Can special advantages be granted to certain shareholders when incorporating an SAS?

The Société par Actions Simplifiée (SAS) is one of the most flexible legal structures under French corporate law. Its appeal lies in the freedom it gives shareholders to design the internal organization of their company, including the distribution of powers, voting rights, and financial arrangements.

Among these tools, the law allows for the granting of special advantages (“avantages particuliers”) to one or several shareholders at the moment of incorporation. These advantages go beyond the standard rights attached to shares and can serve as a powerful instrument to balance different shareholder profiles or to reward key contributors.

Yet, this freedom is carefully regulated by the French Commercial Code and by case law. Understanding the scope, conditions, and limits of special advantages is therefore essential for anyone looking to set up or invest in an SAS.

1. Definition and nature of special advantages of the shareholder

Special advantages are specific rights or benefits granted to one or more shareholders, separate from the ordinary rights arising from their contribution of capital.

They may include:

• Financial rights: preferential dividends, a guaranteed minimum yield, or priority distributions.

• Political rights: double or multiple voting rights, veto rights on certain strategic decisions.

• Information rights: privileged or early access to company information, financial data, or board meetings.

• Material or contractual rights: a statutory remuneration for services rendered, a right of use over company property, or other tangible benefits.

These advantages must be explicitly stated, justified in the corporate interest, and accepted by all shareholders. They may be granted on a temporary or permanent basis and may or may not be transferable.

In other words, they are not just “perks” or hidden privileges. They are contractually structured rights that must be carefully documented to be valid.

2. A freedom of contract that is strictly framed

The SAS is often described as a “tailor-made company” because of its contractual flexibility. Article L. 227-5 of the French Commercial Code explicitly gives shareholders the freedom to organize governance and shareholder relations in the bylaws.

This contractual freedom includes the ability to create special advantages. However, this freedom is not absolute. The clauses must:

• Be clear and precise, leaving no room for ambiguity;

• Respect the principle of transparency between shareholders;

• Maintain an equitable balance between rights and obligations;

• Always comply with the corporate interest of the company.

If these conditions are not respected, the clause risks being struck down as invalid.

3. The requirement of a special report: a substantive formality

When special advantages are granted at the incorporation of an SAS, the law requires a special report. This report must be drafted by a commissaire aux apports (statutory auditor) appointed unanimously by the founders or, failing that, by judicial decision (Articles L. 225-14 and L. 227-1, para. 4, Commercial Code).

The report must contain:

• The nature of the advantage,

• The identity of the beneficiary,

• The justification for granting it,

• Its estimated value.

The purpose of this formality is to guarantee full transparency for incoming shareholders, so that they know exactly what commitments they are making by joining the company.

Importantly: if no report is prepared, or if it is irregular, the advantage is automatically null and void. The nullity applies by law, without the need for a court ruling.

4. Typical beneficiaries: founders and strategic investors

In practice, special advantages are not granted randomly. They often serve a strategic function. For example, they may be given to:

• Founding shareholders who bring reputation, expertise, or unique know-how;

• Minority partners who play a decisive role in operations (such as the CEO or a key manager);

• Strategic investors or financial partners, in exchange for protective rights.

These advantages therefore do not represent unjustified favoritism. Instead, they are a lever of balance in shareholder relations, enabling parties with unequal bargaining power or contributions to reach a fair arrangement.

5. Distinction between special advantages and preference shares

It is crucial to distinguish special advantages from preference shares (“actions de préférence”), even if both mechanisms can coexist in the same company.

• Special advantages are personal to the shareholder. They may be non-transferable and temporary, disappearing when the shareholder leaves the company.

• Preference shares (Article L. 228-11 Commercial Code) are a category of securities with specific rights (e.g., voting, dividends, redemption). These rights are attached to the share itself and pass on upon transfer.

The choice between special advantages and preference shares has legal, accounting, and tax implications. A misclassification could expose the company to litigation or tax reassessment.

6. Examples of lawful and unlawful special advantages

Lawful examples:

• Right to appoint one or more members of the strategic committee,

• Double voting rights for a fixed period,

• Right to receive remuneration for specific services,

• Joint exit clause with preferential conditions.

Unlawful examples:

• Dividend guarantees unrelated to company results,

• Absolute veto rights contrary to the corporate interest,

• Advantages granted without the mandatory auditor’s report,

• Leonine clauses, i.e., granting all profits to one shareholder or exempting him entirely from losses.

The dividing line between lawful and unlawful advantages lies in proportionality and coherence with the corporate contract.

7. Nullity and sanctions: beware of leonine clauses

Special advantages must always comply with the prohibition of leonine clauses under Article 1844-1 of the Civil Code. Clauses are automatically deemed unwritten if they:

• Guarantee one shareholder the entirety of profits, or

• Completely exempt him from losses.

Thus, even if expressly provided, an advantage that violates this principle will be invalid.

For example, a clause granting one shareholder a guaranteed return regardless of company performance will likely be annulled as leonine.

8. Statutory formalism and practical implementation

For a special advantage to be enforceable, it must be:

• Explicitly inserted in the bylaws (or a clearly identified annex),

• Approved unanimously by shareholders at incorporation,

• Supported by the auditor’s special report.

If mentioned only in a shareholders’ agreement (pacte extrastatutaire), the advantage will not bind the company unless it is reflected in the bylaws.

To secure implementation, the bylaws should also detail the conditions for maintenance, transfer, or extinction of the advantage.

9. Evolution during the company’s life: possible but strictly framed

Special advantages can be introduced after incorporation, but only under very strict conditions:

• Unanimous amendment of the bylaws (Article L. 227-19 Commercial Code),

• A new auditor’s report,

• Explicit approval by all shareholders.

This high threshold reflects the law’s intent to protect minority shareholders and prevent abuses. In practice, it significantly limits the possibility of introducing such advantages later.

10. A flexible but carefully framed tool

Special advantages are a valuable mechanism in the SAS structure. They allow shareholders to build asymmetric but legitimate contractual arrangements that reflect the real contributions and strategic roles of different parties.

In summary:

• Yes, special advantages may be granted at incorporation of an SAS;

• They must be supported by an auditor’s special report, inserted in the bylaws, unanimously approved, and consistent with public policy;

• Their validity depends on proportionality, transparency, and compliance with the company’s purpose.

The SAS thus offers shareholders exceptional contractual freedom, but this freedom must be exercised with rigor, clarity, and loyalty. Properly designed, special advantages are not privileges—they are tools for ensuring balance, attracting strategic partners, and building long-term governance stability.