Transactions Prohibited for Managers of an SARL

The powers of managers (gérants) in a French société à responsabilité limitée (SARL) are extensive, but not without limits. In particular, the Commercial Code prohibits certain transactions in order to prevent conflicts of interest and safeguard the company’s financial integrity. At the same time, the law provides for mechanisms of oversight to ensure that managers remain accountable to shareholders and creditors.

1. Prohibited Transactions for Managers of SARL: Loans, Guarantees, and Endorsements

1.1 Legal Prohibition

Article L.223-21 of the Commercial Code strictly forbids managers, as well as natural person shareholders, from:

• contracting loans from the company,
  
• obtaining overdrafts from it (in current accounts or otherwise),
  
• having the company guarantee or endorse their personal obligations toward third parties.
  

This prohibition extends to:

• the legal representatives of corporate shareholders,
  
• the spouses, ascendants and descendants of managers, shareholders, or representatives of corporate shareholders,
  
• and any person interposed. Interposition occurs, for example, when a loan is granted to another company that in reality acts on behalf of an SARL’s manager or shareholders.
  

1.2 Exceptions and Case Law

The prohibition is not absolute in all respects:

• Corporate shareholders: Loans or advances may be made to shareholder companies, provided that banking regulations and the procedure for regulated agreements are respected.
  
• Personal commitments only: The restriction applies solely to the personal undertakings of managers. Thus, a pledge of assets to secure the obligations of another company is not automatically void (Cass. com., 15 Dec. 1992).
  
• Loans predating appointment: A loan granted before an employee becomes manager does not fall under the prohibition, unless the terms are later amended.
  
• Independent guarantees: Although not explicitly mentioned, many first-demand guarantees have been requalified as prohibited suretyship.
  
• Securities guarantees: An SARL cannot guarantee the issuance of securities, save for two exceptions: issues by regional development companies, and bonds benefitting from a subsidiary State guarantee (C. com., art. L.223-11, al. 4).
  

1.3 Sanction: Absolute Nullity

Any contract concluded in breach of Article L.223-21 is subject to absolute nullity. This is a matter of public policy: the nullity may be invoked by third parties and creditors with a legitimate interest, and may even be raised ex officio by the judge.

For example, a mortgage guarantee granted by a company for the benefit of its manager was annulled notwithstanding unanimous shareholder approval (CA Montpellier, 7 Jan. 1980).

1.4 Consequences in Practice

• Overdrafts in current accounts: Agreements providing for reimbursement of a shareholder’s credit balance by funds originating from the company contravene the law. The company may seek liability against a manager with a debit balance, though such conduct does not automatically justify judicial removal.
• Social contributions: Advances granted to a minority manager through a current account are deemed cash benefits and subject to URSSAF contributions (Cass. civ., 1 Jul. 2003).
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2. Oversight of SARL Management and Compliance With Prohibitions of Certain Transactions

The legislator has complemented these prohibitions with a framework of oversight designed to protect shareholders and ensure transparency.

2.1 Rights of Shareholders

Each shareholder benefits from an individual right of communication, allowing access to key company documents.

2.2 Annual General Meeting

Managers must convene a general meeting within six months of the financial year’s end for approval of accounts. At this meeting, shareholders may submit written questions, which the manager is obliged to answer.

2.3 Judicial Control and Expert Reports

Shareholders representing at least one-tenth of the share capital may request the appointment of one or more experts by the court to examine specific management operations.

In serious cases, the courts may go further and appoint a provisional administrator to assume management responsibilities.

2.4 Statutory Reports and Audits

A special report must be presented on agreements entered into directly or indirectly between the company and its managers or shareholders. In addition, depending on statutory thresholds, the appointment of one or more statutory auditors may be either optional or mandatory.

Conclusion

The system governing prohibited acts and oversight of management in SARLs demonstrates the balance sought by the French legislator: while managers are given extensive authority to act on behalf of the company, strict prohibitions and oversight mechanisms prevent abuses and protect both shareholders and third parties.

• Certain transactions, such as loans, overdrafts, or guarantees for personal obligations, are strictly forbidden under penalty of absolute nullity.
  
• Exceptions exist but are narrowly construed and closely monitored by case law.
  
• Oversight is ensured through shareholder rights, mandatory meetings, judicial interventions, and statutory audits.
  

These provisions reflect the underlying philosophy of French company law: ensuring both managerial authority and accountability in one of the most common corporate forms, the SARL.