Transmission of SARL Shares upon Death of a Shareholder

1. Principle of Continuity of the Company

Under Article L. 223-13, paragraph 1 of the French Code de commerce, the death of a shareholder in a SARL does not cause dissolution of the company unless the articles of association expressly provide otherwise.

As a rule, the shares are freely transmitted by inheritance, and all heirs and successors in title acquire the status of shareholders automatically, without requiring the consent of the surviving partners.

This automatic transmission reflects the personal yet capital-based nature of the SARL: unlike partnerships (sociétés en nom collectif), the transfer by succession is generally free unless the articles introduce restrictions.

Nevertheless, the company’s articles may contain clauses of approval or continuation, allowing the surviving partners to control the composition of the shareholder base after a death. These mechanisms are detailed below.

When heirs become shareholders, they may participate in collective decisions. However, if there are several heirs and no amicable partition of the shares has been made, the voting rights must be exercised by a common representative appointed by them. This position has been confirmed by case law (Cass. com., 30 August 2023, no. 22-10018).

If an heir renounces the inheritance, they are deemed never to have been an heir (Civil Code, art. 805), and the company cannot continue with such a person.

2. Consequences of Heir Renunciation and the Situation of the Sole Remaining Partner

In the case where one of two partners dies and the deceased’s heirs renounce the succession, the shares remain without a holder. The company does not, however, automatically become a single-member company.

In a notable decision (Cass. com., 17 January 2006, no. 04-14157), the court held that, despite the renunciation of the heirs, the SARL had not become an EURL because no transfer of ownership had occurred. The surviving partner could not validly consider themselves as the sole partner or appoint themselves manager.

The company’s plural structure therefore persists until a proper transfer of the deceased’s shares occurs, whether to heirs, a purchaser, or the State in the case of escheat.

3. Formalities Following the Death of a Shareholder

After the death of a shareholder, the SARL must comply with corporate registry requirements under Article R. 123-105 of the Code de commerce.

The manager must file with the greffe du tribunal de commerce:

• an updated version of the articles certified as conforming;

• the resolution of the partners deciding to continue the company with or without the heirs.

If the company continues with the heirs, their identities must appear in the filed decision.

The Comité de coordination du registre du commerce et des sociétés (CCRCS) has clarified (opinion no. 2019-002, 1 July and 15 October 2019) that filing a notarial deed proving ownership of the shares is not required for registration purposes.

4. Clauses Governing the Transmission

4.1. Clause Requiring Approval of Heirs or Relatives

The articles may stipulate that the spouse, heirs, ascendants, or descendants of the deceased shareholder may become partners only after approval (agrément) under the procedure laid down in Article L. 223-14 of the Code de commerce.

This mechanism parallels the rules applicable to share transfers to third parties. The clause must respect the procedural limits established by law:

• The company has three months from notification of the death to notify its decision on approval.

• In case of refusal, the partners have three months to buy or cause a third party to buy the shares.

• Upon request of the manager, the court may extend this period, but not beyond six additional months.

• If the shares are not acquired within these time limits, approval is deemed granted by operation of law.

The majority required for approval cannot exceed that required by Article L. 223-14 for transfers to third parties, although the articles may set stricter voting rules if the same applies to inter vivos transfers.

Example:
If the articles require a three-quarters majority to approve a sale to a third party, this majority also applies to the approval of heirs; it cannot be increased beyond that limit.

Specific situations.

• Approval clauses apply only to heirs who were not already shareholders before the death. An heir who was already a shareholder cannot be subjected to approval (Cass. com., 28 October 1974).

• The clause is not void merely because the required majority cannot be achieved due to the deceased’s shares still being counted in the capital (Cass. com., 5 February 1991, no. 89-16844).

• Where one of two heirs renounces in favour of the other, the latter may acquire all of the deceased’s shares without approval (CA Montpellier, 8 June 1976).

• If an heir withdraws their request for approval, they may demand that the surviving partners purchase their shares at the value determined by the expert designated under Article 1843-4 of the Civil Code. This principle was confirmed by the Cour de cassation (Cass. com., 24 January 2024, no. 21-25416).

4.2. Clause of Continuation with Surviving Partners Only

Under Article L. 223-13, paragraph 3 of the Code de commerce, the articles may provide that, in the event of a shareholder’s death, the company shall continue only with the surviving partners.

In that case, the deceased’s heirs cannot become shareholders. They are excluded from the company and have merely a right to compensation equal to the value of the deceased’s shares.

The company redeems these shares and may reduce its capital accordingly.

If the parties cannot agree on the value of the shares, it must be determined by an independent expert designated under Article 1843-4 of the Civil Code. The expert is appointed either by mutual consent or by an order of the President of the tribunal de commerce, without appeal.

Interest on the indemnity accrues from the date of formal demand by the heirs, not from completion of the valuation procedure (Cass. com., 21 October 1997, no. 95-16231).

4.3. Clause of Continuation with All Heirs

The articles may also stipulate that the company shall continue with all heirs of the deceased shareholder.

The term “heirs” encompasses all statutory heirs, including the surviving spouse, but excludes legatees designated by will.

Upon acceptance of the succession, the heirs collectively acquire shareholder status. Until division of the estate, they are joint owners (indivisaires) of the shares and must act through a common representative for voting and representation.

Each co-owner retains the right to request partition of the joint ownership, since no one may be compelled to remain in indivision.

Special points:

• The surviving spouse who was already a shareholder may, without the consent of co-heirs, sell or gift the shares held in community property (Cass. civ. 1st ch., 12 June 2014, no. 13-16309).

• If all heirs renounce the succession, ownership of the shares devolves to the State, which temporarily becomes shareholder unless prevented by approval clauses.

• Pending acceptance of the inheritance, heirs may perform conservatory acts and acts of provisional administration, and may appoint a common administrator (Civil Code, art. 813).

• The replacement of a deceased co-manager is not automatic but may be decided by the partners or ordered if only one manager remains (Code de commerce, art. L. 223-27).

4.4. Clause of Continuation with Heirs Subject to Approval

Another possible provision combines continuation with heirs and the approval requirement.

Here, the company continues with heirs who are approved by the surviving partners, under Article L. 223-13, paragraph 2.

If approval is refused, the heirs are entitled to receive the value of the deceased’s shares, calculated under the Article 1843-4 procedure.

Until approval, the shares remain in the name of the deceased, owned jointly by the heirs. Their voting rights are suspended, and a representative may be appointed for urgent matters.

Courts have ruled that the administrator of the shares cannot, in the absence of approval, request company documents (CA Agen, 23 February 1993). The rights of heirs as shareholders remain frozen until the approval process is completed.

If there are several heirs, the approval may be granted selectively: some may be accepted while others are excluded. This interpretation, already accepted for partnerships, is generally admitted for SARL as well.

If an heir does not request or obtain approval, they have no shareholder status and cannot contest company resolutions adopted during that period (Cass. com., 3 May 2018, no. 15-20851; Cass. com., 27 March 2019, no. 17-23886).

4.5. Clause of Continuation with Specific Persons

Article L. 223-13, paragraph 4 of the Code de commerce authorises the articles to stipulate that, upon death of a partner, the company shall continue:

• with the surviving spouse;

• with one or more designated heirs; or

• with any other person specifically named in the articles or appointed by testamentary provision, if the articles allow it.

The value of the deceased’s shares attributed to such beneficiaries is included in the estate and must be assessed as of the date of death according to Article 1843-4 of the Civil Code.

Although the paragraph does not expressly require approval, such a condition can be implied or expressly provided, following the logic of the earlier paragraphs.

5. Valuation of the Deceased Shareholder’s Rights

Whenever the articles or law require the heirs to be compensated for their exclusion or the refusal of approval, the valuation of the shares follows the mandatory mechanism of Article 1843-4 of the Civil Code.

The valuation is based on the fair market value at the date of death. An expert—appointed by agreement or by the President of the tribunal de commerce—makes this determination, and their decision is binding.

This valuation governs the amount owed by the company, the surviving partners, or a designated purchaser to the heirs.

6. Preferential Allocation (Attribution préférentielle)

Under Article 831 of the Civil Code, the spouse or heirs of a deceased SARL partner may request the preferential allocation of the shares when the company’s activity retains a family character.

Conditions:

1. The claimant must hold a co-ownership right over the shares in question. A spouse who holds only a usufruct right is not eligible.

2. The claimant must have contributed to the company’s operation or value creation, either by personal work, managerial functions, or contribution in industry.

The existence of such participation is a factual condition assessed case by case.

If the articles contain an approval clause, the preferential allocation cannot override it. The allocation is therefore effective only if the surviving partners grant approval under the same conditions as for other heirs.

7. Fiscal Consequences

The shares owned by the deceased partner must be declared in the inheritance tax return at their market value on the date of death.

This valuation serves as the basis for the calculation of inheritance duties (droits de mutation par décès).

Where heirs are later bought out by the company or other shareholders, the payment they receive does not alter the valuation retained for estate taxation purposes.

8. Posthumous Mandate

Article 812 of the Civil Code allows any person to appoint, during their lifetime, one or more posthumous agents (mandataires à effet posthume)—individuals or legal entities—who will manage all or part of their property after death on behalf of and in the interest of one or more identified heirs.

In the context of a SARL, such a mandate can ensure the administration of shares inherited by minors or incapacitated heirs. The agent may even be one of the heirs, provided the mandate clearly defines their duties and duration.

This instrument allows continuity in the management of the company until the heirs are in a position to exercise their rights themselves.

9. Practical Considerations for Drafting and Enforcement

9.1. Drafting of Articles

When forming or amending a SARL, drafters should:

• clearly specify what happens upon death—continuation clauses, approval mechanisms, valuation methods;

• harmonise the approval clauses with those applicable to inter vivos transfers to avoid procedural inconsistencies;

• provide explicit timelines for valuation and payment to heirs to avoid disputes;

• specify whether interest is payable on the indemnity and from which date.

9.2. Managing Conflicts after Death

Common sources of litigation include:

• disputes between heirs over acceptance or renunciation of the succession;

• disagreement on the valuation of shares;

• wrongful convocation of meetings or appointment of managers by surviving partners;

• ambiguity in determining whether heirs have acquired shareholder status.

Prompt compliance with Article 1843-4 and communication with heirs reduces exposure to claims.

9.3. Company Registry Formalities

Each structural change resulting from the death (continuation, reduction of capital, appointment of a new manager) must be filed with the commercial registry (RCS). Failure to do so may impede enforceability of acts vis-à-vis third parties and expose the company to fines.

10. Comparative Observations

The SARL’s approach to succession differs significantly from other company forms:

• In a partnership (SNC), transmission upon death is never automatic; heirs cannot join without approval.

• In corporations (SA, SAS), shares are by nature freely transferable unless restricted by shareholder agreements.

• The SARL thus occupies a middle ground, where succession transmission is the default rule but may be contractually restricted.

This hybrid nature explains the flexibility of Article L. 223-13, which allows the partners to adapt the company’s continuity to its personal and financial configuration.

11. Summary Table of Main Scenarios

12. Key Judicial Principles

1. Automatic succession is the rule; approval or exclusion must be express.

2. Renunciation of succession prevents acquisition of shareholder status.

3. Failure to appoint a common representative prevents heirs from voting.

4. Valuation under Article 1843-4 is binding and exclusive.

5. Interest accrues from the heirs’ formal demand, not from completion of valuation.

6. Heirs without approval cannot challenge corporate decisions.

7. Transformation or concentration following death must comply with RCS filing rules.

13. Conclusion

The death of a partner in a SARL introduces complex interactions between inheritance law, company law, and contractual autonomy. The default rule ensures continuity, but statutory clauses can drastically alter outcomes.

Legal certainty requires:

• precise drafting of continuation and approval clauses;

• prompt compliance with procedural deadlines;

• respect for valuation and compensation mechanisms;

• anticipation of governance issues among heirs.

A SARL that defines these points clearly can withstand the death of a shareholder without litigation or disruption of activity. Conversely, lack of clarity often results in disputes between surviving partners and heirs, delays in succession, and potential management paralysis.

Professional assistance is strongly recommended at both the drafting stage and upon death of a shareholder, to ensure compliance with statutory requirements and to protect both the company’s stability and the heirs’ rights.