What are the powers of the Manager of a SARL?

The manager of an SARL has powers determined by the law both with regard to the shareholders of the company and with regard to third parties. He also has specific powers allowing him to carry out alone certain statutory modifications.

Powers of the manager of SARL with regard to the shareholders

In an SARL (Société à Responsabilité Limitée), the manager is the main executive body. He has extensive powers to ensure the daily management of the company, but the shareholders can frame his prerogatives in the articles of association.

This point is fundamental, in particular for business creators and investor shareholders who wish to maintain control over strategic decisions which may be taken by the manager of the SARL.

1. Statutory organization of the powers of the manager

Article L. 223-18 paragraph 4 of the Commercial Code leaves to the shareholders full freedom to define the extent of the powers of the manager. It is therefore possible to restrict the initiatives of the manager, by requiring, for example, the prior authorization of the collectivity of shareholders for certain sensitive acts.

Examples of possible limitations in the articles of association:

• Subscription of a loan greater than a fixed amount,

• Constitution of a mortgage or a pledge,

• Disposal of important fixed assets (ex.: buildings, patents),

• Contributions to a company or merger with another entity,

• Disposal of the business or of a strategic branch.

These limitations must be integrated in the articles of association, and not in a simple minutes of appointment or a resolution of assembly (except express or implicit statutory modification – Com. Cass., 28 Nov. 2006).

If the manager oversteps the limits provided in the articles of association, the shareholders can engage his liability, and:

• Request compensation for the damage suffered, as well as

• Qualify this violation as a just cause for dismissal of the manager justifying his immediate dismissal, with possibility of depriving the manager of compensation.

The statutory limitations to the powers of the manager are in principle not enforceable against third parties, who also cannot invoke them to their benefit.
In principle, third parties cannot invoke the internal limitations of the manager, except in particular circumstances. But in certain cases, the company can also oppose to third parties the limiting clause, for example if the third party had knowledge of the statutory violation.

2. Powers of the manager in the absence of a statutory clause

When the articles of association are silent on the powers of the manager, the latter may, according to the law (art. L. 223-18, para. 4 of the Commercial Code), carry out “all acts of management in the interest of the company.”

This definition covers both:

• acts of ordinary administration (payment of invoices, HR management, signing of contracts),

• as well as acts of disposal (sale of assets, major investment), insofar as they are justified by the corporate interest.

In the interpretation of the scope of the powers of the manager, the question arises as to what is “the interest of the company”?

Since the reform of the Civil Code (article 1833), the corporate interest must be assessed in a broader manner, that is to say:

• taking into account the economic, social and environmental issues of the activity,

• ensuring the sustainability and profitability of the company.

This means that the manager must make useful or profitable decisions, even if they involve risks, as long as these decisions are justified by the strategy and the purpose of the company.

Thus, it is generally because he would act in the interest of the Company, that the manager of an SARL may, among other things:

• Request in court the release of the contributions of the shareholders,

• Require the restitution of a good lent by the company to a shareholder,

• Seize the judge to enforce obligations of a shareholder (ex.: Cass. 3rd civ., 16 Jan. 2020 – decision transposable to SARL).
  

  Master your role as a SARL manager with clarity.

  Understanding legal powers and limits is key to strong governance. Secure tailored legal guidance to exercise your authority effectively and avoid disputes.

  Master Your Role Now

3. Distribution of powers between managers in case of plurality of managers of an SARL

An SARL may be managed by one manager, by two co-managers, or even by a board of managers.

What happens when several managers manage the same SARL?

When there is a plurality of managers, the question of the distribution of their powers is decisive for the legal security of management acts and the internal governance of the company.

The Commercial Code allows flexible organization, but rules apply when the articles of association specify nothing.

a. Each manager may act separately, but the other may oppose it

In principle, and in the absence of contrary statutory provisions (which have no effect with regard to third parties but only with regard to the shareholders and the other managers as an internal order measure), each of the managers may act separately in the name of the company, except opposition of the other(s) manager(s).

Reference: article L. 221-4, paragraph 2 of the Commercial Code (applicable to the SARL via article L. 223-18, para. 4).

This means that:

• Each manager may alone sign a contract binding the company,

• It is not necessary to obtain the prior agreement of the other managers,

• Third parties do not have to verify the agreement of all of the management.

Even if each manager may act alone, the others have a right of opposition. This right of opposition is however not exercised without condition. Indeed, for a co-manager to be able to exercise his right of opposition and block the act of another co-manager:

• The act must not yet be concluded: once a contract is formed, the opposition is too late,

• The opposition may be made in any form, provided that it is clear and explicit.

The opposition may thus be made by act of bailiff or judicial officer, by registered letter addressed to the other manager and to the company, by declaration before witnesses, by professional email with acknowledgement of reading.

An implicit or late opposition has no legal effect.

On the other hand, if the act has already been carried out by one of the co-managers, the other will no longer be able to oppose it.

Thus, a co-manager can no longer oppose a contract signed by a co-manager. He had to intervene before the signing of the contract.

b. The co-manager(s) have the obligation to oppose when the act to be carried out by another co-manager is contrary to the law, to the articles of association or to the interest of the company

A manager engages his liability if he does not oppose an operation that the other manager is preparing to carry out when this operation is:

• Contrary to the corporate interest,

• Exceeding the corporate purpose,

• Or falling exclusively within the competence of the shareholders.

The co-manager concerned with the protection of the corporate interest must therefore act quickly and formally, without waiting for the act to be finalized.

It is nevertheless possible that a manager who did not oppose a litigious operation before it was carried out by the other co-manager may rely on it later as just cause for dismissal of the concerned co-manager (Com. Cass., 15 Jan. 2020: the non-opposition does not prohibit the action in dismissal based on past breaches).

However, certain acts cannot be subject to opposition by another co-manager. This is the case, for example, of the convening of a general meeting by one of the managers, which is a unilateral act which does not amount to the conclusion of an operation. It cannot therefore be blocked by another manager (Com. Cass., 6 June 1972; CA Paris, 5 Nov. 1999).

c. Mandatory collective responsibilities of the co-managers of an SARL

Certain responsibilities must be exercised jointly by the managers, even in the absence of a statutory clause, because they are inherent to their status as managers.

This is the case in particular of the establishment of the annual accounts and of the management report, which must be drawn up by all the managers. This results from the legal mission of the management, and not from an optional sharing of powers (in this sense, Com. Cass., 21 March 1995: applicable to the SARL by analogy with the rules of the SNC).

Power of the manager of an SARL to modify the articles of association

In principle, modifications of the articles of association of a SARL may be decided only by the SARL’s general meeting of shareholders.

However, the manager of a SARL has, in an exceptional manner, certain powers of modification of the articles of association, without prior decision of the general meeting of shareholders, when these modifications relate to:

• the bringing into conformity of the articles of association with the law,

• the transfer of the registered office on French territory.

1. Bringing into conformity of the articles of association by the manager with an imperative decision of the laws or regulations

Article L. 223-18, paragraph 9 of the Commercial Code authorizes the manager to unilaterally modify the articles of association to bring them into harmony with an imperative provision of the law or regulations.

This prerogative is limited to cases of bringing into conformity, and does not apply either to strategic choices, or to freely decided evolutions. This modification remains subject to its ratification by the shareholders.

The modification of the articles of association decided by the manager must be ratified by the shareholders under the same conditions as for a transfer of the registered office:

• Simple majority (more than 50% of the shares),

• And, in case of failure at the first consultation, majority of the votes cast during the second (art. L. 223-18, para. 8 and L. 223-30).

If the shareholders refuse to ratify the modification, the decision of the manager becomes null and void. It will then be necessary to return to the previous version of the articles of association.

2. Transfer of registered office of the company and correlative modification of the articles of association by the manager of an SARL

In principle, the transfer of the registered office is a decision falling within the competence of the assembly of the shareholders, adopted by the majority of the shares (art. L. 223-30).

By exception, article L. 223-18, paragraph 8 allows the manager, without prior authorization, to decide alone the transfer of the registered office on all French territory.

This decision must then be ratified by the assembly under the conditions of ordinary decisions (simple majority).

When must the ratification take place?

The law sets no precise time limit. However, for legal certainty:

• The ratification may take place at any time, ideally on the occasion of the next ordinary general meeting,

• In case of refusal of ratification within a reasonable time, the decision of the manager is deemed null and void.

It will then be necessary to:

• Return to the initial registered office,

• Carry out new publicity formalities (see below).

Practical advice: sign the lease contract for the new premises of the registered office subject to the ratification of said transfer by the general assembly of the shareholders.

If a lease is signed for the new premises, it is strongly advised to add a suspensive clause of ratification by the shareholders in order to avoid any litigation in case of reversal.

3. Modification of the articles of association following the transfer of registered office

The manager, by deciding the transfer, is also competent to immediately modify the articles of association on this point.

• He is not obliged to wait for the ratification to adapt the statutory clause relating to the registered office,

• This material modification automatically results from the exceptional power of transfer which he holds.

This makes it possible to save time in the publicity formalities, while ensuring documentary coherence.

As soon as the manager takes his decision, the publicity formalities may be undertaken, without waiting for the ratification.

Steps to be carried out:

• Publication of a notice of modification in a journal of legal announcements,

• Filing of the minutes and of form M2 with the clerk’s office of the commercial court,

• Update of the RCS via the intermediary of the Business Formalities Center (CFE) or online.

Powers of the manager of SARL with regard to third parties

In an SARL, the manager is the central executive body. He is also the legal representative of the company, which means that he acts in the name of the latter in all its relations with third parties. But how far do his powers go? And is the company always bound by his acts? Here are the practical and legal answers.

1. The manager, legal representative of the company

In accordance with article L. 223-18, paragraph 5 of the Commercial Code, the manager is “vested with the most extensive powers to act in all circumstances in the name of the company.”

This means that:

• The manager of the SARL validly binds the company, without it being necessary to prove a special mandate,

• No prior authorization of the shareholders is required for acts of current or even exceptional management taken by the manager of an SARL.

This power of the manager of SARL is recognized in all circumstances, as long as the manager is appointed and published in the RCS.

Also, even if the articles of association of the company restrict the powers of the manager, these limitations are without effect with regard to third parties (article L. 223-18, para. 6).

Even if the third party had knowledge of the limiting clause (for example, via the published articles of association), it can generally not be opposed to him to contest the act. Indeed, according to case law (Com. Cass., 2 June 1992) the publication of the articles of association is not sufficient to prove the effective knowledge by the third party of a limitation of powers.

2. Acts carried out outside the corporate purpose

The company is bound even if the manager acted outside the corporate purpose, unless it proves that:

• The third party knew that the act exceeded the corporate purpose,

• Or that the third party could not ignore it, given the circumstances.

This proof is extremely difficult to bring, especially if the manager is registered at the RCS and acts in a usual commercial context.

Contrary to SNC or SCS, the SARL does not impose the obligatory concordance between the act and the corporate purpose to bind the company.

3. Powers of managers in case of plurality

In case of plurality of managers, each may act separately (article L. 223-18, para. 7). This means that:

• Any manager may alone sign a contract binding the company,

• A statutory clause imposing a joint signature is not enforceable against third parties.

Even in violation of the articles of association, the company is bound vis-à-vis the third party if the latter did not have knowledge of the irregularity (Com. Cass., 3 Dec. 2002).

Nevertheless, in case of plurality of managers, each has a right of opposition to the acts envisaged by the other. But this opposition:

• Has no effect with regard to third parties, unless the third party had knowledge of it,

• To be validly enforceable, it must be notified to the third party in a clear manner (registered letter, act of bailiff…).

If the third party had knowledge of the opposition, the company may not be bound by the act in question.

It should be noted that the SARLs cannot guarantee an issue of securities (for example: bonds, shares of another company), under penalty of nullity of the act, except in strict exceptional cases. The exceptions are provided for in article L. 223-11, para. 4 of the Commercial Code and they concern the issues carried out by a regional development company and the issues which benefit from a subsidiary guarantee of the State. Outside these cases, the manager does not have the power to validly bind the company as guarantor of such operations.

4. Delegation of powers of the manager of SARL

In an SARL, the manager is vested with the most extensive powers to manage and represent the company. But can he delegate his powers to other persons? Yes, within certain limits. This possibility is frequently used in practice, in particular in structured companies or subsidiaries of groups.

a. The principle: the manager of an SARL may delegate part of his powers

Even if the Commercial Code does not expressly deal with the delegation of powers of the manager of SARL, French case law admits the use of delegation to respond to management necessities.

The manager may delegate certain of his powers to:

• shareholders or co-managers,

• employees of the company (ex.: administrative director or commercial director),

• or to any external person considered competent (consultant, service provider, etc.).

No specific quality is required, as long as the delegate acts within the framework of the entrusted mission.

b. Limits to delegation

Before any delegation, the manager must verify whether the articles of association authorize or limit the delegation of powers. Certain clauses may:

• prohibit delegation without authorization of the shareholders,

• require prior approval for certain sensitive powers (bank signature, financial commitment, etc.),

• restrict the delegation to certain fields (technical, administrative, operational…).

Finally, certain powers cannot be delegated, because they fall exclusively within the function of manager, in particular:

• the presentation of the annual accounts to the assembly,

• the signing of major corporate acts involving personal responsibility (ex.: declaration of cessation of payments, filing of the accounts with the clerk’s office),

• the legal representation of the company in court, except specific power of attorney granted to a proxy.

c. Form of delegation

The delegation of powers of the manager of a SARL to another person may be:

• express, in the form of a written document (letter, contract, letter of assignment),

• or implicit, if the person exercises the function habitually with the agreement of the manager.

For reasons of legal certainty, it is strongly recommended to draft a written act of delegation specifying:

• the identity of the delegate,

• the delegated missions,

• any limits (duration, maximum amount, etc.),

• the possibility to revoke the delegation at any time.

The absence of formality may create confusion on the extent of the powers, especially vis-à-vis third parties.

d. Liability of the manager in case of delegation

Unless the manager personally took part in the offenses committed by his delegate or failed in his duty of supervision of the latter, the manager who delegated his powers is not responsible for the offenses committed by his delegate in their exercise.