Lease of Shares in a French SARL: Legal Framework, Operation, and Tax Consequences

1. Legal Framework

Under Article L. 239-1 of the French Commercial Code, the articles of association of a SARL (limited liability company) subject to corporate income tax (IS) — either by law or by option — may authorize the lease of shares (location de parts sociales) to an individual.

Before any lease can be carried out, it is necessary to verify the company’s articles. If they do not include a clause permitting the leasing of shares, such a clause must be inserted by statutory amendment, approved in accordance with the voting thresholds required for amending the articles. Shareholders holding a blocking minority can oppose the introduction of this clause.

In SARLs, the lease becomes effective upon the insertion in the articles of the reference to the lease and the name of the lessee. The lessee must also be approved (agréé) under the same conditions as a purchaser of shares (Article L. 239-3).

This regime is distinct from the transfer of shares: the ownership remains with the lessor, while the lessee obtains only limited rights.

2. Purpose and Economic Function of Share Leasing

The lease of shares performs several distinct functions in corporate structuring and succession planning.

1. Gradual business transmission.
   Similar to the location-gérance of a business, leasing shares can be a preliminary step to the eventual transfer of ownership. This allows a successor or manager to progressively assume economic control before the final sale, often accompanied by specific fiscal treatment.

2. Stabilizing income for minority shareholders.
   Minority partners who wish to secure fixed returns may lease their shares to the managing shareholder in exchange for rent. They thus retain the capital value of their shares while the manager gains greater voting control and flexibility in dividend policy.

3. Preparation for management succession.
   Share leasing is frequently used to prepare progressive transmission within a family or between partners, while maintaining stability of control during the transition period.

Exclusions and restrictions:

• The mechanism is not available to SARL de famille or other entities taxed under the partnership (translucid) regime.

• The lessor must be a shareholder in a SARL subject to IS.

• The minority managing director who leases shares cannot count them toward determining majority control, since they do not own them in full property or usufruct.

• An usufructuary may lease the shares, provided the bare owner consents where required (Article 595 of the Civil Code).

3. Approval of the Lessee

Article L. 239-3 provides that the rules applicable to approval of a purchaser (cessionnaire) also apply to a lessee (locataire).

For a SARL, this means the lessee must be approved as if they were a third-party transferee, following the same procedure and majority requirements defined in the company’s articles and in Article L. 223-14 of the Code de commerce.

The law is silent on the consequences of a refusal of approval. In such a case, there is no obligation for the company or partners to repurchase the shares — unlike in the case of an aborted transfer. The project simply fails.

If the lease is combined with an option to purchase, the approval procedure must also cover the eventual exercise of the option, unless the lessee is already a shareholder.

4. The Lease Agreement

4.1 Written Form and Registration

The lease contract is mandatory and must be in writing — either notarized or under private signature. It must be registered with the tax authorities (Article L. 239-2).

To be enforceable against the company, it must be served by a judicial officer (commissaire de justice) or accepted in an authentic instrument in accordance with Article 1690 of the Civil Code.

Unlike a sale of SARL shares, which becomes effective upon deposit of the deed at the registered office, the lease requires the strict civil law formality of service.

4.2 Mandatory Contractual Clauses

Under Article R. 239-1 of the Commercial Code, the contract must state:

• The nature and identification of the leased shares (e.g., numbers and class);

• The duration of the lease and termination notice;

• The rent amount, payment frequency, and any revision clauses;

• Any transfer provisions if the shares are to be sold during the lease;

• The distribution of liquidation proceeds (boni de liquidation) if relevant.

If the contract omits revision or transfer clauses, the rent is deemed fixed and the shares non-transferable during the lease.

5. Registration in the Articles and Timing of Effects

For SARLs, the lease and the name of the lessee must be recorded in the articles next to the name of the shareholder-owner.

The manager (gérant) has the authority to insert this notation, subject to ratification by partners holding over half the capital (Articles L. 223-18 and L. 223-29).

The same procedure applies for removing the mention when the lease ends. If the manager fails to do so, any interested party may request a court injunction to compel the update under Article L. 239-5.

In practice, many companies create a distinct category of numbered shares for clarity, showing which ones are under lease and to whom.

6. Duration and Rent

No specific statutory duration exists for the lease of shares. By reference to Article 1709 of the Civil Code, a lease must involve:

• a temporary grant of enjoyment;

• in exchange for a determined rent.

A lease cannot be perpetual; if no duration is set, it is considered indefinite and may be terminated by notice (Article 1736 Civil Code).

Contractual practice:
The agreement should specify rent, payment frequency, revision formula, and treatment of losses. Excessively long durations should be avoided to prevent practical obstacles in recovering ownership.

The rent may be freely set by the parties, though it typically reflects the expected dividends or the value of control conferred to the lessee.

7. Renewal, Assignment, and Termination

7.1 Renewal

Under Article L. 239-4, renewal occurs under the same conditions as the original lease.

This implies:

• a new written and registered contract;

• potentially a new approval procedure;

• new valuation of the leased shares;

• continued or revised rent.

Renewal constitutes a new lease, not a mere extension.

7.2 Assignment During Lease

If the contract allows the sale of leased shares during the lease term, it must state how the lease passes to the buyer.

Under Article 1743 of the Civil Code, a lease with a certain date is binding on the purchaser of the leased property. Since registration gives the contract a certain date, it should be enforceable against the buyer. Nonetheless, it is prudent to include an express clause requiring the seller (lessor) to guarantee transfer of the lease to the new owner.

7.3 End of Lease

At expiry, if the lease is not renewed and the shares are not sold to the lessee, the shares revert to the lessor.

The lessor remains the shareholder and bears the risks and losses of the company throughout the lease; exemption from losses would amount to a prohibited leonine pact.

The lessee has no claim for compensation for any increase in value of the shares during the lease.

To prevent competitive risk, leases often include a non-compete clause, given that the lessee may have accessed confidential company information.

8. Valuation of Leased Shares

Article L. 239-2 requires that the leased shares be valued at the beginning and at the end of the lease.

This valuation must be certified by a statutory auditor (commissaire aux comptes) and based on the company’s financial statements.

If the lessor is a legal entity, an updated valuation must be made at the end of each fiscal year.

For companies without a statutory auditor, an external auditor must be appointed for this purpose.

This mechanism resembles an inventory or “state of condition” of the shares, allowing recognition of gains or losses on the leased shares and serving as a basis for determining any purchase price if a sale follows the lease.

9. Rights of the Lessor and Lessee

9.1 Ownership and Voting Rights

The lessee cannot dispose of the shares; their rights are limited to dividend entitlement and similar rights equivalent to those of a usufructuary.

Voting rights are divided as follows (Article L. 239-3):

• For resolutions amending the articles or changing the nationality of the company, the vote belongs to the lessor;

• For other decisions, the vote belongs to the lessee.

These rules are mandatory but carry no explicit sanction if breached.

9.2 Status of the Parties

The lessor remains the shareholder in respect of corporate actions and litigation.

The lessee’s status during the lease is not expressly defined. Whether they qualify as an “associate” depends on contractual context.

If the lessee enters into agreements with the company, such contracts may fall under the rules of regulated agreements (conventions réglementées) if the lessee is deemed to have associate status. Legal caution recommends following this procedure systematically.

9.3 Prohibition of Sublease

Subleasing of shares is expressly prohibited (Article L. 239-1, paragraph 7).

10. Fiscal Regime

10.1 Taxation of the Lessee

The lessee is treated as usufructuary for tax purposes.

• They are taxable on dividends received during the lease.

• Rent payments are deductible from these dividends.

• If the rent exceeds the dividends, the deficit qualifies as a negative investment income (revenus de capitaux mobiliers) and can be carried forward against income of the same category for six years (CGI art. 156, I.8°).

10.2 Taxation of the Lessor

The tax treatment depends on the lessor’s status:

• Individual lessor (income tax): income falls under BIC (industrial and commercial profits). The lease moves the shares from the private estate to the professional estate.
  In the event of a later sale, the gain is divided between:

  • the part accrued before the transfer to the professional estate (taxed as private capital gain), and

  • the part accrued afterwards (taxed as business profit).
    This is the so-called “migrating assets” regime (CGI art. 151 sexies).

• Corporate lessor (IS): income from rent is included in taxable profit.

Any eventual capital gain realized by the lessor upon sale is taxed under ordinary capital gains rules for share disposals (CGI art. 150-0 A et seq.).

11. Lease Combined with a Purchase Option (Credit-Bail)

11.1 Definition

The law expressly allows leasing of shares combined with a unilateral purchase option (promesse unilatérale de vente) to qualify as a credit-bail operation (Commercial Code arts. L. 239-1 to L. 239-5; Monetary and Financial Code art. L. 313-7).

Under this arrangement, the lessee may acquire the shares at a fixed price, with part of the rent payments credited toward the sale price.

This technique allows gradual acquisition financed through rent.

11.2 Taxation of Credit-Bail Operations

For the lessor:

• The portion of rent payments credited toward the final sale price is not immediately taxable, as it creates a corresponding liability to the lessee.

• Upon exercise of the purchase option, the sale price is increased by the total of these credited rents to determine the taxable capital gain (CGI art. 38 ter).

For the lessee:

• The corresponding portion of rent that is imputed to the sale price is non-deductible (CGI art. 39.8).

• This rule, initially applicable to business credit-leases, extends to the lease of non-listed company shares.

11.3 Determination of Sale Price under the Option

The valuation generally involves:

1. Estimating the enterprise value (assets + goodwill);

2. Deducting the company’s debts;

3. Dividing the remainder by the number of shares.

The resulting unit value is adjusted for control premiums or minority discounts.

If the SARL represents a large enterprise, the valuation follows standard corporate valuation methods used for limited companies (comparables, DCF, etc.).

For private individuals exercising the option, the purchase price used for capital gains purposes excludes the rent already paid (CGI art. 150-0 D, 8 bis).

12. End of the Lease and Sale of Shares

In most cases, the lease concludes with the sale of the leased shares to the lessee.
This may occur:

• Under the credit-bail framework, when the option is exercised; or

• Independently, as an ordinary share transfer subject to approval and registration duties.

If no sale occurs, the lessor retains ownership without additional obligations, and the lessee cannot claim any compensation for the increased value of the company.

13. Summary Table

14. Practical Observations

• The lease of shares remains rare in practice but can be a powerful tool for gradual business transfer, management transition, or restructuring.

• It requires careful coordination between company law, tax law, and accounting.

• The mandatory formalities (written contract, registration, service, article amendment, auditor valuation) must be strictly followed for validity.

• In drafting, attention must be given to duration, rent indexation, renewal, and approval, as well as conflict of interest rules if the lessee is also a manager.

15. Conclusion

The lease of shares in a SARL offers a legally recognized but complex mechanism that allows temporary enjoyment and progressive transfer of company ownership.

While conceptually inspired by location-gérance, it introduces distinct corporate and fiscal consequences:

• The company must remain under corporate tax (IS);

• Ownership, voting, and income rights are split between lessor and lessee;

• Registration and valuation are compulsory;

• Tax effects vary depending on whether a sale follows.

This tool is best reserved for carefully planned situations — such as family successions, management transitions, or shareholder reorganizations — under supervision of qualified French corporate and tax counsel.