The Dutreil Scheme is a tax mechanism provided for under Article 787B of the French General Tax Code (CGI), allowing the transfer of shares in family-owned companies carrying on an industrial, commercial, artisanal, agricultural, or professional activity, with a 75% exemption from transfer taxes on the value of the shares transferred.
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The Dutreil Scheme: A Tax Mechanism to Facilitate the Transfer of Family-Owned Companies and Groups
The application of this tax regime is subject to certain conditions (see our dedicated article), including the requirement that the business activity be industrial, commercial, artisanal, agricultural, or professional. Moreover, to account for common situations in which operational activities are conducted by subsidiaries under the supervision of an “active” holding company, the regime has been extended to cover the transfer of companies whose principal activity consists of actively participating in the management and strategic direction of their group, composed of companies that are directly or indirectly controlled and engaged in industrial, commercial, artisanal, agricultural, or professional activities.
In addition, the Dutreil Scheme is subject to the taking of collective retention commitments over the shares in the years preceding the transfer, or, failing that, within six months following the decease of the transferor.
A Court Decision in Line with the Dutreil Scheme’s Objective of Promoting Intergenerational Transfers of Operational Businesses
In the case at hand,1 a taxpayer sought to benefit from the provisions of Article 787 B, CGI in the context of the inheritance of shares in a holding company following the death of her grandfather.
The tax authorities challenged her claim, arguing that she had failed to demonstrate the operational nature of the companies held by the holding at the date of decease, thereby preventing the application of the Dutreil Scheme to the transferred shares.
On appeal, the court upheld the tax authorities’ position, ruling that the operational status of the subsidiaries must be assessed as of the date of the event triggering the tax, i.e., the date of the deceased’s death.
Before the French Cour de cassation, the taxpayer challenged this interpretation, arguing that, for inheritance tax purposes, the taxable event should be determined as of the filing of the inheritance tax return rather than the date of decease. She further contended that the lower courts should have assessed whether the real estate activities carried out by the subsidiaries were of a commercial nature and thus eligible for the Dutreil Scheme.
Relying on Article 720 of the French Civil Code and Article 787 B, CGI, the Court held that, in the context of a transfer by inheritance, the operational nature of the companies must indeed be assessed as of the date of decease. The Court further noted that it is the taxpayer’s responsibility to demonstrate that the subsidiaries of the transferred holding company actively carry on an industrial, commercial, agricultural, or professional activity eligible under the regime—which she failed to prove in this case.
This ruling appears consistent with the goal of the Dutreil Scheme, which is to encourage and support the intergenerational transfer of operational family-owned companies and groups, rather than purely asset-holding companies. The decision closes the door to an interpretation that would have allowed heirs to take advantage of the delay between the deceased’s death and the filing of the inheritance tax return to “operationalize” a purely asset-holding company that does not meet the activity criteria under Article 787 B, CGI.
Often regarded as a key mechanism for preserving France’s SME sector, the so-called Dutreil Scheme (Pacte Dutreil) provides for a significant reduction in transfer taxes when a business is passed on to the next generation by way of inheritance or gift.
The application of this regime is, however, subject to strict conditions set out in Articles 787 B (in respect of transfers of shares in companies) and 787 C (in respect of transfers of sole proprietorships) of the French General Tax Code (Code général des impôts). Compliance with these conditions by both the transferor and the beneficiaries, together with a clear understanding of the undertakings they entail, is essential to ensure the proper application of the regime at the time the transfer occurs and to avoid any tax reassessments.
It should also be noted that the Dutreil Scheme is frequently challenged. In this respect, the forthcoming Finance Act will need to be monitored closely.
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Exemption from Transfer Taxes under the Dutreil Scheme: Conditions Applicable to All Transfers
Which Transfers May Benefit from the Dutreil Scheme?
The transfer may occur either upon the decease of the original owner (inheritance) or by way of a lifetime gift.
What Conditions Apply to the Transferred Businesses or Companies?
Whether the transfer concerns a sole proprietorship or a company, the business activity carried on as a principal activity must be industrial, commercial, artisanal, agricultural or professional in nature.
Businesses or companies whose activity is predominantly civil—such as the management of private assets—are therefore excluded from the scope of the regime.
Can the Transfer of a Holding Company Benefit from the Dutreil Regime?
As a matter of principle, pure holding companies are excluded from the scope of the Dutreil Regime. However, pursuant to Article 787 B of the French General Tax Code, holding companies that act as active holding companies (holdings animatrices) are deemed to carry on a commercial activity.
This includes holding companies whose main activity, in addition to managing a portfolio of shareholdings, consists in actively participating in the management and strategic direction of the group they head, composed of companies that are directly or indirectly controlled and that carry on an industrial, commercial, artisanal, agricultural or professional activity.
Eligibility Conditions Specific to the Transfer of Company Shares or Equity Interests
The benefit of the Dutreil Scheme, in the context of the transfer of shares or equity interests in a family-owned company, is subject to a double commitment requirement:
A collective commitment to retain the shares or equity interests for a minimum period of two years;
An individual commitment, undertaken by each heir or beneficiary, to retain the transferred shares or equity interests for a period of four years from the expiration date of the collective commitment.
What Are the Conditions of the Collective Commitment?
The collective commitment to retain the shares is entered into by the transferor (the deceased or the donor), on behalf of themselves and their gratuitous successors, together with at least one other shareholder. It must meet the following requirements:
It must be entered into for a minimum period of two years and must be in force on the date of the transfer;
Throughout its duration, it must cover at least 10% of the financial rights and 20% of the voting rights attached to the shares issued by the company where they are admitted to trading on a regulated market, or otherwise, at least 17% of the financial rights and 34% of the voting rights, including the transferred shares;
It must be formalised by a written agreement (either a notarised deed or a private agreement) and duly registered, the registration date marking the starting point of the minimum two-year period. This period may subsequently be expressly or tacitly extended;
One of the shareholders party to the collective commitment, or one of the transferor’s heirs or beneficiaries, must effectively perform a management function within the relevant company.
By way of exception, the collective commitment may be entered into by the transferor alone, on behalf of themselves and their heirs and beneficiaries. In such case, the sole signatory is responsible for ensuring compliance with all the conditions of the Dutreil scheme, in particular those relating to the minimum holding thresholds and the exercise of a management function.
The law also provides for situations in which the shares form part of the matrimonial community between spouses or where ownership of the shares is divided (démembrement de propriété). In certain cases, the collective commitment may also be entered into by a legal entity, subject to specific conditions.
What Are the Conditions of the Individual Commitment?
In addition to the collective commitment, each of the transferor’s heirs or beneficiaries must enter into an individual commitment to retain the transferred shares or equity interests for a period of four years, starting from the expiry date of the collective commitment.
This individual commitment is entered into by the heirs or beneficiaries on behalf of themselves and their heirs and beneficiaries. It must be expressly set out in the inheritance tax return or in the deed of gift, as applicable.
What Are the Requirements Relating to the Exercise of a Professional Activity or Management Functions within the Transferred Company?
The Dutreil Scheme is intended to facilitate the transfer of small and medium-sized enterprises from one generation of operators to the next. In line with this objective, the application of the regime is subject to the effective exercise of a professional activity or management functions within the company by the transferor and/or their successors.
Indeed, the law requires that one of the shareholders party to the collective commitment, or one of the heirs or beneficiaries, carry on their main professional activity or exercise a management function within the company whose shares are transferred. This requirement must be satisfied throughout the duration of the collective commitment and for a further period of three years following the date of the transfer.
Please note that:
The professional activity or management function is not required to be exercised by the same individual throughout the entire retention period;
Where a change in management results in a vacancy not exceeding three months, the continuity requirement is deemed to be satisfied.
In the Event of a Transfer by Inheritance, is it Possible to Benefit from the Dutreil Scheme if No Collective Commitment Was Entered into Prior to Decease?
Yes. Where the shares or equity interests transferred upon death were not subject to a prior collective commitment to retain the shares, one or more heirs or beneficiaries may, among themselves or together with other shareholders, enter into a collective commitment to retain the shares. Such commitment must be entered into within six months following the transfer by inheritance (post-mortem commitment).
In the Absence of a Written Agreement, Can the Collective Commitment Result from the Effective Holding of the Shares?
Yes. The collective commitment to retain the shares is deemed to be satisfied where the shares or equity interests have been held for at least two years, directly or indirectly, by a transferor alone or together with their spouse, civil partner or recognised cohabiting partner (concubin notoire), provided that the applicable minimum holding thresholds referred to above are met.
This option is subject to the additional condition that the transferor, or their spouse, civil partner or cohabiting partner, has carried on their principal professional activity or exercised a management function within the relevant company for at least two years.
Eligibility Conditions for the Dutreil Scheme in the Transfer of Sole Proprietorships
The eligibility conditions are broadly similar to those applicable to the transfer of shares or equity interests in companies, with certain adaptations:
The transfer must relate to all or an undivided share (quote-part indivise) of the assets—movable or immovable, tangible or intangible—used in the operation of the business;
The sole proprietorship must have been owned for more than two years by the deceased or donor if it was acquired for consideration; no minimum holding period applies in the case of a gratuitous acquisition or business creation;
Each heir or beneficiary must undertake, in the inheritance tax return or the deed of gift, on behalf of themselves and their heirs and beneficiaries, to retain all assets used in the business for a period of four years from the date of the transfer;
At least one of the heirs or beneficiaries must continue to actively operate the business for the three years following the date of the transfer.
Article 1865 of the French Civil Code provides that the transfer of shares in a French civil company is only enforceable against the company if the transfer has been notified to it, accepted by authentic deed, or, when permitted by the articles of association, recorded in the company’s registers. In order to be enforceable against third parties, the transfer must also be published in the Trade and Companies Register, in addition to the formalities abovementioned.
If these conditions are not met, the transfer has no effect with respect to third parties.
In a ruling dated 21 May 2025,1 the French Cour de cassation clarified that the transferor’s heirs cannot be regarded as third parties. Therefore, they cannot rely on the lack of publication to challenge the enforceability of the transfer.
In the case at hand, an heir had acquired shares in a civil company from their deceased relative. Since the transfer agreement had not been published, the co-heirs argued that it was not enforceable against them and requested that the shares be reintegrated into the estate assets, a claim that the Reims Court of Appeal had upheld.
Before the French Cour de cassation, the acquiring heir argued that the co-heirs, having accepted the succession, had become parties to the transfer by succeeding to the rights of the deceased. Therefore, they could not be considered third parties.
The Court overturned the appellate decision based on Articles 724, 1122 (former version2), and 1865 (former version3) of the Civil Code. It affirms that the heirs of the transferor are not third parties and thus cannot invoke the lack of publication to contest the effects of the transfer.
Although rooted in succession law, this ruling is also relevant to corporate law. While heirs may be considered third parties during the lifetime of the transferor, their status changes upon the latter’s death. Acceptance of the succession results in the transmission of the estate, making them parties to the transfer agreement and presumed to be aware of the undertakings entered into by the deceased.
Scope of the decision and extension to SARL and SNC share transfers
The scope of this decision appears to be applicable to the transfer of shares in French limited liability companies (société à responsabilité limitée – SARL) and general partnerships (société en nom collectif – SNC). Indeed, Articles L. 223-17 (SARL) and L. 221-14 (SNC) of the French Commercial Code also require publication formalities for share transfers to be enforceable against third parties.
However, the solution adopted by the Court raises certain questions. In particular, what if the transfer deed was concluded based on the personal qualities of the transferor and included commitments tied to those qualities?
Likewise, an express clause stating the intuitu personae nature of the transfer or the non-transferability of the parties’ rights and obligations could prevent the automatic transmission of the contract to the heirs. Indeed, nothing seems to prohibit the inclusion of such a clause, provided it reflects the mutual intent of the parties and complies with the contract’s validity requirements.
Thus, the May 21, 2025 ruling provides useful clarification for practitioners, while encouraging parties to structure their share transfer operations with care.
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.
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.
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.
