Company transfer: sale of shares to a partner
Verified 16 August 2024 - Directorate for Legal and Administrative Information (Prime Minister)
Each share represents a fraction of the business' capital and makes its holder a partner (or shareholder in the SA). Thus the disposal of shares means for a member (the transferor) to pass on to an acquirer (the transferee) the rights which he holds in the share capital of the company. This operation must follow a certain number of steps.
Step-by-step approach
In principle, the sale of shares in SAS or SA is freeHowever, the law does not provide for any approval procedure.
However, statutes may contain specific clauses to restrict the scope for divestiture.
LOCK
Accreditation clause
The approval clause allows share retirements to be submitted to the agreement of the members, unanimously or by a majority of them. Approval allows control the entry of new partners in the business and to discard those whose presence is, for any reason, considered undesirable.
Where an authorization clause is stipulated, the application for authorization shall be notified to the business or to the President. The notification shall indicate the full name and address of the purchaser, the number of equity securities or securities giving access to the capital which is to be disposed of and the price offered.
A breach of the authorization clause shall render the assignment null and void.
Please note
In the case of an SAS, the authorization clause may cover any type of assignment of shares: to the spouse, to a descendant or ascendant, to a partner, to a third party.
Preemption clause
The pre-emption clause (or “ preference clause ") offers to the member referred to a right of priority to redeem the shares you plan to sell.
Thus, this clause obliges you to propose the transfer of your shares to the beneficiary partner before any transfer to a spouse, ascendant, descendant or third party, etc.
The breach of the pre-emption clause does not render the assignment void. However, you may be ordered to pay damages in compensation for the damage caused to the beneficiary.
Inalienability clause
The inalienability clause prohibits the disposal of shares for a period of 10 years maximum. The articles of association must specify the starting point of the period of inalienability which may be the date of creation of the business or the date of subscription or acquisition of the shares.
After this period, the shares are no longer held in abeyance and may be disposed of freely, subject to an authorization or pre-emption clause.
Please note
This clause may be adopted or amended only on unanimity associates.
Moreover, the inalienable clause may be adapted to the objectives pursued by the persons concerned. Provision may be made for inalienability to have an impact only the actions of certain associates named in the articles of association (e.g. partners considered to be essential to the continuity of the business).
It is also possible to limit inalienability to a certain proportion of each member's social rights, so that the part exceeding this proportion remains transferable.
SA
Accreditation clause
The approval clause allows share disposals to be subject to the agreement of a business body (AGO, board of directors, etc.). Approval allows controlling the entry of new shareholders in the business and to discard those whose presence is, for any reason, considered undesirable.
Where an authorization clause is stipulated, the application for authorization shall be notified to the business by extrajudicial act or by registered letter with request for notification of receipt. The notification shall indicate the full name and address of the purchaser, the number of equity securities or securities giving access to the capital which is to be disposed of and the price offered.
The decision must be taken in a three-month period. If the business does not approve the proposed acquirer, the directors shall, within a further period of three months from the notification of the refusal, to acquire the securities either by a shareholder or by a third party, or, with the consent of the transferor, by the business for a capital reduction.
Please note
In the SA, the approval clause has limited scope, it may cover only transfers of shares to shareholders and third parties. Thus, assignments to the spouse and to the ascendants or descendants remain free.
A breach of the authorization clause shall render the assignment null and void.
Preemption clause
The pre-emption clause (or “ preference clause ") offers to the affected shareholder a right of priority to redeem the shares whose disposal is envisaged.
Thus, this clause obliges the transferor to propose the transfer of its shares to the recipient shareholder before any transfer to a spouse, ascendant, descendant or third party, etc.
The breach of the pre-emption clause does not render the assignment void. However, it may order the transferor to pay damages in compensation for the damage caused to the beneficiary.
The important thing is refer to the articles of association to determine the extent to which the transferor is free to dispose of its shares.
In the context of a share sale, the writing of a letter is not not obligatory. However, it is strongly advised to record the assignment in writing for evidentiary reasons in the event of a dispute.
Thus, the deed of sale of shares mentions the following :
- Identity of the parties
- Number of shares transferred
- Transfer price
- Method of payment
- Time limit for transfer of shares
The transfer of ownership of the shares takes place by bank transfer. The registration of the shares in the account of the beneficiary makes the transfer enforceable business and third parties.
Please note
It is necessary to record the assignment in the transaction register which lists all the securities transfers that have taken place.
A partner who wishes to sell shares must inform employees of his willingness to sell its actions and their ability to to submit an offer to purchase for the acquisition of those assets where all of the following conditions are met:
- The company includes less than 250 employees.
- The company's annual turnover shall not exceed EUR 50 million.
- The sale of the shares represents more than 50% of the capital of the business.
FYI
From 250 employees, no information is required.
When should information be disseminated?
This information must be given to employees at the latest 2 months before the date on which the contract of sale was concluded.
Any purchase offer submitted by one or more employees must be communicated to the transferor without delay.
However, this offer does not no priority character compared to other offers. The losing partner is completely free to enter into negotiations with the employees or not.
Refusal to consider or accept an offer need not be motivated. The transferor has the right not to reply.
Please note
When each employee has made known his decision not to make an offer, the sale of the shares may take place before the expiry of the two-month period.
The sale must take place within a maximum of 2 years after the expiry of the 2-month period. After this period, any sale is again subject to the obligation to inform employees.
How do you disseminate information?
Employees can be informed by any means of such a nature as to make the date of receipt certain:
- During a information meeting : with signature of a attendance register
- By display : with signature of a dated register
- By email : by using a process that can attest to the date of receipt with certainty
- By Delivery in your own hand : with signature or receipt
- By registered letter with a request for an acknowledgement of receipt;
- By act of a commissioner of justice (former bailiff's act) or lawyer, etc.
What sanctions?
If the shares are sold without the employees having been informed, the latter may bring the matter before the civil court to obtain compensation for their loss.
In this case, the transferor may be ordered to pay damages up to 2% of the amount of the sale.
Furthermore, informed employees are subject to an obligation to discretion. Failure to comply with the obligation of discretion is a fault which justifies a disciplinary sanction up to and including the dismissal of the employee.
Purpose of the guarantee
After the sale of the shares (and especially when this involves a change in control of the business), the appearance of unknown debts is a major risk that the buyer must avoid to ensure the sustainability of the company.
By the asset-liability guarantee clause, the transferor guarantees the accuracy of all information provided to the acquirer: company activity, company accounts, customers and suppliers, salary costs, allocation of capital, absence of any provision affecting the transferability of securities, status of collateral, possible acquisitions of shares in other businesses, ongoing disputes, etc.
This guarantee clause allows the purchaser to protect himself against:
- The Discovery of a Liability which had not been reported at the time of the assignment (it must be a debt prior to the assignment and disclosed after the assignment)
- Incorrect valuation of the asset whose value is ultimately lower than agreed (e.g. too generous stock valuation).
If any of these assumptions are confirmed after the sale of shares, the buyer may activate the guarantee to obtain a compensation from the transferor.
Please note
It is also possible to enter into an asset or liability non-guarantee clause when the acquirer is familiar with the company, either for having been a reference partner (e.g. a minority represented on the board) before the sale, or for having been an officer of the target business.
References to the guarantee clause
The guarantee clause must be expressly provided for in the deed of assignment or in a separate document signed by the parties. It must contain the following information :
- Categories of debt which fall within the scope of the guarantee. In the absence of precision, the guarantee covers all debts linked to the business' activity.
- Departure Date of the guarantee: the date from which the earlier or later origin of the debt can be assessed.
- Term of the clause : between 3 and 5 years.
- Calculation of compensation : the percentage of the debt that you commit to pay. This percentage may decrease over time.
- Floor Amount Warranty: The amount from which the warranty can be activated.
- Ceiling Amount of compensation: the maximum amount to which the transferor is committed. He will not have to pay more than that.
- Implementation arrangements : additional information needed to implement the guarantee (justification of the liability, modalities for sending the claim, etc.).
Declaration of assignment
The reporting requirements vary depending on whether the assignment is recorded or not in writing.
Assignment established by an act
Disposals of shares established by an act shall be subject to the formality of registration within the period of 1 month from the date of the act.
The deed of assignment must be deposited on the spot or by post, in 2 copies and accompanied by the payment of fees (by check or transfer) to the department in charge of the registration of the domicile of one of the parties or of the residence of the notary if the assignment is made by notarial act.
Who shall I contact
Assignment not established by an act
Disposals of shares which are not not established by an act must be declared within the 1 month from the date of transfer:
- or by means of the online service available on impots.gouv.fr in the professional area of the company, under the heading Actions > Assignments of social rights
Impots.gouv.fr professional space
- or by means of Form No 2759, to be filed with the registration department on which one of the parties is dependent.
Assignment of social rights not established by an act to be declared obligatorily (form No 2759)
Who shall I contact
Payment of the registration fee
The acquisition of shares shall give rise to payment by the purchaser a registration fee.
However, the deed of assignment may provide that the payment of the duty shall be borne by the transferor or shared between the two parties.
The registration fee shall be 0.1% of the transfer price. The amount collected by the tax department may not be less than €25.
The rate changes to 5% for businesses with a predominance of real estate, i.e. businesses of which more than half assets is composed ofbuildings not used for his professional purposes.
In the case of the sale of shares, the amendment to the articles of association is not not systematically obligatory. It is required only where the articles of association lay down the allocation of the share capital or the identity of the shareholders.
Where it is necessary to amend the articles of association, the terms of the amendment vary according to social form.
LOCK
The decision to amend the statutes must be adopted and approved under the conditions laid down in the statutes themselves:
- Body empowered to take the decision : Governing Board, General Assembly
- Number of votes required : classic majority (+ 50%), 2/3 majority, 3/4 majority, etc.
- Quorum required : if it is a decision taken at a general meeting.
Warning
In the absence of any particulars in the Statute, the Agreement unanimous partners are required.
SA
The extraordinary general meeting may validly deliberate only if the shareholders present or represented have at least 1/4 actions (on first notice) and 1/5 of these (on second notice).
If not, a new meeting must be convened within 2 months.
If the quorum is complied with, the amendments must then be decided on at the 2/3 majority of votes cast by shareholders present or represented. The votes cast do not include those attached to shares in respect of which the shareholder did not vote, abstained or voted in blank or nil.
The amendment of the articles of association shall not be the subject of any amending entry in the SCR: titleContent, or insertion in a legal advertisement medium.
Please note
Even where the amendment of the articles of association is not necessary, it is compulsory to enter the assignment in the transaction register which lists all the securities transfers that have taken place.
At the time of the assignment, the assignor may realize a capital gain which is the difference between the sale price and the original value of its business securities. The gain realized on a sale of shares is analyzed for tax purposes as a capital gain on securities ”.
Such a capital gain is taxed according to 2 methods of taxation different, you can choose:
- Flat rate of income tax
- Progressive Income Tax Schedule
Flat rate
In principle, capital gains are subject to a flat-rate levy (PFU) ”. In other words, they are taxed to the extent of 12.8% under the flat rate income tax, plus social security contributions at the rate of 17.2%, or a total of 30% on the amount of the capital gain.
Example :
Partner gives up for an amount of €150,000 the business securities it originally purchased €100,000. It therefore achieves an added value of €50,000.
- Calculation of social security contributions: 50,000 x 17.2% = €8,600
- Income tax calculation: 50,000 x 12.8% = €6,400
It will therefore have to pay in total €15,000 on the transfer of its shares.
FYI
This flat rate of 12.8% is the default regime, the transferor may opt for the progressive scale.
Progressive scale
The transferor may waive the flat rate of 12.8% and choose, on express and irrevocable option, to be subject to the progressive scale of income tax. To choose, it must check box 2OP of the cerfa form no. 2042 at the time of his income tax return.
The surplus value is then inclusion in total net income and is taxed according to its tax bracket (from 0 to 45%).
The social security contributions shall be applied in the same way to the 17.2% on the amount of the capital gain.
Please note
Where the transferor opts for the progressive scale, this option shall apply to all income and capital gains initially falling within the scope of the single flat-rate levy (LUP).
Income brackets | Income tax bracket rate |
|---|---|
Up to €11,294 | 0% |
From €11,295 to €28,797 | 11% |
From €28,798 to €82,341 | 30% |
From €82,342 to €177,106 | 41% |
More than €177,106 | 45% |
Moreover, when the transferor opts for taxation according to the progressive scale, he may benefit from a abatement on its capital gains arising from the sale of the securities held by acquired or subscribed before 1er january 2018.
There is an abatement of ordinary law and an abatement reinforced.
General abatement
L'ordinary allowance is applicable in all situations and is directly related to the length of time the shares are held:
- 50% for securities held between 2 and 8 years
- 65% for securities held since older than 8 years
Reinforced reduction
L'increased abatement is also linked to the length of time the shares are held, but it is more advantageous from a tax point of view:
- 50% for securities held between 1 and 4 years
- 65% for securities held between 4 and 8 years
- 85% for securities held since older than 8 years
The enhanced allowance shall apply in any of the following :
- The partner disposes of the shares of an SME under 10 years of age on the date of subscription or acquisition of the securities : this is a company with less than 250 employees and a turnover of less than EUR 50 million.
- The partner shall dispose of the shares of an SME of which he is a director and retire : he must have been a continuous leader and held at least 25% the rights of the business during the 5 years preceding the assignment. He must cease all activity in the business and assert his retirement rights within 2 years of the transfer.
Please note
A retiring SME manager may also opt for a fixed abatement of €500,000. This shall apply to divestments made until 31 december 2024, irrespective of the way in which capital gains are taxed (flat rate or progressive scale). It cannot be combined with a proportional reduction under ordinary or reinforced law.
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Inalienability clause in the statutes of the SAS
Approval clause in the statutes of the SAS
Approval clause in the statutes of the SA
Information of employees in the event of transfer
Meeting decision in SA
Meeting decision in SAS
Registration fees
Taxation of capital gains arising from the sale of securities
Fixed allowance for retiring managers of SMEs