Dissolution and liquidation of the SAS: legal framework

Closing down a French simplified joint stock company (SAS or SASU) is not a simple administrative formality. Whether triggered by legal reasons, shareholder decision, or financial difficulties, the dissolution and liquidation process must follow strict legal rules set out in the French Civil Code and Commercial Code. Understanding these rules is essential to avoid mistakes, protect the interests of shareholders, and ensure that creditors’ rights are respected. This guide explains the causes of dissolution, the legal consequences, and the liquidation procedure step by step.

1. The causes of dissolution of the SAS

Dissolution is the legal decision that marks the beginning of the end for a company. In France, an SAS (société par actions simplifiée) can be dissolved for several reasons, some imposed by law and others freely decided by the shareholders.

a. The legal causes of dissolution

French law provides a number of mandatory situations in which the dissolution of a company becomes necessary. These apply to all commercial companies, including the SAS:

• Expiry of the company’s term (C. civ., art. 1844-7, 1°)
  If the articles of association set a limited duration for the company, it will automatically end when this term expires, unless the shareholders decide to extend it.

• Achievement or disappearance of the corporate purpose (C. civ., art. 1844-7, 2°)
  If the company has fulfilled its purpose, or if the purpose becomes impossible (for example, a regulated activity is prohibited), dissolution must be pronounced.

• Mergers and demergers (C. com., art. L. 236-1)
  If the SAS merges with another company or is divided into two entities, its disappearance results automatically from the restructuring.

• Loss of more than half of the share capital (C. com., art. L. 225-248)
  When equity falls below half of the subscribed capital, the shareholders’ meeting must be called to decide whether to continue the business or dissolve it.

• Judicial annulment (C. civ., art. 1844-7, 3°)
  Rare in practice, this occurs when the company was created in violation of fundamental legal rules.

• Criminal conviction (C. pén., art. 131-39)
  In cases of serious offences (fraud, money laundering, etc.), dissolution can be imposed as an additional penalty against the company.

• Judicial liquidation (C. civ., art. 1844-7, 7°)
  If the company is insolvent and cannot pay its debts, the commercial court may order liquidation, which implies dissolution.

b. The case of the sole shareholder SAS (SASU)

Unlike other forms of companies, the concentration of all shares in the hands of a single shareholder does not automatically trigger dissolution (C. com., art. L. 227-4). This rule allows the SASU (société par actions simplifiée unipersonnelle) to exist indefinitely with only one shareholder.

c. Statutory causes of dissolution

In addition to legal rules, the articles of association of an SAS may set out specific situations that lead to dissolution. These could include:

• the death of a key shareholder,

• the expiry of a strategic contract,

• the non-completion of a business project.

To avoid immediate tax consequences, it is common to make such dissolution conditional upon a vote of the shareholders within a fixed timeframe.

d. Judicial dissolution for “just reasons”

Shareholders may also request dissolution through the courts if they can show just grounds (C. civ., art. 1844-7, 5°). Typical grounds include:

• a serious breach of obligations by a shareholder,

• a persistent disagreement that paralyzes decision-making.

Case law is strict. Courts require real and proven paralysis of the company’s governance. Moreover, the shareholder responsible for the disagreement cannot invoke it to obtain dissolution.

Examples from case law:

• French Supreme Court (2003): dissolution granted for a deadlock between two equal shareholders.

• Court of Appeal of Pau, 2022 (SAS Mada Spicy): request rejected because the claimant was responsible for the conflict.

• Court of Appeal of Bordeaux, 2023 (SAS L&L Partner): dissolution accepted, despite opposition of the majority shareholder, because the company was clearly paralyzed (no accounts, repeated litigation, failure to convene meetings).

2. Voluntary dissolution decided by shareholders

Apart from legal obligations, shareholders may freely decide to dissolve the company at any time (C. civ., art. 1844-7, 4°; C. com., art. L. 227-9).

The articles of association set the rules of decision-making (majority thresholds, quorum, voting procedure). In practice, a voluntary dissolution may be motivated by:

• the end of the business project,

• the absence of profitability,

• strategic reorientation of the shareholders,

• a desire to sell the assets or transfer the business.

Statutory clauses may also:

• establish objective triggers (e.g., insufficient turnover, lack of financing),

• simplify the process by allowing easy inclusion on the agenda,

• limit abuses by providing alternatives such as shareholder withdrawal or exclusion instead of dissolution.

3. Effects of dissolution: entry into liquidation

Once dissolution is decided, the SAS does not disappear immediately. It enters a liquidation phase, during which its affairs must be wound up.

a. Preservation of legal personality

The company retains its legal personality during liquidation (C. com., art. L. 237-2). This means it continues to exist, but only for the purpose of paying debts, selling assets, and distributing any surplus to shareholders. Its name must always be followed by the mention “société en liquidation”.

b. End of management powers

The dissolution terminates the mandates of the company’s directors (C. com., art. L. 237-15), unless the bylaws provide otherwise. However, auditors and supervisory bodies remain in place until the end of liquidation.

If a manager had an employment contract suspended during their mandate, it resumes at this stage.

4. The liquidation procedure of the SAS

Liquidation is the practical process of closing the company, ensuring that assets are sold, debts are paid, and shareholders receive what remains.

a. Appointment and role of the liquidator

The liquidator is responsible for managing the winding-up process. He or she may be appointed:

• by the bylaws,

• by the shareholders,

• or by the court in case of failure to appoint.

The liquidator:

• represents the company,

• realizes (sells) the assets,

• pays creditors,

• prepares liquidation accounts,

• distributes any surplus (called boni de liquidation).

He cannot continue the activity without shareholder approval, nor can he buy company assets without express authorization.

b. Rights of shareholders during liquidation

Even after dissolution, shareholders retain several important powers:

• to appoint or dismiss the liquidator,

• to authorize large operations (global asset transfers, mergers),

• to approve accounts,

• to collect their share of the liquidation surplus after debts and capital are reimbursed.

In SAS structures, these decisions may be taken through written consultation, electronic voting, or other methods permitted by the bylaws.

c. Distribution of the liquidation surplus

After debts are settled and contributions reimbursed, the liquidator distributes any remaining assets among shareholders. This distribution follows the proportion of capital held by each shareholder, unless the bylaws provide otherwise.

Clauses excluding one shareholder from any distribution (clauses léonines) are prohibited. However, shareholders may sign post-dissolution agreements to redistribute assets differently.

5. Particularities of the SASU (single-shareholder SAS)

The dissolution of a SASU depends on whether the sole shareholder is a natural or legal person:

• If the shareholder is a company (legal person):
  The dissolution results in a universal transfer of assets and liabilities (TUP) to the parent company, subject to a 30-day period allowing creditors to object (C. civ., art. 1844-5).

• If the shareholder is an individual (natural person):
  A full liquidation procedure must be carried out, to preserve the separation of personal and company assets. This ensures the shareholder benefits from limited liability, except in cases of fraud (e.g., fictitious dissolution to escape creditors).

6. Practical consequences for entrepreneurs and investors

Dissolving and liquidating an SAS is not only a legal formality; it has concrete consequences:

• For shareholders: potential tax on capital gains or liquidation surplus.

• For creditors: possibility to oppose certain operations (especially in TUP).

• For directors: risk of liability in case of mismanagement or fraudulent delay in declaring insolvency.

• For employees: employment contracts end, with all related consequences (notice, redundancy payments).

Conclusion: anticipate dissolution when drafting bylaws

The dissolution and liquidation of an SAS represent the final stage of a company’s life. By setting out clear rules in the articles of association from the very beginning, shareholders can avoid blockages, conflicts, and unnecessary costs.

Because French company law contains numerous technical requirements and potential pitfalls, it is strongly recommended to seek professional assistance.