Get in touch

Transactions & Growth

Structuring & Strategy

Impact & Innovation

Foreign Investors

Corporate Legal Services

Startups & Founders

Category: AoA & SHA

French Start-Up Financing with BSA-AIR: Practical Insights from Recent Case Law

Posted on by Mathieu
Levée de BSA-AIR startup amorçage et conseil juridique d'avocat

Inspired by the U.S. “SAFE” mechanism (Simple Agreement for Future Equity), the BSA-AIR allows an investor to subscribe to a warrant for future shares in the company, without requiring a valuation at the time of investment.

Although it involves some risk for investors, BSA-AIR makes it possible to delay discussions on company valuation, which are typically impracticable during the earliest phases of growth.

At the crossroads of corporate and financial law, BSA-AIR mechanism continues, ten years after its introduction in France, to raise complex legal questions. Below is a selection of case law from the past 18 months. In the absence of any ruling from the French Supreme Court (Cour de cassation), we have chosen four decisions from first and second instance courts that shed light on best practices and drafting considerations.

[Article continues below]

We advise startups, founders, and investors on structuring and closing financing deals.

Get in touch with us to present your project and discuss your advisory needs:

1. Caution When Disclosing Information to Non-Shareholder BSA-AIR Holders

Paris Court of Appeal, 20 June 2024 – No. 22/19051

This ruling underscores the boundaries of an issuer’s duty to inform BSA-AIR holders, who only acquire shareholder status upon conversion. When sharing information involving third parties, issuers must take particular caution to avoid engaging the liability of the company or its officers.

In the case at hand, the former CEO of a French simplified joint-stock company (société par action simplifiée – SAS) challenged his dismissal, claiming it was abusive. He argued that the chairman should not have informed BSA-AIR holders of the planned dismissal and its reasons (including disputes and “irregular expenses”) before the general meeting scheduled to decide on the dismissal. According to him, this disclosure to non-shareholders involved confidential governance information, anticipated the vote 18 days ahead, and breached the company’s duty of loyalty to its executive.

The Court of Appeal confirmed that BSA-AIR holders were not entitled to the same information as shareholders. The communication, which made the dismissal and its context public, was deemed vexatious. The company’s argument based on an information duty under the BSA-AIR agreement was rejected: that duty only concerned risks to the company’s activity or prospects, which was not the case here. Consequently, the dismissal was held abusive, and the company was ordered to compensate the former executive.

Practical takeaways:

  • Exercise caution when sharing information with BSA-AIR holders involving third parties, ensuring it is not subject to legal or contractual confidentiality constraints – especially, BSA-AIR holders, as non-shareholders, are excluded from the common definition of “Affiliates” set out in standard confidentiality clauses.
  • Anticipate these constraints when drafting disclosure commitments in BSA-AIR plans to avoid conflicts with other legal or contractual obligations.

2. Failure to Convene a Shareholders’ Meeting to Trigger a BSA-AIR Event Does Not Constitute Mismanagement

Douai Court of Appeal, 12 December 2024 – No. 24/01345

The occurrence—or non-occurrence—of trigger events allowing BSA-AIR exercise can create tensions with shareholders and raise questions about officers’ liability. This decision illustrates such issues.

In the case at hand, BSA-AIR could be exercised either upon one of four trigger events or after four years, with less favourable terms in the latter case. No event occurred, and the warrants were exercised at the minimum valuation set in the BSA-AIR plan.

In this context, a holder accused the company’s chairman of failing to convene a general meeting to approve a capital increase of at least €1 million (a trigger event). He claimed this was mismanagement and requested a judicial expert review.

The Court of Appeal rejected the claim, holding that approving a capital increase falls under shareholder authority, not management duties. It also noted that the claimant, himself a shareholder, could have convened the meeting but did not. As there was no irregularity or breach of corporate interest, the claim was dismissed as unfounded.

Practical takeaways:

  • The issuance agreement should clearly specify the trigger events and the conditions under which they occur. Management and shareholders have no obligation to act in the specific interest of BSA-AIR holders.
  • Investors, especially those unfamiliar with the mechanism, must be informed of the uncertainty surrounding trigger events.

3. Providing Misleading Financial Information to BSA-AIR Investors May Trigger Founders’ Liability

Angers Court of Appeal, 28 January 2025 – No. 20/01346

This ruling highlights a critical risk associated with BSA-AIR: founders’ liability when they fail to fulfill their duty to provide accurate information about the company’s situation. In this case, a false statement deemed decisive for the investor’s consent led the court to award damages for loss of opportunity.

At first instance, the court found that the representatives of a company issuing BSA-AIR had breached their duty to inform the investor. When the warrants were subscribed, they stated that the company was not insolvent, although it had been for four months. Moreover, the documents provided did not enable the investor to assess the company’s financial position independently of the founders’ statements.

The founders argued that the investor, as a sophisticated party, had a duty to investigate and that his ignorance was illegitimate. The court rejected this argument:

  • The duty to inform applies even to professional creditors;
  • Nothing showed that the investor had financial expertise or experience in start-up investments;
  • At such an early stage, only the founders could know the company’s true situation.

The court concluded that the founders breached their duty to inform toward the investor and provided false information, incurring liability.

Practical takeaways:

  • While BSA-AIR aims to streamline fundraising and bypass valuation discussions, investors should be provided with documentation and data that allow a thorough assessment of the company’s financial health and future outlook across accounting, finance, and commercial aspects.
  • Statements by the company or its officers must be precise, accurate, and verified.
  • Extra caution is required when the investor is an individual unfamiliar with early-stage start-ups and BSA-AIR mechanisms.

4. The Commercial Court Has Jurisdiction Over Disputes Related to BSA-AIR, Regardless of the Investor

Lille Judicial Court, November 29, 2024 – No. 24/03675

The court held that legal suits seeking reimbursement of an AIR investment fall under the jurisdiction of the Commercial Court. This is assessed based on the investor’s role in the functioning of a commercial company, not merely on their status as a non-trader.

In this case, an individual investor sought reimbursement of his contribution, arguing that, as he was not a shareholder, he could bring the matter before a civil court. The judge rejected this argument and declared the Commercial Court competent.

Indeed, a dispute concerning the subscription of BSA-AIR, granting access to the capital of a commercial company, constitutes a matter relating to a commercial company under Article L.721-3 of the French Commercial Code.

Practical takeaways:

  • Disputes involving BSA-AIR generally fall under commercial jurisdiction, even for non-professional investors.
  • The commercial nature of the dispute may affect timelines, costs, and litigation strategy.

Discover our capacities in respect of Private Equity, Shareholder Advisory and Corporate Governance or contact us to discuss your project.

Read more about our tailor-made solutions:

Mandatory Share Transfer Approval in French SARLs – Practical Q&A

Posted on by Mathieu
Agrément légal des cessions de parts sociales de SARL

In a French SARL (société à responsabilité limitée – French limited liability company), partners are generally chosen for their personal qualities, professional expertise, or established relationships. The statutory approval mechanism set out in Article L.223-14 of the French Commercial Code is therefore intended to prevent third parties from joining the company’s share capital without the consent of the existing partners.

Understanding these rules and complying with the statutory procedure—often supplemented by the company’s articles of association—is essential to secure any transfer or acquisition of shares in a SARL.

> Also read on share transfers: « Share Transfers in Civil Companies Are Enforceable Against Heirs, Even Without Publication »

Which transfers of shares are subject to approval? Are transfers by way of gifts concerned?

French courts interpret the concept of “transfer” broadly. This means that transactions such as gifts, exchanges, or contributions in kind to third parties are generally subject to partner approval before the beneficiary can become a shareholder.

However, Article L.223-13 of the French Commercial Code provides several exceptions. Approval is not required for transfers:

  • by inheritance;
  • resulting from the division of marital property (liquidation de la communauté de biens entre époux);
  • between spouses or between parents and children.

Transfers made by a corporate shareholder pursuant to a universal transfer of assets (such as a merger or demerger) are also exempt.

In any case, a careful review of the articles of association remains essential, since these statutory exclusions may be set aside by specific provisions.

Should the approval procedure be applied in the case of pledging company shares?

It is advisable to apply the approval procedure when creating a pledge over SARL shares to ensure its full effect.

Indeed, under Article L.223-15 of the French Commercial Code, if the company has given its consent to a proposed pledge in accordance with Article L.223-14, this consent will also constitute approval of the transferee in the event of a forced sale of the pledged shares, unless the company prefers to proceed with a reduction of its share capital.

What is the procedure for the transfer of shares in a French SARL?

In the case of multiple shareholders, any proposed transfer to a non-shareholder must be formally notified to the company and to each existing shareholder.

The transfer can only take place if the majority of shareholders, representing at least half of the share capital, approve it.

If the company has not communicated its decision within three months from the date of the last notification, consent to the transfer is deemed to have been granted.

What is the sanction for failing to comply with the approval procedure?

Transfers of shares in a French SARL that are carried out in violation of the notification procedure mentioned above are null and void. It is well-established case law that this formal requirement is strict, and no subsequent regularization is possible, including by unanimous decision of the shareholders.

However, the action for annulment may only be brought by the company or by each of the shareholders, excluding the transferring shareholder who failed to comply with the notification formalities.1

What happens if the shareholders refuse to approve a proposed share transfer?

If approval is refused and the transferring shareholder does not withdraw their proposal, the law provides exit mechanisms so that the shareholder is not forced to remain in the company against their will.

Thus, provided that the transferring shareholder has held the shares for at least two years, or that the transfer occurs in the context of inheritance, liquidation of marital property, or a gift to a spouse, ascendant, or descendant, the law provides two possible options:

  • The other shareholders acquire, or arrange for the acquisition of, the shares at a price determined by an expert under the conditions of Article 1843-4 of the French Civil Code, within a period of three months, which may be extended by a court decision up to six months;
  • The company decides, with the consent of the transferring shareholder, to reduce its share capital by the nominal value of the shareholder’s shares and to repurchase these shares. In this case, the court may grant the company a maximum payment period of two years if justified, with the amounts due accruing interest at the statutory commercial rate.

If, at the end of the prescribed period, neither of the above solutions has occurred, the shareholder may carry out the transfer as originally planned.

What Happens if an Heir’s Share Transfer is Refused?

When the approval procedure applies to inheritances and the heir is denied approval, they are entitled only to the value of the shares of the deceased, excluding any shareholder rights (including voting rights).

Is it possible to challenge a refusal of approval?

A refusal of approval may constitute an abuse of rights if it is unrelated to the company’s interest, motivated by malicious intent, discriminatory, or results from wrongful inaction (for example, long-standing silence without legitimate reason).

Is it possible to customize the approval procedure in the articles of association of a SARL?

Any provision in the articles of association that contradicts the legal rules governing the approval procedure is deemed null and void, leaving very limited flexibility in drafting the articles.

However, the articles may provide for more restrictive approval conditions (for example, applying approval to transfers between shareholders, requiring a qualified majority, etc.).

Should modifications to the legal approval mechanism be included in the articles of association or in a shareholders’ agreement?

In a French limited liability company, transfer approval is a legal requirement, meaning it is provided for by law. The mechanism can therefore only be modified under the conditions set out by law, which requires that any possible adjustments be reflected in the articles of association.

In this context, a shareholders’ agreement plays a more limited role, for example, to provide shareholders’ commitment to approve transferees in certain cases or to manage the consequences of a refusal of approval. However, such contractual commitments cannot be used to claim the nullity of a transfer if one of the signatories fails to comply.

Discover our capacities in Mergers & Acquisitions, Shareholder Advisory and Subsidiary Formation, and Corporate Governance or contact us to discuss your projects.

Read more about our tailor-made solutions:

  1. Cass. com., 12 February 2025, n°23-13.520 ↩︎

Late Submission of Annual Accounts to Shareholders: Criminal Liability and Scope for Regularization

Posted on by Mathieu
Approbation des comptes annuels régularisation du retard

While many companies with a financial year ending on December 31 completed their annual accounts approval process in June, a ruling handed down earlier this year by the French Cour de cassation1 clarified the conditions under which criminal sanctions may be imposed on company direcctors who failed to submit the accounts on time.

According to the Court, a mere delay in presenting the annual accounts to the shareholders is not sufficient to constitute the offense of failure to submit, punishable by a fine of €9,000 under Article L.241-5 of the French Commercial Code. This interpretation opens the door to a possible regularization.

Mere Delay in Submitting Annual Accounts to Shareholders Does Not Constitute a Criminal Offense

In the case at hand, the general manager of a French private limited company (SARL) was accused of failing to submit the company’s annual accounts to the shareholders for the financial years 2012 through 2017. He was convicted on appeal, the court holding that the offense was constituted by the fact that the six-month period following the end of each financial year had been exceeded.

The French Cour de cassation overturned the appeal decision on the basis of Article L.241-5 of the French Commercial Code. The Court noted that the Law of March 22, 2012, had repealed the six-month deadline that previously applied to general managers under this article, for submitting the accounts to the shareholders’ meeting. As a result, it held that a mere delay in presenting the financial statements to the shareholders of a SARL is not sufficient to constitute a criminal offense.

This ruling provides a useful clarification. Following the repeal of the six-month deadline in relation to the criminal provisions, the conditions for establishing the offense under Article L.241-5 of the Commercial Code had remained unclear until now.

The Court now affords company managers a significant margin of discretion: only complete a failure to present the accounts or other documents to the shareholders’ meeting—not a mere delay—may constitute a criminal offense under this provision.

This decision has notable practical implications, as it requires that the offense be assessed at the time the judge rules on the case—and only if the accounts have still not been submitted to the shareholders by that date. Therefore, it leaves room for a possible regularization of the situation until the very last moment, which appears to limit the effectiveness of the criminal sanction provided for in Article L.241-5 of the French Commercial Code, whose application is already rare.

Finally, it is worth noting that this judicial solution could be extended to public limited companies (SA), as the criminal offence of failing to submit accounts—under Article L.242-10 of the French Commercial Code—is defined in almost identical terms. It may even apply to simplified joint-stock companies (SAS), through a possible extension of the rules applicable to SAs.

Key Obligations of Commercial Companies for the Approval of Annual Accounts

Beyond the criminal sanction provided for under Article L.241-5 of the French Commercial Code, commercial companies are subject to various obligations regarding the approval of annual accounts by shareholders and the subsequent filing with the registry. Any failure to comply may give rise to injunctions by the president of the competent commercial court, possibly with a penalty (astreinte). The management may also be held liable if such failure causes damages to the company or its shareholders.

Presentation of the annual accounts to the shareholders for their approval

Pursuant to Articles L.223-26 (for SARLs) and L.225-100 (for SAs) of the French Commercial Code, the management report and annual accounts, among other documents, must be submitted by the general manager, the board of directors or the executive board (as applicable) to the shareholders for approval at a general meeting to be held within six months following the end of the financial year. Failing that, an extension must be requested to the commercial court.

With respect to SASs having multiple shareholders, Article L.227-9 provides that the annual accounts must be approved by the shareholders. The approval process, including the timeline, is freely determined by the company’s bylaws. However, this freedom is limited by Article L.232-13, which requires that if dividends are to be distributed, payment must occur within nine months after the financial year’s end, unless an extension is granted by judicial decision. In the absence of any provision in the bylaws regarding the approval deadline, the National Company of Auditors (Compagnie Nationale des Commissaires aux Comptes – CNCC) recommends consulting the shareholders within six months following the end of the financial year.2

Regarding SASs with a sole shareholder, the sole shareholder must approve the accounts within six months following the end of the financial year pursuant to Article L.227-9, paragraph 3.

In case of default, the shareholders or the State Attorney (Ministère Public) may request the president of the commercial court to order the competent corporate body, under penalty, to convene the meeting required for approving the accounts or to appoint a representative for this purpose.

Filing formalities

Finally, pursuant to Articles L.232-22 (for SARLs) and L.232-23 (for SAs and SASs) of the French Commercial Code, the company’s annual accounts, the management report, the statutory auditors’ report (where applicable), and the decision on the allocation of financial results must be filed with the registry of the commercial court within one month following their approval.

The president of the commercial court may, at the request of any interested party or the State Attorney (Article L.123-5-1), or on their own initiative (Article L.611-2), order that the filing be carried out, under penalty. Failure to comply may also result in criminal sanctions.

Discover our capacities in respect of Shareholder Advisory and Corporate Governance or contact us to discuss your projects.

  1. Cass. Crim. February 12, 2025, n°23-86.857 ↩︎
  2. CNCC Bulletin, March 2004 p. 184; CNCC Bulletin, September 2013 p. 479 et seq. ↩︎

Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.