FRANCE Law and Practice Contributed by: Jean-Christophe Devouge and Kaïs Boussadia, Aurès
1. Corporate Governance Requirements 1.1 Corporate Forms and Governance Requirements In France, most business organisations are incorpo - rated in the form of companies with distinct legal per - sonality. French law distinguishes between civil companies, governed by civil laws exclusively, and commercial companies, governed by civil and commercial laws. Civil companies may operate only a limited list of activities, which are deemed civil by nature (eg, agri - culture, liberal activities, real estate), while commercial companies may operate any type of activities, includ - ing civil activities. There are three main differences between civil com - panies and commercial companies: • civil companies may not conduct commercial or industrial activities – their purpose is therefore limited; • shareholders’ liability is never limited in civil com - panies, whereas it is limited in most commercial companies; and • most civil companies are tax-transparent – ie, profits of the company are taxed at the sharehold - ers’ level and subject to income tax, whereas most commercial companies are subject to corporate tax. These differences explain why civil companies are far less common than commercial companies, and are limited to specific uses. For this reason, they will be excluded from this study. The corporate forms applicable to commercial com - panies are numerous and can be classified into two categories: limited liability companies and unlimited liability companies. Unlimited liability companies are rare and are used for extremely specific transactions, so they will also be excluded from this study. Among limited liability companies, the most common corporate forms are:
• the public limited company ( société anonyme or SA) is used for large companies, with most listed companies being incorporated in the form of SA; • the simplified joint stock company ( société par actions simplifiée or SAS) is a rather new corporate form but is largely used thanks to its high flexibility; and • the limited liability partnership ( société à respon- sabilité limitée or SARL) is primarily used for small businesses, as shares of SARLs are not freely tradable. 1.2 Corporate Governance Legislation and Regulation Corporate governance requirements are derived from laws and regulations, recommendations and internal rules set forth by companies themselves. Laws and Regulations The French Commercial Code ( Code de commerce ) and, to a lesser extent, the French Monetary and Financial Code ( Code monétaire et financier ) con - tain the majority of corporate governance rules and requirements. European Union directives and regulations, such as the Shareholder Rights Directive II of 17 May 2017, or the Directive on improving the gender balance among directors of listed companies dated 23 November 2022, also set corporate governance requirements applicable to French companies. Requirements issued from EU directives shall be incorporated into French law in order to be enforceable, whereas requirements issued from EU regulations are directly applicable to Listed companies are subject to additional recom - mendations issued by corporate governance codes to which they must refer (or explain why they decided not to), such as the AFEP-MEDEF Code, intended for large, listed companies, and the Middlenext Code, intended for small and medium-sized listed compa - nies. French companies. Recommendations Such companies must also take into consideration recommendations issued by the Haut Comité au Gou- vernement d ’ Entreprise (HCGE – a special committee
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