When running a Société à responsabilité limitée (SARL) — the French equivalent of a limited liability company (LLC) — the partners (or shareholders) must regularly make collective decisions. These decisions are the cornerstone of governance and directly shape how the company is managed, how profits are distributed, and how relationships between partners are maintained.
French company law divides decisions into two main categories: ordinary decisions and extraordinary decisions. This distinction is critical, because each type of decision has its own rules regarding majority thresholds, procedures, and legal consequences.
In this in-depth guide, we will focus on ordinary decisions in French SARLs: their scope, voting rules, legal nuances, and practical implications for both majority and minority shareholders.
1. What Are Ordinary Decisions in a French SARL?
In general, ordinary decisions refer to resolutions passed by the partners that do not modify the articles of association and do not concern the approval of new shareholders.
However, the reality is more complex. The French Commercial Code (Code de commerce) allows certain decisions that appear to involve changes to the articles to be taken under ordinary decision rules. For instance:
- A manager (gérant), even if named in the articles, can be dismissed by an ordinary decision.
- Moving the company’s registered office within France can be decided by the manager but requires ratification through an ordinary decision.
- Updating the articles to reflect mandatory changes in the law is also ratified through an ordinary decision.
- Removing the name of a manager from the articles when their mandate ends can be done through an ordinary decision.
- Even the transformation of a SARL into a Société Anonyme (SA) may, in some cases, be decided through an ordinary decision if certain capital thresholds are met.
Key takeaway: The definition of “ordinary” is nuanced. It covers not only routine matters but also important structural decisions that don’t require the more stringent extraordinary decision process.
2. Common Examples of Ordinary Decisions
Ordinary decisions form the backbone of company governance. They often relate to financial oversight, management, and contractual approvals. Examples include:
- Approval of annual accounts and examination of company results.
- Profit allocation: distributing dividends, transferring profits to reserves, or carrying them forward.
- Granting discharge (quitus) to the manager for their management during the year.
- Appointment or dismissal of managers. Even when the manager is mentioned in the articles, they can be dismissed by ordinary decision.
- Determining manager remuneration and adjusting its terms.
- Appointing statutory auditors and renewing their mandates when required.
- Authorizing exceptional transactions that exceed the powers granted to the manager by the articles (e.g., purchasing real estate, granting mortgages).
- Approving regulated agreements entered into between the company and one of its managers or shareholders.
These decisions, though sometimes perceived as administrative, can profoundly influence the life of the company and the balance of power between partners.
3. The Voting Rules for Ordinary Decisions
French company law sets precise rules for adopting ordinary decisions. These rules vary depending on whether the decision is voted on during the first consultation or a second consultation.
3.1 First consultation: absolute majority
- The decision requires more than half of all company shares (not just those present at the meeting).
- Example: in a SARL with 200 shares, 101 votes are necessary.
- The law considers the company’s entire share capital when calculating the majority.
Important nuance: When a decision involves a regulated agreement (e.g., a contract with a manager), the interested party cannot vote. Their shares are excluded from the calculation, ensuring neutrality.
Our lawyers explain voting procedures, draft compliant articles, and secure your company’s decisions against future challenges.
3.2 Second consultation: relative majority
If the absolute majority is not reached during the first consultation, French law provides a second chance. Unless the articles expressly forbid it, partners can hold a second consultation.
- This time, the decision passes with a simple majority of votes cast, regardless of the number of participants.
- Example: if only 80 shares are represented, 41 votes suffice.
This two-stage process balances efficiency (decisions can eventually be passed) with protection of minority rights (the absolute majority rule applies first).
3.3 Reinforced majority clauses
The articles of association can impose stricter thresholds for ordinary decisions. For example:
- Instead of requiring 50% + 1, the articles may require a two-thirds majority.
- This protects minority shareholders in companies where a single partner controls more than half the capital.
However, French courts have clarified that unless the articles explicitly forbid second consultations, these remain possible. In practice, this means that even with a reinforced clause, decisions may still pass in the second round by relative majority.
Special rule: For the dismissal of a manager, the law itself allows articles to set a reinforced majority requirement.
4. Legal Consequences of Non-Compliance
What happens if an ordinary decision is taken without respecting the proper rules of majority or procedure?
- Annulment risk: Any interested party can bring an action to annul the decision (Commercial Code, Article L. 223-29).
- Litigation: Disputes often arise in cases where minority shareholders believe that the majority acted unfairly, such as allocating all profits to reserves to avoid distributing dividends.
- Delays in governance: If a decision is annulled, the company may be paralyzed until a valid decision is made.
Compliance with majority thresholds is not just a formality; it directly impacts the legal security of the company.
5. Ordinary vs. Extraordinary Decisions: Why the Distinction Matters
While ordinary decisions often address governance and financial oversight, extraordinary decisions involve amendments to the company’s constitution (articles of association). Examples include:
- Changing the corporate purpose.
- Increasing or reducing share capital.
- Extending the company’s duration.
- Modifying rules around shareholder approval.
Why it matters:
- Ordinary decisions require a lower majority threshold.
- Extraordinary decisions generally require a three-quarters majority and stricter quorum requirements.
- Misclassifying a decision can lead to annulment.
For example, distributing dividends is clearly ordinary, but changing how profits are allocated in the articles is extraordinary. Managers and shareholders must carefully distinguish the two.
6. Practical Implications for Minority Shareholders
Ordinary decisions are often the arena where minority-majority tensions emerge.
- Profit allocation: Majority shareholders may allocate profits to reserves instead of distributing dividends. This can be contested if it constitutes an abuse of majority.
- Dismissal of a manager: A manager who is also a minority shareholder may be dismissed by an ordinary decision, raising questions of fairness.
- Regulated agreements: Minority shareholders may challenge agreements that benefit majority shareholders if proper procedures are not followed.
For minority investors, understanding these rules is crucial to protect their rights and avoid being sidelined.
FrenchCo.lawyer assists managers and shareholders with drafting resolutions, conducting meetings, and resolving governance disputes.
7. Case Law Illustrations
French courts have clarified the rules surrounding ordinary decisions through decades of jurisprudence:
- Profit allocation to reserves: The Court of Cassation has annulled decisions where majority shareholders systematically withheld dividends without legitimate business reasons (Cass. com., 22 April 1976).
- Dismissal of a manager: Courts uphold that managers, even if named in the articles, can be dismissed by an ordinary decision, as long as voting rules are respected.
- Regulated agreements: A shareholder who is party to a regulated agreement cannot vote, and their shares are excluded from the majority calculation (Cass. com., various rulings).
These cases show how French courts balance the principle of majority rule with the need to protect minority interests.
8. Best Practices for Companies
To ensure smooth decision-making and avoid disputes, SARLs should adopt good governance practices:
- Draft clear articles of association. Decide whether to include reinforced majority clauses, and specify whether second consultations are allowed.
- Communicate transparently. Provide partners with clear financial reports and explanations for profit allocations.
- Document properly. Ensure that meeting minutes or written consultation records comply with legal requirements.
- Anticipate conflicts. In cases of tension between majority and minority shareholders, consider mediation or legal advice before escalating disputes
Ensure your voting rights, dividend entitlements, and management powers are respected under French company law.
FAQs on Ordinary Decisions in French SARLs
Q1: Can one shareholder alone control ordinary decisions?
Yes, if they hold more than half of the shares. This is common in small SARLs with two or three partners.
Q2: Is a second consultation always possible?
Yes, unless the articles explicitly exclude it. On the second round, a relative majority of votes cast suffices.
Q3: Can ordinary decisions amend the articles of association?
Generally no, but there are exceptions (e.g., ratifying legal updates, removing a manager’s name after their mandate ends).
Q4: What happens if the rules are not respected?
The decision may be annulled by the courts at the request of any interested party.
Q5: How do ordinary decisions affect foreign investors in France?
They are crucial for profit distribution, management appointments, and oversight. Foreign investors should pay close attention to voting rights and protections in the articles.
Conclusion
Ordinary decisions in French SARLs are far from “ordinary.” They govern the most important aspects of corporate life: profits, management, and compliance with the law. While majority shareholders often dominate, French law provides mechanisms to protect minority interests and ensure that decisions are taken in the company’s best interest.
For international businesses and investors in France, mastering these rules is key to secure and efficient operations.
At FrenchCo Lawyer, we guide companies and investors through the complexities of French corporate governance, from drafting articles of association to navigating shareholder disputes. Contact us today for tailored legal advice.
