The SARL Before Its Registration (SARL in Formation): Legal Personality, Ratification of Acts, and Tax Consequences

When forming a Société à Responsabilité Limitée (SARL) in France, a crucial legal threshold is the birth of legal personality by registration with the Registre du Commerce et des Sociétés (RCS).

Until that point, the company remains a SARL in formation, without independent legal existence.

Acts entered into during this interim phase expose the founders to personal liability, unless they are subsequently and validly taken over by the company once registration occurs.

French law provides three formal mechanisms for such takeover—by annexed schedule, by special mandate, or by collective decision of the partners—each designed to balance the protection of founders against the security of third parties.

1. Before its Registration with the Commercial Registry, the SARL Lacks Legal Personality 

Commercial companies enjoy legal personality from the date of their registration in the RCS (French Commercial Code, art. L.210-6), not when the SIREN number is assigned (Decision of the French Supreme Court (Cass. com.), 29 Nov. 2023, no. 22-16463).

Prior to registration, the entity is treated as a de facto company, and the rules governing legal persons are not yet applicable. Between the signing of the articles of association and the completion of registration, the company has no legal existence.

Consequently, those who act on behalf of the company while it is being formed are, in principle:

• Civilly: jointly, severally, and indefinitely liable for undertakings subscribed (French Commercial Code, art. L. 210-6);
• Fiscally: considered as acting on their own account.

The fact that the company in formation does not have legal personality, has the following consequences:

1.1 Absolute Nullity of Contracts Concluded Pre-Registration

Acts performed before RCS registration are tainted by absolute nullity. Any interested party may invoke it (including the co-contracting party), and no post-registration performance can cure the irregularity.

1.2 Legal Proceedings Involving an Unregistered SARL

During the period between the signing of articles of association (statutes) and the effective registration of a SARL, the company does not yet have legal personality, and therefore cannot validly sue or be sued in its own name.

As the SARL does not exist before its registration with the Commercial Court, court proceedings against it are inadmissible. Thus, a SARL cannot be prosecuted, for example, for anticompetitive practices where the facts occurred prior to registration (Cons. conc., Decision 95-D-76, 29 November 1995, BOCC, 16 May 1996).

Similarly, a company cannot be sued for unfair competition based on acts committed before its constitution and registration (Cass. com., 17 May 2023, no. 22-16031).

An action brought on behalf of a company in formation is inadmissible for lack of standing, and this defect cannot be retroactively cured by later registration (Cass. com., 20 June 2006, no. 03-15957).

1.3 Transfer of Membership Rights During the SARL Formation Period

The transfer of the right to be a member of a SARL is possible during the formation period of the SARL, but it must be authorized by all founders. In fact, before registration, the company is only a contract and has no legal personality. Therefore, the authorization of all parties (future members of the SARL) is necessary.

1.4 Joint and Several Liability of Those Who Acted on Behalf of the SARL in Formation

Only those who performed acts in the name of a company in formation—and they alone, absent proof of a de facto created company—are jointly, severally, and indefinitely liable for those acts (Cass. com., 20 Nov. 1990, no. 87-12489).

2. How Can the Undertakings Signed During the Formation Period on Behalf of the Company in Formation be Taken Over (Ratified) by the Company?

Although registration delays have been reduced, the formality is not instantaneous. Founders often must subscribe undertakings before definitive registration (e.g., signing the registered office lease). French law allows the company, after registration, to take over (“reprise“) acts signed during the formation period (C. com. art. L. 210-6). There are three routes for takeover (C. com. art. R. 210-5).

> Duration of the Formation Period

The texts do not fix a start date. It is fact-specific and set by judges as needed.

• Start may be fixed at the date of negotiations to create the company (Cass. com., 23 May 1977, no. 75-14805).
• For tax purposes, an SARL’s formation begins on the deposit of funds (cash contributions) or the appointment of a contributions auditor (in-kind contributions) (BOFiP-ENR-AVS-10-40-§120, 12/09/2012).
• The Conseil d’État considered the company in formation where the articles were already signed on the relevant date (CE, 20 Mar. 1996, no. 121601).
• Conversely, for commercial establishment law, a company was not “in formation” where the articles had not been registered with the tax authorities (CE, 13 Oct. 2008, no. 314116).

End of period: RCS registration—the moment legal personality is acquired. Prolonged formation risks requalification as a de facto company, exposing partners to unlimited, joint and several liability.

> Which Acts Performed In the Name of the Company in Formation Can Be Taken Over by the Company after its Registration?

Only legal acts (e.g., contracts) are eligible. Offences (civil or criminal) by founders cannot be taken over—e.g., unfair competition or hiring discrimination breaches under the Labour Code.

Only those who personally concluded the acts, or those who gave a mandate to conclude them, are bound. Founders who did not subscribe the acts—and those who only negotiated without signing—are not bound.

Acts performed on behalf of a company in formation may be validly undertaken by the company itself after registration through three formal mechanisms: annexation to the bylaws, a special mandate, or a collective decision of the partners.

2.1 Acts Concluded Before Signing the SARL Bylaws Can Be Taken Over if Described in a Schedule of the Bylaws 

A schedule of acts performed on behalf of the company in formation—indicating, for each, the commitment that would result for the company is presented to partners before signing and is annexed to the bylaws (statutes). Signing the bylaws (statutes) then entails takeover when the company is registered (French Commercial Code, art. R. 210-5, §1).

However, to effect the takeover, the schedule must specify at least the date and the amount of each undertaking (Cass. com., 13 July 2010, no. 09-68142). In practice, the nature, amount, duration, and key terms of the acts to be undertaken by the company should be listed.

Takeover is automatic by signature of the bylaws (statutes) if the schedule describing the acts to be undertaken by the company is annexed, but the undertaking takes effect only upon registration of the company with the Commercial Court.

Without annexation, only the signatories of the acts remain bound.

> Mind the Tax Risk of Pre-Formation Acts

For the tax administration, the formation period of an SARL starts at deposit of funds (or appointment of a contributions auditor). Acts entered into before this period risk double transfer duties: once for the founder who subscribed the act, and again when the company takes it over.

2.2 The Mandate Given to a Future Partner of the SARL to Enter into Undertakings on Behalf of the SARL in Formation

Partners may, in the articles or by a separate instrument, give a mandate to one or more of them to enter into undertakings on behalf of the company (French Commercial Code, art. R. 210-5, §3). If the acts are identified and their terms are specified, registration will entail automatic takeover.

• The mandate must state the nature, the approximate or maximum amount, and the terms.
• A generic mandate (e.g., “acts within the corporate purpose and interest”) is too general and ineffective.

Absent a special mandate and failing collective approval, all partners who gave mandate as well as their agents are jointly and severally liable.

Contracts entered into before the registration of a SARL—such as agreements concerning the registered office or services contracts—must expressly indicate that the signatory is acting “in the name of” or “on behalf of” the company in formation. However, recent case law authorizes trial judges to take into account all relevant circumstances, both intrinsic and extrinsic, to determine whether an act was concluded on behalf of the company in formation, regardless of the precise wording employed.

2.3 Ratification After Registration by a Decision of the Shareholders

Where the bylaws (statutes) contain no schedule of acts undertaken in the name of the company in formation, such acts may nonetheless be validly taken over by the company after its registration, provided that the shareholders so resolve. Even in the absence of a mandate, the shareholders retain the power to approve a takeover of these commitments.

• Mechanism of Ratification

Takeover through an ordinary general meeting allows partners to review the acts concerned and, if appropriate, to refuse them, while simultaneously safeguarding counterparties.

If the undertaking was not expressly taken in the company’s name, creditors may hold the contracting partner personally liable. As a protective measure, clauses may be drafted suspending validity until registration.

The absence of formal takeover does not nullify the transaction but leaves the founders personally bound (Cass. com., 20 Feb. 2007, no. 05-14058).

• Majority Requirements

Ratification requires an ordinary collective decision, adopted by a majority of total voting rights plus one.

In an EURL, the sole partner may decide on the takeover, but the decision must be recorded in a formal instrument entered in the statutory register (Cass. com., 31 May 2005, no. 01-00720).

Company directors alone have no power to decide on the takeover.

• Timing and Practicalities

No statutory time limit is imposed, though in practice founders generally seek prompt shareholder decisions in order to reduce personal exposure.

Expenses incurred prior to registration may subsequently be reimbursed once funds are available, or alternatively posted to partners’ current accounts as liabilities.

2.4 No Implicit or Tacit Takeover of Acts by the Company is Allowed

Where none of the formal procedures for takeover—namely, a schedule annexed to the bylaws, a special mandate, or a collective decision of the partners—has been used, the company’s conduct after registration does not amount to an implicit ratification of acts.

• Formal Requirement

Only a special deliberation of the partners, adopted by majority unless otherwise stipulated, is capable of validating the takeover in the absence of a mandate (Cass. com., 1 Apr. 2004, no. 99-12443; 12 July 2004, no. 01-16801; 6 Dec. 2005, no. 03-16853).

• Ineffectiveness of Subsequent Conduct

Acts such as delivery of goods or partial payment carried out after registration do not cure irregularities in the takeover process (Cass. com., 17 June 2008, no. 07-14608).

French court decisions reject the notion of implicit takeover: only one of the three formal mechanisms expressly provided by law (annexing a description of the acts to be taken over by the company once registered, a mandate given to an agent to act on behalf of the company in formation, a resolution of the shareholders to the effect of undertaking the acts by the company) can produce such an effect.

• Absence of Takeover Examples

> A clause stating that registration will automatically entail takeover is ineffective if formal takeover procedures were not followed.

> The founding partner who took out a loan not taken over remains bound as a borrower.

> Where a signatory appears as “representative” of a company in formation and the contract is deemed concluded by the non-registered company (non-existent legal person), the contract is null and the signatory is not bound (French Commercial Court, 18 Nov. 2020, no. 18-23239).

2.4 Effects of Takeover by the Company of Acts entered into its Name Before Registration

A company that regularly takes over an undertaking (e.g., a surety for future debts) subscribed in its name and on its behalf while in formation is bound from the contract’s signature date, and the signatory is released—unless he personally guaranteed performance. The date of the shareholders’ resolution resolving on such take over is irrelevant.

However, if takeover’s sole purpose was to escape obligations by shifting them to an insolvent company, courts may nullify takeover and personally condemn the author.

The lack of formal takeover does not nullify the transaction but leaves founders bound.

> Tax Consequences of Takeover of Undertakings

Undertakings contracted on behalf of a company in formation are considered taken by the person who acted. Transfer duties (registration/land registry) apply immediately if there is a transfer of ownership or enjoyment. Subsequent transfer of those rights through the company’s takeover is not subject to the same duties (BOFiP-ENR-AVS-10-40-§80, 12/09/2012).

If the company takes over acts performed in its name, the retroactive substitution of the legal person for the initial acquirer gives rise to no registration or land registry duty where ratification is pure and simple, subject only to the fixed €125 duty (French Tax Code (“CGI”) art. 680).

Conditions (BOFiP-ENR-AVS-10-40-§§110–130, 12/09/2012):

• Agreement concluded during the formation period (for SARL: starting at deposit of funds or appointment of contributions auditor).
• The act (document) must identify the company.
• Ratification must not effect any novation of essential terms.

Taxable profit: The administration admits that agreements concluded in the name of a company in formation may be taken into account to determine taxable profit and turnover taxes (rep. Soisson, JO 22 July 1972, AN p. 3285; BOFiP-BIC-BASE-10-10-§90, 03/02/2016). This principle also applies to SARLs.