FRANCE Law and Practice Contributed by: Sophie Vermeille, Vermeille & Co
profits are calculated after allocations to the statutory reserve (5% of net profit each year until the reserve reaches 10% of share capital) and any other reserves required by the by-laws. Dividends are typically declared at the AGM follow- ing year-end and must be paid within nine months of the close of the financial year, unless an extension is granted by the court. Dividends are most often paid in cash, but the share- holders’ meeting may authorise payment in kind, pro- vided all shareholders receive assets of equal value. Companies may distribute interim dividends before year-end if permitted by the by-laws and supported by interim accounts showing sufficient distributable profits. 6. Shareholders’ Rights as Regards Directors and Auditors 6.1 Rights to Appoint and Remove Directors In SA, including listed companies, shareholders retain strong rights over the composition of the board. Direc- tors are appointed and removed by shareholders at an ordinary general meeting. Removal is always ad nutum (meaning at any time, without cause), regard- less of contrary provisions in the articles or agree- ments. This is a matter of public policy and cannot be derogated from. Unlike other jurisdictions, French law does not recognise staggered boards or other mecha- nisms that insulate directors from shareholder action; in theory, the entire board of a listed company may be replaced at once. Although the French Commercial Code permits new proposals for appointments or removals to be intro- duced directly at the meeting, this has become less practical in recent years with the increased use of advance and remote voting, which requires resolu- tions to be published beforehand. Still, in exceptional cases – particularly in distressed companies with significant retail investor mobilisation – shareholders have succeeded in reshaping the board during the meeting.
In SAS, the framework is far more flexible: the arti- cles of association freely determine the rules for the appointment and removal of officers, which may include removal only for cause, different majority thresholds or specific procedures. 6.2 Challenging a Decision Taken by Directors In France, shareholders cannot directly overturn or substitute their own decisions for those of the board of directors ( conseil d’administration ) in matters that fall within the board’s exclusive authority. The statu- tory separation of powers between the shareholders’ meeting and the board is strictly enforced in SAs. That said, shareholders may bring a liability action against directors if they believe a board decision has caused damage to the company. This includes a derivative action ( action sociale ut singuli ) brought on behalf of the company. Unlike in US law, there is no “business judgement rule” that shields directors from liability for management decisions. However, in practice, French courts are cautious and rarely substitute their own judgement for that of directors; shareholder litigation for mismanagement ( faute de gestion ) remains infrequent. The exception is when a company enters insolvency proceedings, where commercial courts more readily pursue directors for mismanagement. In SAS, the regime is more contractual. The articles of association can require that specific board decisions be approved by shareholders, or can grant sharehold- ers broader oversight and direction rights. 6.3 Rights to Appoint and Remove Auditors Appointment Shareholders must appoint the statutory auditor(s) ( commissaire(s) aux comptes ) at the ordinary general meeting, for a fixed six-year term, unless there is a statutory appointment requirement. The law specifically renders unenforceable any clause restricting the shareholders’ freedom to choose audi- tors, including setting up lists of eligible auditors. Removal A statutory auditor cannot be removed ad nutum (at will); revocation requires a judicial order, granted only
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