Ending the functions of a manager of a SARL: what you need to know

The function of manager of a SARL is not eternal. It may come to an end at the scheduled term, in case of a personal event, or else by decision of the shareholders. It is essential for the shareholders, as for the manager himself, to understand the conditions of termination of the mandate, their effects, and the precautions to be taken.

1. End of the mandate of manager of a SARL upon the arrival of the scheduled term

The shareholders are free to fix the duration of the mandate of the manager, provided that this duration is set:

• in the initial articles of association,

• or in a subsequent decision of the general meeting.

The articles may also leave this decision to the free choice of the shareholders at each appointment.

If no duration is fixed, the law provides that the manager is appointed for the lifetime of the company (article L. 223-18, al. 3 of the Commercial Code).

The same applies if the articles provide that the shareholders will fix the duration, but they forget to do so at the time of the appointment: their silence amounts to implicit acceptance of a mandate of manager aligned with the corporate duration.

The articles may provide:

• that the mandate ends after a determined number of years,

• that the mandate ends upon the occurrence of an event (e.g.: change of majority),

• that the manager is renewable, or not, expressly.

If the articles provide a term for the functions of manager, the mandate of manager will end automatically upon the arrival of the scheduled term.

It is not necessary to notify the manager or to respect a notice period. Likewise, tacit renewal is not possible: the manager must be expressly reappointed if he wishes to continue.

On the other hand, unless otherwise stipulated in the articles, the manager is eligible for reappointment.

Attention must nevertheless be paid to the modalities of a possible non-renewal of the mandate of the manager. Indeed, if the non-renewal is decided under vexatious or humiliating conditions, it may give rise to an action for liability by the ousted manager (Com. Court of Cassation, 17 Dec. 2002).

The renewal of the mandate requires no publicity formalities, according to administrative practice and doctrine (Rép. Rickert, AN 17-5-1972).

On the other hand, a new distinct mandate (for example with modification of duration or conditions) could require an update at the RCS.

If a general meeting decides to reduce the duration of the mandate without the agreement of the manager, this legally amounts to an early dismissal (Com. Court of Cassation, 29 May 1972), which may give rise to damages if it has been done under vexatious conditions, or if the reasons for this reduction of mandate do not correspond to those provided for by the articles.

2. End of the mandate of manager of a SARL in case of personal impediment

Apart from the normal expiry of the mandate, certain events may durably prevent the manager from exercising his functions. This automatically leads to the termination of his mandate, without need for a decision of the shareholders.

Examples of personal impediment are:

• the death of the manager,

• the occurrence of a legal incapacity (guardianship, curatorship, etc.),

• the pronouncement of a management ban (criminal or commercial sanction),

• personal bankruptcy or personal judicial reorganisation proceedings,

• any lasting incapacity to fulfill the functions (long hospitalization, severe cognitive disorders, etc.).

In these cases, it is essential that the shareholders quickly appoint a new manager, in order to avoid any paralysis of the company.

3. Dismissal of the manager of a SARL by the shareholders of the company

a. Right, for the shareholders, to dismiss the manager of a SARL

The dismissal of the manager of a SARL is a serious act which may however be freely decided by the shareholders. However, the dismissal must obey certain strict rules, or else it may be judged irregular or abusive.

According to article L. 223-25 of the Commercial Code, the manager of a SARL may be dismissed at any time by decision of the shareholders. This dismissal is free, which means that it does not need to be justified, unless the articles provide otherwise.

Any clause aiming to prevent or to dissuade dismissal is null and void. It is therefore not possible to impose a dissuasive contractual indemnity or a mechanism of protection that is too rigid in the articles.

b. Prohibition of a vexatious dismissal or without just cause of the manager of a SARL

However, the freedom of dismissal of the manager of a SARL does not mean that he can be dismissed without just cause or in a vexatious or abusive manner.

Thus, if the manager is dismissed without just cause, he may obtain compensation through damages.
If the dismissal is pronounced in vexatious, brutal or humiliating conditions, this may also give rise to compensation.

The obligation of loyalty is imposed on the shareholders even within the framework of a dismissal.

c. Practical modalities of dismissal of the manager of a SARL by the shareholders

The dismissal of the manager may only be made by the general meeting of shareholders. Only the general meeting of shareholders of a SARL is competent to appoint or dismiss the manager of a SARL.

It is therefore necessary to convene and hold a general meeting of shareholders to dismiss the manager of a SARL.

In case of a plurality of managers, any of them may convene a general meeting or organize a written consultation to propose the dismissal of another manager.

In case of sole manager, he is not obliged to convene the meeting for his own dismissal.

If the manager refuses to convene the meeting, the shareholders cannot do it themselves.

They must then seize the president of the commercial court in summary proceedings so that a special representative is appointed in order to convene the meeting (CA Orléans, 24 May 2007).

By exception to the above, if the manager is under guardianship, any shareholder or the statutory auditor may convene the meeting to dismiss him (art. L. 223-27 and L. 821-57 Com. Code).

The question of dismissal must obligatorily appear on the agenda of the meeting, or result clearly from the resolutions submitted to the shareholders.

If the SARL becomes single-shareholder, the sole shareholder may dismiss the manager alone, even if the articles referred to a meeting of several shareholders (Com. Court of Cassation, 9 March 2010). In this case, all the clauses of the articles presupposing several shareholders become void.

d. Majority required to dismiss the manager

• The dismissal of the manager must be decided by the shareholders representing more than 50% of the shares.

• The articles may provide for a reinforced majority, but not unanimity. A statutory clause imposing unanimity would be void (CA Paris, 10 Oct. 2006).

If the required majority is not reached at the first consultation, a second consultation may be organized.
This time, the decision is taken by the majority of votes cast (unless otherwise stipulated in the articles).

e. Does the manager participate in the vote?

Yes, the manager, if he is a shareholder, may participate in the vote on his own dismissal, unless clause or express prohibition.

Thus, if the manager is majority shareholder, he can block any dismissal. The minority must then seize the judge to request his judicial dismissal for legitimate cause.

It is the same when the company is composed of two shareholders at 50/50, one of whom is manager. In this case, no majority can be obtained. The only solution is then the judicial route for dismissal of the manager for legitimate cause.

If the manager is minority shareholder, he may be dismissed if a sole shareholder or a group of shareholders holds more than 50% of the shares (Com. Court of Cassation, 26 Nov. 1999).

Dismissal voted by a single majority shareholder is valid, even if the articles speak of “the shareholders” (Com. Court of Cassation, 31 March 2021).

f. Effects of the dismissal

The decision to dismiss the manager of a SARL takes immediate effect as soon as it is voted.
The dismissal of the manager is never retroactive.

If the name of the manager appears in the articles, this mention becomes automatically void on the date of dismissal.

The shareholders may choose to amend the articles to remove the name of the manager by a decision taken at simple majority (more than 50% of the shares), contrary to other statutory modifications.

4. Judicial dismissal of the manager of a SARL

The dismissal of the manager of a SARL does not fall solely within the power of the general meeting. Any shareholder may seize the court to request the judicial dismissal of the manager, as soon as there exists a legitimate cause. This recourse is particularly useful in case of internal deadlock or lasting disagreement between shareholders.

Thus, if the shareholders do not succeed in dismissing the manager (e.g.: deadlock in case of majority manager), any shareholder may seize the commercial court to request judicial dismissal for legitimate cause.
The courts have been able to judge that constitute a legitimate cause for dismissal: faults of management, a conflict of interest, the inertia of the manager, as well as conduct harmful to the company.

a. Legal basis for the judicial dismissal of the manager of a SARL for just cause

Article L. 223-25 paragraph 2 of the Commercial Code expressly provides that: “Any shareholder may request in court the dismissal of the manager(s) for legitimate cause.” This right is individual: it may be exercised by a single shareholder, whatever his share in the capital.

b. What is a legitimate cause for judicial dismissal?

Case law considers as legitimate cause:

• the violation of the law or of the articles,

• the breach of legal or contractual obligations,

• mismanagement harming the corporate interest,

• or else a grave and objectively justified loss of confidence.
  These facts are close to those which justify a dismissal by the shareholders for just cause.

Here are some concrete cases of judicial dismissals judged legitimate:

> Situation — Court decisions

The manager no longer participates in meetings, causing internal blockages. — CA Paris, 8 Nov. 1996: the paralysis of the management of the company constitutes a legitimate cause for dismissal of the manager of a SARL.

The manager placed under curatorship is no longer fit to administer. — CA Paris, 4 Apr. 1997: the vulnerability of the manager of the SARL constitutes a legitimate cause for his dismissal.

The manager totally abandons day-to-day management (e.g.: parapharmacy). — CA Pau, 6 Mar. 2003: the flagrant lack of interest of the manager in corporate affairs constitutes a legitimate cause for his dismissal.

Refusal to execute a court decision, aggravating the corporate debt. — Cass. com., 8 Feb. 2005: the violation of the corporate interest by the manager of a SARL constitutes a legitimate cause for his dismissal.

Remuneration received without the shareholders’ agreement and absence of debt recovery. — CA Paris, 17 Mar. 2015: the justified loss of confidence constitutes a legitimate cause for dismissal of the manager of a SARL.

Disagreement between co-managers blocking banking and commercial relations. — CA Paris, 29 Nov. 2016: the serious dysfunction of the SARL constitutes a legitimate cause for the dismissal of the manager.

Failure to draw up and present the accounts, leading to RCS striking-off. — CA Paris, 6 Aug. 2019: the negligence of the manager of a SARL in the conduct of its corporate affairs constitutes a legitimate cause for his dismissal.

On the other hand, mere personal disagreement between shareholders, or family disputes without direct impact on the corporate interest, does not constitute a legitimate cause justifying the dismissal of the manager.

For example, two brothers who are shareholders, one of whom is manager, oppose each other over an overdraft without real consequence for the company. In that case it was judged that there was no legitimate cause justifying the dismissal of the manager (Cass. com., 10 July 2007).

The question whether the fault committed by the manager is a serious or intentional fault is irrelevant for assessing whether it may constitute a legitimate cause for his dismissal.

The legitimate cause may result from negligence, a lack of diligence or repeated conduct compromising management, even without malicious intent.

A gross or intentional fault is not required (Cass. 3rd civ., 12 Mar. 2014 – civil company, principle transposable).

c. How to proceed to have the manager of a SARL judicially dismissed for legitimate cause?

To have a manager of a SARL judicially dismissed for legitimate cause, it is necessary to serve a writ on the manager, and on the company. Indeed, the latter must be joined as a party, which means that it must also be sued.

Also, it is the manager himself who must be served (principal defendant), and the company as a distinct entity (since the decision impacts its organization).

On the other hand, it is not necessary to serve all the other shareholders. According to case law (Cass. com., 15 Jan. 2013) the action targets a corporate organ; it affects the company, not the shareholders individually.

In principle, the summons is on the merits, that is to say in full proceedings, which implies a certain time inherent to proceedings on the merits between the date of the summons and the date on which the dismissal decision is handed down.

In case of urgency, and if the legitimate cause justifying the dismissal is not seriously contested, the dismissal may be obtained in summary proceedings before the president of the commercial court (CPC art. 872).

Examples where this has been judged possible:

• CA Pau, 6 Mar. 2003

Examples where summary proceedings were rejected (absence of urgency or serious contestation):

• CA Paris, 18 May 2022

• CA Amiens, 13 Apr. 2023

The judge assesses the facts justifying the dismissal of the manager for legitimate cause with regard to the interest of the company, and not the personal interests of the shareholders.
Thus, a family dispute between shareholders will not suffice to have the manager dismissed for legitimate cause if this conflict has no impact on the functioning of the company and if the latter continues to function correctly despite this conflict.

5. Resignation of the manager of an SARL

If the Commercial Code frames the appointment and the revocation of the manager of an SARL, it remains silent on the resignation. This silence offers a certain flexibility to the articles of association, but calls for prudence: the resignation of a manager is not a trivial act, especially in a structure with small governance.

a. The modalities of the resignation of the manager of an SARL may be freely provided by the articles of association of the company

The Commercial Code does not provide any specific rule on the resignation of the managers of SARL. This absence of legal framework means that:

• The articles of association of the SARL may freely set the modalities of resignation of the manager (notice, form, formalities, consequences…),

• In the absence of statutory clause, it is the general principle of contractual freedom which applies.

The manager may thus resign at any time, whether he is a partner or not, statutory or not.

b. Faulty resignation: attention to the responsibility of the manager

Even if the resignation of the manager of an SARL is a right, it must not be abusive or untimely.

A resignation is considered faulty when it:

• takes place in a brutal manner, without reasonable notice,

• or is motivated by the intention to harm the company or to place it in difficulty.

In this case, the company may claim damages for the prejudice suffered.

For example, a manager would potentially commit a fault likely to engage his responsibility towards the company if he resigns in the middle of a crisis, without notice, whereas no other manager is appointed.

c. Legal effects of the resignation of the manager of SARL

Unless otherwise stipulated by the articles of association, the resignation produces all its effects as soon as it is brought to the knowledge of the company:

• It requires no acceptance from the shareholders or from any body,

• It cannot be unilaterally withdrawn by the manager after notification (even in case of regret).

Even if the law does not impose any specific form, written notification is strongly advised:

• Registered letter with acknowledgment of receipt,

• Letter signed and handed in person against discharge,

• Email with read receipt in a formal professional framework.

This makes it possible to prove the date of notification, starting point of the legal effects.

If the resigning manager was appointed in the articles of association (and not by separate act), then:

• The mention of his name becomes automatically null as from the date of his resignation,

• It is not necessary to immediately modify the articles of association,

• However, the shareholders may choose to delete the obsolete mention by simple majority (art. L. 223-18 al. 2).

If the company does not have a co-manager, the resignation of the manager creates a governance vacuum. It is then urgent for the shareholders to:

• Appoint a new manager,

• Or designate a judicial representative on a provisional basis if the replacement is blocked.

This risk must be anticipated in the articles of association, for example through the designation of a conditional successor or the empowerment of a partner to convene the assembly.

6. Consequences of the cessation of the functions of the manager of SARL

Whether it occurs at the end of the mandate, by resignation, revocation or judicial decision, the cessation of the functions of the manager of SARL is not without legal effects. It involves publicity obligations, may open the right to compensation, and does not always end all links between the person concerned and the company.

a. Mandatory publicity of the cessation of functions

The cessation of the functions of the manager, whatever its cause (revocation, resignation, arrival of the term, death…), must obligatorily be the object of a legal publicity.

This formality includes:

• The publication of a notice in a journal of legal announcements (JAL),

• The filing at the registry of the commercial court of the minutes recording the cessation of functions,

• The completion of the M3 form (modification of legal person),

• The update of the Trade and Companies Register (RCS).

These measures are indispensable to make the cessation enforceable against third parties. In case of omission, the company remains bound by the acts of the resigning or revoked manager, as long as this cessation has not been published.

b. Rights of the former manager after the end of his mandate of manager of SARL

Even after the end of his mandate, the outgoing manager retains certain rights.

First, the manager has the right to obtain damages in case of unjustified revocation.
If the revocation of the manager took place without just cause or in abusive conditions, the manager may claim compensation before the civil or commercial courts.

The amount of compensation is assessed according to:

• moral or professional prejudice,

• impact on his reputation or personal life,

• possible loss of earnings.

Then, if the manager was holder of an employment contract, he has the right to the continuation of his employment contract.
If the manager combined his social functions with an employment contract, the end of the social mandate:

• does not automatically entail the termination of the employment contract,

• The employment contract continues normally, if the conditions of the combination were met.

Finally, the former manager regains the freedom to exercise a competing activity to that of the company (which is forbidden to him during the duration of his mandate by application of the principle of loyalty), unless:

• A non-competition clause appears in his articles of association or in a particular agreement,

• Or there exists a specific contractual loyalty obligation after mandate.

Such a clause is valid only if it is:

• limited in time and space,

• proportionate to the interests of the company,

• possibly accompanied by a financial counterpart.

c. Obligations of the manager of SARL post-mandate

Even after the cessation of his functions, the manager must answer for his management before the shareholders.

The outgoing manager must in particular report on his mandate at the occasion of the general meeting which approves the accounts of the financial year during which he left his functions. He must thus provide a management report if this is provided or required.

The cessation of functions without immediate replacement may create a legal vacuum. In this case:

• The shareholders must appoint a new manager without delay,

• Failing this, a special representative may be appointed by the court to ensure transitional management.

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