Transfers of shares in French limited liability companies (SARLs) are subject to prior approval by the other shareholders. This legally required procedure is intended to protect the personal relationship (“intuitu personae”) that exists between the shareholders of these companies.
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.
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:
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.
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.
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.
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
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:
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.
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).
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).
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.).
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.
