial Law

France's commercial law is rooted in the country's history and traditions, reflecting its economic and legal approach to commerce. The Code de commerce (Code of Commerce) has its origins in Napoleonic legislation from 1807, and the Code civil (Civil Code) from 1804. While these laws remain the foundation of commercial law in France, there have been significant developments since then, especially in response to European Union (EU) law. In this blog, we will provide a brief overview of France's commercial law, including recent updates and implications for businesses operating in the country.

Business Entities

The most common forms of business entities in France are the société anonyme (public limited company), société à responsabilité limitée (limited liability company), société par actions simplifiée (simplified joint-stock company), and société en nom collectif (general partnership).

Public limited companies must have a minimum share capital of €37,000 and at least seven shareholders. They are subject to stricter regulations, including strict disclosure requirements, making them less attractive for small businesses.

Limited liability companies, often referred to as SARL, are more popular for small and medium-sized enterprises. They require a minimum capital of €1, and the maximum number of shareholders is 100. SARLs are also subject to fewer reporting requirements, making them an attractive option for new and growing businesses.

Simplified joint-stock companies are a hybrid of public limited and limited liability companies with fewer formalities and more flexible corporate governance structures. They require a minimum capital of €1 and have no limit on the number of shareholders.

General partnerships involve two or more partners who share unlimited liability for the debt of the company. This form of business entity, while rare, is still used in certain industries and trades in France.

Company Formation

Before starting a business in France, entrepreneurs must obtain a business registration number from the Centre de Formalités des Entreprises (CFE), which is usually the local Chamber of Commerce and Industry or tax office. The CFE will also provide information on any additional registration requirements, depending on their chosen business entity.

Corporate Governance

The management and decision-making structure of a company in France is generally divided into two bodies: the Assemblée Generale (General Meeting) and the Conseil d'Administration (Board of Directors) or Directoire (Executive Board).

The General Meeting is the ultimate authority of the company comprising all shareholders. They have the power to approve annual accounts, elect directors, and make major decisions concerning the company. In contrast, the Board of Directors or Directoire is responsible for managing the company's day-to-day operations.

It is common for French companies to have a comité d'entreprise (works council), consisting of elected representative employees who must be consulted on issues such as working conditions, company strategy, and potential redundancies.

Corporate Liability

In recent years, there has been a significant increase in corporate liability in France, particularly in the areas of corruption, money laundering, and tax evasion. The Sapin II law, which came into force in 2017, introduced a French version of the UK's "failure to prevent bribery" offence, making companies liable for bribery and corruption offences committed by their employees and representatives, unless they can prove they have adequate prevention measures in place.

In addition, French corporate law imposes strict financial reporting and audit requirements, with CEOs and CFOs facing personal liability for misleading financial statements. Furthermore, officers who fail to comply with labor laws and regulations may face criminal sanctions as well as damages.

Consumer Protection

The law on consumer protection in France is constantly evolving, influenced by EU developments and a growing focus on consumer rights. Companies must ensure compliance with various consumer protection laws, including those concerning misleading advertising, unfair terms, distance selling, and e-commerce.

In 2016, the Hamon law was introduced, which strengthened consumer protection in various areas, including applicable penalties for non-compliance. Businesses must carefully evaluate their marketing and sales practices concerning consumers to ensure adherence to French consumer laws.

Conclusion

France's commercial law provides a stable and transparent business environment for both domestic and foreign companies. However, businesses should keep abreast of recent updates and developments in the law to ensure compliance and mitigate potential risks. The introduction of the Sapin II law has significantly increased corporate liability, highlighting the need for companies to implement robust compliance and prevention measures to avoid potential criminal and financial sanctions. With proper understanding and compliance, companies can navigate the complexities of France's commercial law and find success in the country's flourishing economy.