Civil Liability of SARL Managers under French Law

The position of gérant (manager) of a société à responsabilité limitée (SARL) carries with it significant responsibilities. Beyond the power to manage, French law imposes strict rules concerning the manager’s liability towards the company, its partners, and third parties. The Commercial Code and extensive case law have defined the contours of this liability, which we summarize here.

1. Grounds for Liability of SARL Managers

Article L. 223-22 of the Commercial Code identifies three principal causes of civil liability for managers, applicable both vis-à-vis the company and third parties:

• Infringement of legal or regulatory provisions. For example, failure to comply with incorporation formalities or failure to publish statutory modifications (art. L. 210-8 c. com.).
• Violation of the statutes. For instance, a decision taken unilaterally by the manager when the statutes require prior partner approval.
• Management faults. As agent of the company, the manager is responsible for damage caused by mismanagement, even in the absence of fraud. Examples include disproportionate expenses relative to resources, lack of oversight permitting embezzlement, or accounting irregularities.
  

Where the prejudice is suffered by a third party, liability only arises if the manager has committed a fault separable from his functions. In addition, the manager may be held liable under the general civil liability provisions of the Civil Code (art. 1240 et seq.).

2. The Duty of Loyalty to the Company by SARL Managers

Jurisprudence imposes a strict obligation of loyalty upon managers. This duty extends beyond the term of office in certain circumstances.

• The Court of Cassation has held that creating a competing business during or immediately after a mandate, or soliciting employees from the company, constitutes a breach of loyalty (Cass. com., 24 Feb. 1998; 6 June 2001; 12 Feb. 2002).
• Even during the notice period following resignation, managers must refrain from launching competing activities.
• Negotiating contracts in the same field on behalf of another company also breaches loyalty obligations (Cass. com., 15 Nov. 2011).

Nevertheless, no breach is established where the partners have unanimously authorized a competing activity (Cass. com., 18 Mar. 2020).

The duty of loyalty also extends to the transfer of shares. Case law has sanctioned managers who concealed parallel negotiations or resale intentions from partners during a transfer (Cass. com., 12 May 2004; 10 July 2018).

3. Liabilities in Cases of Plurality of Managers of SARL

In companies with several managers, liability is in principle individual and corresponds to the extent of each manager’s fault. If only one manager is at the origin of the mismanagement, action may be directed solely against him (Cass. com., 25 Jan. 2023).

When several managers cooperate in wrongful acts, the court determines their respective contributive shares. Where no distinction is possible, liability may be imposed jointly and severally.

4. Limits of Shareholder Approval of Managerial Acts

The approval of accounts and the quitus granted by the partners does not extinguish liability. Article L. 223-22 expressly prohibits shareholder decisions from precluding actions in liability against managers for faults committed during their mandate.

5. Time Limitations

The limitation period for liability actions is generally three years from the harmful act or its disclosure. If the act is qualified as a crime, the period is ten years (art. L. 223-23 c. com.).

De facto managers remain subject to the ordinary five-year limitation period under civil law (art. 2224 c. civ.).

Notable rulings illustrate the application of these rules:

• The limitation period runs from the end of concealment, for example, when an accountant delivers documents revealing mismanagement (CA Paris, 26 Feb. 2009).
• Actions regarding unlawful overdraft agreements are subject to the three-year limit (Cass. com., 20 Dec. 2023).
• Intentional concealment must be proven to delay the starting point of prescription (Cass. com., 24 Jan. 2024).
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6. Liability Actions by the Company and Shareholder against the SARL Manager

When the company suffers harm, it normally acts through its legal representative. However, partners may also bring actions:

• Derivative action (action sociale): Partners holding at least one tenth of the capital may sue in the name of the company. Clauses restricting this right are deemed unwritten. The damages awarded benefit the company, not the partners (art. 1843-5 c. civ.; art. R. 223-31, R. 223-32 c. com.).
• Individual action: Partners may sue the manager only for a personal and distinct prejudice. Courts have admitted such claims in cases of defamation or failure to convene assemblies but rejected them where the prejudice merely reflected the company’s losses (Cass. com., 17 Jan. 2018; 3 July 2001; 19 Apr. 2005).

Where conflicts of interest arise, an ad hoc representative may be appointed to represent the company (Cass. com., 9 Nov. 2022).

7. Liability Actions by Third Parties Against the SARL Manager

Third parties may hold managers liable when they commit intentional faults of particular gravity, incompatible with the exercise of their functions. Examples include:

• Authorizing use of uninsured vehicles (Cass. com., 4 July 2006).
• Withdrawing excessive profits, endangering the company (Cass. com., 6 Nov. 2007).
• Concealing debts in insolvency proceedings (Cass. com., 27 May 2014).
• Misleading contracting parties on solvency (Cass. com., 20 May 2003; 31 Mar. 2015).
• Exploiting confidential data of a former employer (Cass. com., 7 Sept. 2022).

Liability also arises for failure to take out mandatory insurance (Cass. com., 28 Sept. 2010; 27 May 2015). The manager alone must answer for criminal faults he personally committed (Cass. com., 18 Sept. 2019).

The criminal chamber has clarified that civil liability may be retained even after acquittal, provided a civil fault is established within the facts pursued (Cass. crim., 5 Apr. 2018).

Conclusion

The civil liability of SARL managers is both broad and demanding. The law and jurisprudence draw a clear line: managers must respect statutes, act prudently, remain loyal to the company, and avoid any behavior that could harm partners or third parties.

For managers, this means:

• Strict compliance with legal and statutory requirements.
• Transparent communication with partners.
• Diligent oversight of company operations.
• Careful avoidance of conflicts of interest.

At frenchco.lawyer, we advise and represent managers, partners, and companies in disputes concerning liability under French company law. Proper guidance is essential to balance the freedoms of management with the weight of responsibility imposed by law.