French corporate law glossary

Abuse of corporate assets
This offence is committed when an executive uses company assets or credit, in bad faith and contrary to the company’s interests, for personal gain or to favor another company in which he or she is directly or indirectly involved. Only directors of companies limited to contributions are likely to fall within the scope of this incrimination.
Majority abuse
This concept refers to the abusive use of voting rights by the majority of shareholders. In this case, the majority adopts a decision at a shareholders’ meeting that is contrary to the company’s interests, with the sole aim of favoring its own members, to the detriment of the interests of members of the shareholder minority. When the abuse of majority voting is legally established, the abusive decision may be annulled.
A share is a negotiable security representing a portion of the share capital in joint-stock companies (sociétés anonymes, sociétés par actions simplifiées, sociétés en commandite par actions, société européenne) and represented by an entry in the holder’s account held with the issuing company or an authorized intermediary. The right conferred on shareholder is in particular a claim on a fraction of the profits and on a fraction of the net assets.
Treasury shares
Treasury shares are shares held by one or more companies directly or indirectly controlled by the issuing company. These shares have no voting rights.
Action in concert
Acting in concert presupposes that the shareholders concerned have agreed to implement a common policy with regard to the company. To this end, persons acting in concert enter into an agreement to acquire or dispose of securities conferring voting rights, or to exercise their voting rights in a certain way.
In the event of a takeover bid, persons acting in concert enter into an agreement either with the bidder in order to obtain control of the target company, or with the target company in order to frustrate the bid.
In the case of concerted action, the same reporting obligations apply as in the case of crossing thresholds.
Bonus share
Existing shares or shares to be issued, allocated free of charge by joint-stock companies to their employees and to most of the corporate officers of the issuing company, as well as to those of related companies under certain conditions. The Extraordinary General Meeting authorizes the granting of bonus shares, and sets the maximum percentage that may be allotted. It is the Board of Directors or the Executive Board, as appropriate (or the competent body in the case of a simplified joint stock company) which makes the allotment. In all cases, the total number of free shares allotted may not exceed 10% of the share capital, and no allottee may hold more than 10% of the share capital as a result of or prior to the allotment.
Preference share
Shares, with or without voting rights, created at the company’s incorporation or during its existence by the Extraordinary General Meeting. Preference shares confer special rights of all kinds on the holder, on a temporary or permanent basis, which must be defined in the bylaws. The nature of the rights that can be conferred is diverse: they can be pecuniary rights (priority dividend, etc.), as well as non-pecuniary rights (enhanced financial information, allocation of seats on management or supervisory bodies, etc.).
Non-voting preference shares may not represent more than half the share capital, or one-quarter in the case of companies whose shares are admitted to trading on a regulated market.
Employee shareholding
Portion of a company’s capital held by its employees, following an acquisition carried out under preferential conditions, notably with the aim of building loyalty among management and involving employees in the company’s success. Employee shareholding can be achieved by various means, such as a capital increase reserved for employees who are members of a company savings plan, the granting of stock options, warrants to subscribe for company founder’s shares (BCE), and the allocation of free shares.
Provisional administrator
A court-appointed representative who may be appointed in the event of serious difficulties preventing the company from operating normally (malfunctioning of the corporate bodies, conflict between shareholders, etc.) and threatening the company with imminent danger. Its role is to temporarily manage the company’s affairs. He is appointed by the interim relief judge, whose order defines his mission.
Public offering
A method of financing that a company may use when it is formed or when it increases its capital. A public offering involves the listing of a financial instrument on a regulated market or the issue or sale of financial instruments to the public. In the latter case, it is possible to use advertising, canvassing, credit institutions or investment services providers.
Company contributions are assets pooled by the shareholders when the company is formed, the ownership or use of which is transferred to the company. In exchange for their contributions, the shareholders receive shares in the company.
Each shareholder is required to make a contribution.
The nature of the contributions varies, and a distinction is made between cash contributions (a sum of money) and contributions in kind (any asset other than a sum of money, such as a building, a brand, etc.). There are also industrial contributions (technical knowledge, work or services), which have their own specific characteristics.
Each category of contribution is subject to its own rules.
Partial contribution of assets
A transaction whereby one company contributes part of its assets to another company and receives part of the latter’s shares in exchange. Companies may choose to apply the demerger regime, the capital increase regime or the incorporation regime in the event of the creation of a new company. Where the demerger regime is chosen, the assets and rights attached to the branch of activity are transferred to the receiving company by operation of law.
Capital increase
This is a method of financing a company. The rules governing capital increases vary according to the type of company concerned.
In public limited companies (SA), capital may be increased: in cash (by issuing new shares or increasing the par value of shares); by contributions in kind; by contributions in kind and in cash; by capitalisation of reserves, premiums or profits; by conversion of debt or bonds into shares. In all cases, the Extraordinary General Meeting has sole authority to decide on a capital increase, unless delegated to the Board of Directors or the Management Board.
Control block
Acquisition by a person acting alone or in concert of a “block” of shares admitted to trading on a regulated market. This acquisition gives the acquirer a majority of either the capital or the voting rights. Such an acquisition triggers a standing market offer procedure, under which the acquirer must file a standing market offer proposal containing a certain amount of information with the AMF. In addition, the acquirer undertakes to buy all the shares presented to it for a minimum of 10 trading days at the same price as that of the initial sale.
Bon de souscription d’actions ou d’obligations
Securities entitling the holder to subscribe for a certain period of time to new shares or bonds in the issuing company, at a predetermined price and subject to predetermined conditions. They may be attached to a share or a bond.
Share or bond warrants enable the issuing company to issue its securities at a higher price. Warrants may be redeemable, enabling the issuing company to require the holder to redeem his or her rights. To be valid, redemption must have been provided for from the outset.
Bon de souscription de parts de créateur d’entreprise (BCE / BSPCE):
Warrants granted to employees or directors of the issuing company giving access to its capital at a price fixed in advance. Net gains realised on the sale of shares subscribed for on exercise of these warrants benefit from favourable tax and social security treatment.
These warrants may only be issued by certain limited companies that are liable for corporation tax in France and are owned by individuals (or legal entities in which individuals hold at least 75% of the capital), provided that they have been registered with the RCS for less than fifteen years.
Merger bonus
In the event of a merger between two companies and where one of them holds a stake in the other, the cancellation of the absorbing company’s stake in the absorbed company (made necessary because the absorbing company is prohibited from allotting its own shares in exchange for its stake in the absorbed company) is supposed to give rise to a capital gain, known as a merger bonus. This is the capital gain generated when the net assets received by the acquiring company in respect of its shareholding in the acquired company exceed the book value of that shareholding.
Liquidation surplus
The liquidation surplus is made up of the shareholders’ equity remaining after repayment of the nominal value of the shares. It is shared by the shareholders in the same proportions as their holdings in the share capital, unless otherwise stipulated in the Articles of Association.
Call option
A call option gives the beneficiary the right to acquire securities at a price fixed in advance, on a specific date or during a specific period.
Shareholders’ equity
Shareholders’ equity is the stable capital available to the company, resulting from shareholders’ contributions (when the company is formed or following a capital increase) and retained earnings. It can be broken down into several items: share capital, additional paid-in capital (from issues, mergers or contributions), revaluation differences, reserves, retained earnings, net profit, investment grants and regulated provisions. In SAs, and SARLs in particular, when shareholders’ equity falls below half the share capital, the shareholders must decide whether to dissolve the company early within four months of approval of the accounts showing the losses.
Private equity
The business of investors acquiring stakes in companies that are generally unlisted and in need of equity capital. There are various forms of private equity
– venture capital, in which the investor provides equity to finance the start-up of a young company,
– development capital, in which the investor provides funds to a company that has already reached break-even point and has strong growth prospects,
– buyout capital, in which investors buy out an established company,
– and turnaround capital, where the aim is to turn around a company in difficulty.
Contingent value right (CVG)
A negotiable security listed on a stock exchange that can be subscribed to during a takeover bid by shareholders of the target company who do not participate in the bid. In the event of a sale at a certain maturity, holders are guaranteed a pre-determined price and payment of the difference, if positive, between the takeover bid price plus interest and the share price at the scheduled maturity date. The aim of this practice is to limit the cost of the takeover bid.
Investment certificate
Security issued by a company (which can no longer be issued today) giving the bearer the same pecuniary rights as those conferred by a share, but without granting voting rights. The investment certificate enabled the issuing company to raise capital without changing its ownership structure.
Approval clause
The purpose of the approval clause is to control who may join the company in the event of a transfer of shares, by giving shareholders the right to refuse a proposed transferee. Only companies whose shares are not admitted to trading on a regulated market may provide for such a mechanism.
In the event of a sale in disregard of the approval clause, the sale is null and void.
Anti-dilution clause
This clause protects the beneficiary against dilution of his shareholding in the company, in the event of a capital increase or merger, by promising to sell him the shares needed to maintain his position at the issue price of the new shares.
Buy or sell clause
This clause allows a shareholder to force another shareholder to buy his shares from him or sell his shares to him at a set price: the shareholder who uses this clause first offers to buy back the shares and if the recipient of the offer refuses, he is obliged to buy back the offeror’s shares. The purpose of this clause is to avoid deadlock.
Arbitration clause
Contractual clause by which the parties submit the settlement of any disputes that may arise between them to an arbitrator and not to a judge.
Earn-out clause
Clause intended to apply in the event of the sale of shareholding rights resulting in the acquisition of control and providing that the transferee will subsequently pay the transferor an additional price determined on the basis of the future results of the company over which control is transferred.
Asset and liability guarantee clauses
Asset and liability warranties are provided for in the event of the transfer of a company’s shares.
Under the liabilities guarantee clause, the transferor guarantees the transferee the accuracy of the information provided about the company (its assets and liabilities and the commitments it has entered into), as well as the accuracy of the accounting and balance sheet data used to determine the transfer price. Under this clause, the seller undertakes to assume any liabilities that may arise after the sale and that arose prior to the sale.
With the asset guarantee, the seller guarantees in particular that the assets shown in the balance sheet are real and actually belong to the company whose shares are being sold.
Hardship clause
Clause which may be contained in contracts whose performance is spread over a relatively long period and by means of which the parties undertake to renegotiate the terms of the contract at the request of one of the co-contracting parties, due to the appearance of a contractual imbalance causing it prejudice. This imbalance is caused by an external event of an economic, technological or other nature.
Inalienability clause
Clause that can be inserted in the articles of association prohibiting the shareholders concerned by the clause from selling their shares for a certain period of time, thereby ensuring a certain stability in the distribution of share capital. Such clauses can only be valid if they are limited in time and meet a legitimate corporate interest.
Pre-emption clause
Clause obliging a shareholder, when he wishes to sell his shares, to offer the sale as a priority (and usually on the same terms and at the same price as those set out in the proposed sale) to the other shareholders or to some of them only. The pre-emption clause may be included in the articles of association or in separate agreements (such as a shareholders’ agreement).
Joint exit clause
A joint exit clause enables all or some shareholders to sell their shares if one of them sells his or her shares. This clause is stipulated in a shareholders’ agreement.
Statutory auditor
The statutory auditor (CAC) is a natural or legal person registered on a professional list and responsible for the legal audit of a company’s accounting documents. The auditor, who is appointed for six financial years, verifies and certifies the regularity, fairness and true and fair view of the company’s accounts and attests to this in a report submitted to the shareholders or partners at the general meeting. The statutory auditor is liable under civil and criminal law, both to the company and to third parties, for the harmful consequences of any errors or negligence on his part. His obligations are only of means and not of result.
A company controls another :
– when it directly or indirectly holds a fraction of the share capital giving it the majority of voting rights,
– when it has the majority of voting rights by virtue of an agreement with the other shareholders,
– when it is in a position to make its views prevail in collective decisions,
– when it is a partner or shareholder of the company and has the power to appoint and remove the majority of the members of the administrative, management or supervisory bodies.
A company is presumed to control another when it directly or indirectly holds more than 40% of the voting rights and no other partner or shareholder directly or indirectly holds more than its share.
This means that control is determined on the basis of voting rights and not on the basis of shareholdings.
Consolidation of accounts
Commercial companies which exclusively or jointly control a group of companies are required to publish the group’s consolidated accounts each year, independently of their annual accounts.
However, companies which are themselves controlled by another legal entity which includes them in its consolidated accounts, and those which head a small group, are not required to do so. The purpose of the consolidated financial statements is to present the financial position of the group as if it were a single entity.
Carrying agreement
Agreement by which one person temporarily assumes the status of shareholder at the request of another person, with the latter undertaking to buy back his or her shares at the end of the specified period and for a price agreed in advance.
Insider trading
The act of a person in possession of privileged information about a company whose shares are admitted to a regulated market, speculating to the detriment of other shareholders on the company’s shares before the public becomes aware of it. This practice is subject to criminal penalties and sanctions imposed by the AMF.
The AMF is also responsible for ensuring that shareholders receive equal information on any event likely to affect the share price.
De facto manager
The act of a natural or legal person assuming de facto, and not de jure, and independently, the management and direction of a company under cover of and in place of its legal representatives. A de facto director may be held liable for the company’s debts in the event of suspension of payments, and may incur criminal liability in the event of violation of legal provisions.
Amounts paid to shareholders in return for their contributions, representing distributable profits and any reserves available for distribution (excluding legal and statutory reserves and revaluation differences). The Articles of Association may stipulate that each shareholder’s share of the dividend is not proportional to his or her contributions, but it is not possible to allocate all the dividends to one shareholder, or to exclude any shareholder from the distribution.
Preferential subscription right
In the event of a capital increase, the preferential subscription right allows shareholders in joint stock companies to subscribe for a number of shares proportional to their stake in the share capital. It is negotiable when detached from shares that are themselves negotiable.
Shareholders are under no obligation to subscribe to the new shares to which they are entitled, and may waive this right individually.
Voting rights
The voting right is attached to a share and enables the shareholder to participate in collective decisions.
In principle, voting rights are proportional to the percentage of capital represented the shares to which they are attached, unless otherwise provided by law. The Commercial Code provides for the possibility of issuing shares with double voting rights, preference shares or preference shares without voting rights. The Articles of Association may also provide for a limit to be placed on the number of votes each shareholder may cast at General Meetings, provided that this limit is imposed on all shares of any class (other than non-voting preference shares). Other than in these cases, restrictions on voting rights are not valid.
Sole proprietorship
A legal form of business that can be chosen by an entrepreneur, exempting him or her from a number of formalities associated with the operation of a company (in particular, no obligation to keep annual accounts, draw up articles of association, etc.). There is no minimum share capital required to set up a sole proprietorship. The entrepreneur decides alone, and is indefinitely and jointly and severally liable on his or her own assets for the company’s debts (he or she can, however, protect certain assets by declaring them unseizable).
Arbitration clause
Contractual clause by which the parties submit the settlement of any disputes that may arise between them to an arbitrator and not to a judge.
Fiscal year
Twelve-month period at the end of which the results of a company’s activity are assessed, generally coinciding with the calendar year.
Fonds Commun de Placement d’Entreprise (FCPE)
The Fonds Commun de Placement d’Entreprise (FCPE) is an unincorporated body whose purpose is to receive and invest employees’ savings in transferable securities, with the fund units being owned by the employees. Its regulations, which must include the creation of a Supervisory Committee to oversee the proper operation of the fund, must be approved by the AMF. When a maximum of one-third of employee savings is invested in company shares, the fund is referred to as a “diversified” FCPE. The term “employee shareholding” is used when more than one-third of the fund’s resources are invested in company shares.
Cash flow
A cash flow corresponds to the cash inflows and outflows actually made by a company over a defined period. A cash flow is therefore an inflow or outflow of cash. Each of a company’s cash flows can be linked to one of the following three cycles: operating, investing and financing. They are recorded in the cash flow statement.
Working capital
Balance between permanent capital, i.e. the company’s stable resources (value of inventories and accounts receivable), and fixed assets (for payment of suppliers). Working capital is used to assess a company’s solvency and ability to meet its financing needs.
Transaction whereby two or more companies merge to form a single company. The merger is carried out by transferring all assets and liabilities either to an existing company (known as an “absorption merger”) or to a newly-created company. The shareholders of the absorbed company become shareholders of the absorbing company or of the new company, and are allocated shares in the latter. In addition, mergers may be subject to merger control regulations if the conditions in terms of sales are met.
English-style merger (or contribution of shares)
A merger involving the contribution by a shareholder of one company of its shares to another company, which remunerates the shareholder by allotting a certain number of its own shares. The company whose shares are contributed thus becomes a subsidiary of the other company, with the shareholders of the former becoming shareholders of the latter.
In listed companies, the contribution of shares most often takes the form of a Public Exchange Offer (OPE).
Pledge of financial instruments
Guarantee covering a special account containing financial instruments (this account may, however, be replaced by a computerized process enabling the pledged instruments to be identified), in which the instruments replacing or supplementing those already registered, as well as their fruits and proceeds in any currency, are included in the pledge base, the instruments newly registered in the account being subject to the same conditions as the instruments initially registered in.
Intangible assets
In the event of an acquisition or merger, goodwill represents the excess of the acquisition cost over the book value of the assets of the acquired company, corresponding to intangible items not included in the assets of the target company’s balance sheet. Under French GAAP, goodwill is amortized on a straight-line basis over an average of 20 years.
Group of companies
A corporate group is made up of several companies, each of which has its own legal existence, but which are linked together under the control of a parent company (control is assessed not in terms of shareholdings, but in terms of voting rights).
A group of companies can take on different structures:
– A pyramid structure (with cascading shareholdings, whereby one company holds shares in another, which in turn holds shares in another, and so on),
– A radial structure (where one company holds stakes in unrelated companies),
– A circular structure (where one company holds shares in another, which in turn holds shares in the first company).
In principle, under French law, a corporate group has no legal personality.
Economic Interest Grouping (EIG)
An entity formed by two or more individuals or legal entities, with legal personality and the exclusive purpose of extending the economic activity of its members. Its purpose is to enable companies taking part in the project to pool some of their activities, while retaining their autonomy and legal independence. An EIG may be set up without share capital, and if it is set up, it may under no circumstances be represented by negotiable securities.
EIG members are jointly and severally liable for the debts of the Economic Interest Grouping on the basis of their own assets.
Holding company
In a corporate group, the holding company is the parent company whose sole activity is to manage the financial interests it holds in other group companies.
Conventional mortgage
Real estate right without dispossession of the debtor over real estate used to discharge an obligation. In the event of non-payment of the debt by the debtor, the creditor is reimbursed by preference from the price of the property sold, regardless of where it is held.
In the case of real estate owned by a company, although the mortgage must be constituted by a notarial deed, the powers authorizing the constitution of such a mortgage may be granted by private deed.
Fixed asset
Corresponds to the assets needed to operate a business and which remain with the company on a long-term basis. We speak of “fixed assets” as opposed to “current assets”. Fixed assets may be tangible (i.e., tangible assets owned by the company), financial (i.e., securities acquired by the company on a long-term basis), or intangible (i.e., neither tangible nor financial assets, but which nonetheless play a lasting part in the development of the business, such as patents). Depreciation and provisions are used to measure the decline in value of fixed assets.
Incorporation of reserves
A method of increasing capital by simply transferring an amount from the reserves account to the share capital account (see definition). The company’s valuation remains unchanged.
Tax consolidation
When a parent company directly or indirectly owns more than 95% of its subsidiary, it can be made solely liable for corporate income tax on both its own results and those of the subsidiary concerned. This system makes it possible to offset profits and losses within a group of companies. However, each company retains the obligation to declare its own income.
Joint venture
Term used to designate a joint project set up between several companies who decide to share their resources as well as the risks and rewards of this project. A joint venture can be set up by creating a company or simply by concluding a contract between the entities involved.
Letter of comfort
A legal document in which a person, usually a parent company, undertakes to support the creditor of a debtor (usually its subsidiary) so that the debtor’s obligations are fulfilled. Depending on the terms used in the deed, the commitment made by the author of the letter is more or less binding for the latter.
Leveraged buy out (LBO)
A technique enabling investors to buy a company on a leveraged basis. The buyout is carried out via a holding company set up by the buyer, who acquires the target company after taking out a loan, with the aim of repaying the loan out of the target company’s cash flow. To achieve this, the cost of the loan must be lower than the target company’s profitability. This technique enables investors to limit their contributions to the holding company.
The term BIMBO (BUY IN MANAGEMENT BUY OUT) is used when the buyers of the target company are both managers of the target company and outsiders.OBO (OWNER BUY OUT) occurs when the acquirer is the controlling shareholder of the target company (in order to rebalance personal and private assets, or to transfer the company between generations).
Leveraged build up (LBU)
Désigne la technique pour une société acquise par LBO qui consiste à procéder à des acquisitions par endettement d’autres sociétés exerçant dans le même secteur d’activité de son secteur. Cette technique permet de constituer des synergies industrielles.
Letter of intent
Legal act by which the parties intend to formalize and frame their pre-contractual relationship, while defining the basis of the planned contract. A letter of intent can be a necessary prerequisite for long, complex negotiations. As a letter of intent is a contract, its breach constitutes a fault which may give rise to the payment of damages by the contracting party at fault, but not to the forced conclusion of the final contract.
Regulated market
Market in which the circulation of financial instruments is subject to non-discretionary rules (on admission, disclosure of certain information, etc.) and to the supervision of a regulatory authority (Autorité des Marchés Financiers). Example: Euronext Paris.
The notion of a regulated market is opposed to that of an over-the-counter market, in which transactions are carried out directly between buyer and seller.
Pledging of shares
The pledging of company shares is subject to ordinary pledging law, as set out in the French Civil Code. The pledge must be made in writing, specifying the debt secured, the quantity of assets pledged and their type or nature, and is enforceable only by publication of the said writing in a special register, which must be renewed every five years.
Negotiable security issued by a company and representing a debt owed by the bearer to that company. The holder’s claim is always equal to the fraction of the loan represented by the security. Bonds issued in connection with the same loan confer the same debt rights for the same nominal value. The bondholder is entitled to repayment of the nominal value at the term specified in the bond, but does not benefit from the corporate rights conferred by the shares.
Takeover bid
A proposal by a person, acting alone or in concert, to buy back all the shares of a company whose shares are admitted to trading on a regulated market, valid for a certain period and at a set price. Takeover bids are subject to special regulations and supervision by the AMF (the French securities regulator), to ensure that holders of the shares concerned receive equal treatment and information, and that the operation is transparent).
Public exchange offer
Proposal to exchange shares in the company making the offer for shares in the target company. It is subject to the same rules as a takeover bid.
Public buyout offer (PBO)
FaOften following a takeover bid or a public exchange offer, a public buyout offer may be made when a person (or several persons acting in concert) holds more than 95% of the voting rights in a company whose shares are admitted to trading on a regulated market, and whereby the majority shareholder offers to buy out minority shareholders. If, at the end of the public offer procedure, not all minority shareholders have transferred their shares, the majority shareholder or group may force them to do so, in return for compensation, by means of a squeeze-out offer.
Undertaking for Collective Investment in Transferable Securities (UCITS)
An Undertaking for Collective Investment in Transferable Securities (UCITS) is an entity set up to enable several investors to jointly hold a portfolio of transferable securities. There are two main categories of UCITS: FCP (Fonds Commun de Placement, an unincorporated co-ownership of securities) and SICAV (Société d’Investissement à Capital Variable, a corporation with legal personality).
Shareholders’ agreement
An agreement concluded in addition to a company’s bylaws, between several shareholders, organizing certain aspects of corporate life, in particular the organization of power within the company and the commitments entered into by shareholders when selling or acquiring shares. Such agreements are generally not disclosed to non-signatories, who are not bound by their terms. Violation of the agreement may result in the payment of damages, or even the forced execution and cancellation of the contract entered into in disregard of the agreement (in the case of fraudulent collusion between the parties, for example).
Leonine contract
Agreement between shareholders depriving one of them of any right to profits or exempting him/her from any contribution to losses. Such agreements are prohibited for all types of company. However, this prohibition only concerns the rights and obligations of shareholders with regard to the company, and not the transfer of corporate rights. A promise to purchase shares at a minimum price, even between shareholders, is therefore not a breach of contract.
In companies other than joint-stock companies (general partnerships, limited partnerships, limited liability companies, non-trading companies), the share is the capital security representing the rights and obligations of the shareholder in the company’s capital. Membership shares cannot be represented by negotiable securities, and their transferability cannot be entirely unrestricted, even if the law allows for their transfer within certain limits.
Pari passu
In the context of credit agreements, the pari passu clause is a clause that ensures an equitable sharing of the assets of a bankrupt entity among holders of debt ranked pari passu.
Repurchase agreement (REPO)
Contract under which a company exchanges financial securities for cash, with the obligation for the seller to take back the securities and the buyer to sell them back, at a predetermined price and maturity.
Company savings plan (« Plan d’épargne d’entreprise » or « PEE »)
Optional collective savings scheme designed to encourage employees to save with the help of companies, with a minimum 5-year lock-in period. Where the company has at least one union representative or a works council, the company savings plan must be negotiated with the workforce. The PEE enables employees to benefit from social and tax advantages. A PEE can also be set up within a group of companies; this is known as a Group Savings Plan.
Inter-company savings plan
This is a variant of the Plan d’Epargne Entreprise, but with a few special features. It can be set up between several companies, either within the same professional sector or geographical area, or between several individual companies. It is particularly well-suited to SMEs, as it enables the costs of setting up the plan to be shared between several companies.
Cash pool (or inter-group loan)
A transaction whereby one company makes its surplus cash available to another company in the same group. This type of operation, which a priori falls under the banking monopoly, is nevertheless authorized when the loans are made between companies with a capital link, and when one of them has effective control over the others.
Shareholder current account loan
A loan under which shareholders contribute funds to the company to enable it to meet its temporary cash requirements, instead of making new contributions. This loan results either from a deposit of funds or from the renunciation of certain sums that the shareholder should have received (dividends, salaries, etc.), and constitutes a repayable claim for the lending shareholder. In the absence of an agreement to the contrary, the shareholder may obtain repayment of his claim at any time.
Price to book ratio
Stock market indicator that measures the stock market value of shareholders’ equity in relation to its book value, enabling an assessment of a company’s intangible wealth.
Share premium
In the event of a capital increase, a share premium may be added to the par value of the new shares in order to re-establish equality between old and new shareholders when the company has made a profit. This premium represents the difference between the real value of the share and its par value.
Merger premium
The merger premium is the difference between the value of the assets contributed by the absorbed company and the amount of the capital increase of the absorbing company when the real value of the shares of the absorbing company exceeds their par value. In the event of a merger-absorption transaction, the merger premium is recorded as a liability on the balance sheet. It may be used to set aside provisions, to fund the legal reserve, etc.
Porte-fort promise
A promise under which the promisor undertakes to the promisee that a third party will act in a given way (agreement to enter into a contract, obligation to perform, etc.). Since the third party on whose behalf the promisor is acting is not bound by the promise, in the event of the third party’s refusal to act in the desired way (refusal to sign the contract, etc.) the promisor is liable to pay damages to the beneficiary.
Put option
Put option enabling the beneficiary to sell securities at a price fixed in advance, depending on the contract, on a specific date or during a specific period.
Minimum number of shares (stipulated by law or in the Articles of Association) required to be held by shareholders present or represented at a meeting for the deliberations taken at the meeting to be valid. For example, in sociétés anonymes, the legal quorum is 1/5th of shares for ordinary general meetings, and 1/4th of shares for extraordinary general meetings on first call (1/5th on second call).
Capital reduction
Transaction whose purpose is to amend the bylaws by reducing the amount of a company’s share capital to a value lower than that stipulated in the bylaws. It can be carried out by reducing the par value of shares, or by reducing the number of shares by buying them back. Capital reduction may be motivated by losses incurred by the company, in which case these are charged against the share capital. The term “coup d’accordéon” is used when the amount of share capital is reduced to zero, followed by an increase in share capital to reconstitute the company’s assets by restoring the rights of former shareholders to a fair value. When the aim is not to absorb losses, the capital reduction may be carried out with a view to paying out funds to shareholders by returning part of their contributions.
Amounts deducted from the company’s profits which are not distributed to the shareholders. In joint-stock companies and limited liability companies, a legal reserve must be set up by deducting a specified fraction of the year’s profits, until such time as the reserve reaches a specified fraction of the share capital.
Profit before tax and exceptional items
Profit before tax and exceptional items is the balance between operating income (sums received from business activities less operating expenses) and financial expenses (interest on loans, discounts granted to customers, exchange losses incurred, etc.) net of financial income (accrued interest, exchange gains, income from bank accounts, etc.), calculated before corporate income tax. Profit on ordinary activities before tax is positive if income exceeds expenses, or negative if income does not.
Operating income
Operating income is the balance between operating income (sums received as a result of the company’s activity), and operating expenses (cost of raw materials, transport, energy requirements, personnel costs, provisions for depreciation of current assets, etc.). Operating Income is therefore calculated before financial items, exceptional expenses and income tax. The concept of operating income is widely used (particularly in calculating economic profitability, as it is not affected by the company’s financial structure). It is very similar to EBIT.
Net income
A company’s net income (or net profit) reflects the enrichment or impoverishment of the company over a given period (e.g.: a year, a financial year). Net income corresponds to the residual portion of operating income that may accrue to shareholders after creditors and the government have received their share. More precisely, net income is equal to the difference between income and all expenses not yet taken into account in determining intermediate balances (operating, financial and exceptional expenses). Net income may be distributed in the form of dividends, or transferred to reserves. Negative net income means a loss for the company.
A SICAV is an UCITS (Undertaking for Collective Investment in Transferable Securities) set up as a public limited company with variable capital. The value of a SICAV’s shares depends on the price of the securities in its portfolio.
Société anonyme
A commercial company whose share capital is divided into shares, and whose shareholders bear losses only up to the amount of their contributions. Shares are freely transferable (except under an approval clause) and freely negotiable. This form is perfectly suited to large companies, but involves complex management rules.
There are two possible forms of management: either the company is administered and managed by a Board of Directors, which appoints a Chief Executive Officer and whose members are chosen from among the shareholders (one-tier SA); or these functions are performed by a Management Board, which is supervised by a Supervisory Board (two-tier SA).
Société par actions simplifiée (SAS)
A simplified joint-stock company in which the shareholders bear losses only up to the amount of their contributions, with flexible operating and management rules. These are largely defined by the company’s Articles of Association. However, freedom is not total, and certain rules of company law cannot be circumvented (right to participate in collective decisions, nullity of unfair agreements, etc.). In principle, only the Chairman may represent the company in dealings with third parties. In principle, the provisions governing SAs apply to simplified joint-stock companies, except those relating to management, administration and shareholders’ meetings.
In application of the LME law of August 4, 2008, SAS created since 2009 are no longer required to meet a legal minimum share capital requirement.
Variable-capital company
In a société à capital variable (variable-capital company), the bylaws stipulate that the capital may vary without the formalities required for other types of companies, as the company’s capital may be increased at any time by successive payments made by shareholders (current or new) and reduced by the total or partial takeover of the contributions of shareholders leaving the company. The articles of association of a variable-capital company must nevertheless set a minimum irreducible share capital (the capital must not be less than 10% of this amount), which must not be less than the minimum amount required by law for the form of company chosen. If the law does not stipulate a maximum amount for the capital, the bylaws must stipulate one, above which the bylaws must be amended.
With the exception of public limited companies (except cooperatives and SICAVs), all forms of company can have variable capital.
Non-trading company
Civil companies, whose share capital is divided into shares, are companies to which the law does not attribute any other character by virtue of their form, nature or purpose. Their operation is governed by the French Civil Code. This type of company is mainly used for real estate, farming and the liberal professions. In non-trading companies, partners are indefinitely liable for the company’s debts in proportion to their share in the share capital, but are not jointly and severally liable.
In principle, shares may only be sold with the approval of all associates. However, the articles of association may provide that such approval may be obtained by a majority determined by the articles of association, or that it may be granted by the managing partners.
Société civile de moyens (SCM)
Unlike a société civile professionnelle (SCP), whose purpose is the actual practice of the profession, the exclusive purpose of a société civile de moyens is to provide services or material resources to its members. Its members contribute to common expenses, without sharing their profits or clientele. Members may be individuals or legal entities in the liberal professions.
Société civile professionnelle (SCP)
Company reserved for liberal professions subject to legislative or regulatory status, or whose title is protected. Partners must be natural persons who meet the legal and regulatory requirements for practicing the profession concerned. Share capital is divided into equal shares, which may not be represented by negotiable securities. There is no legal minimum share capital
Cooperative society
A cooperative society can be either a civil or a commercial company. Its aim, in all branches of human activity, is to provide its members with lower-cost, higher-quality products or services, and to promote the activities of its members. Each member, who is both a partner and a customer or supplier, holds shares and has one vote at general meetings (regardless of the size of his or her contribution).
As the cooperative’s aim is not to make a profit, it distributes its reserve fund in the form of a “rebate” (this fund is made up of surpluses resulting from operations) to associates in proportion to the transactions carried out with each of them.
Société d’exercice libéral
A company reserved for members of liberal professions subject to legislative or regulatory status or whose title is protected, and for liberal profession financial holding companies. The “société d’exercice libéral” may take the form of a limited liability company or a joint stock company (société anonyme, société par actions simplifiée or société en commandite par actions). Professionals in the medical, legal, judicial and technical professions are eligible to use this form. The majority of the share capital must be held by the professionals working within the company.
European Company
The European Company offers a number of advantages: it facilitates merger operations within member states, facilitates transfers of registered offices, etc. It can be set up, when the conditions for each of these methods are met, by merger, by the creation of a holding company, in the form of a joint subsidiary or by the transformation of a public limited company under national law. It can be formed by merger, by the creation of a holding company, in the form of a joint subsidiary or by the transformation of a public limited company governed by national law. To a large extent, its legal system is that applicable to public limited companies in the Member State in which its registered office is located (this office must be established in the same place as the head office). Like a public limited company, it may be managed on a one-tier or two-tier basis.
Société en commandite par actions (SCA)
A commercial company whose share capital is divided into shares and comprising two categories of partners: general partners, who are merchants and therefore jointly and severally liable for the company’s debts; and limited partners, who are shareholders whose liability is limited to the amount of their contributions. The partnership must comprise at least one active partner and three limited partners. Management is assured by one or more managers appointed from among the general partners or non-partners. A legal entity may be appointed as manager, in which case acts are carried out by its own officers.
Limited partners may not carry out any external management actions.
The advantage of this type of partnership lies in the possibility of raising outside capital while maintaining the same people at the head of the company.
Limited partnership
A commercial company whose capital is divided into shares and formed by at least one general partner and one limited partner. There is no minimum share capital. If the bylaws are silent, all general partners are managing partners; the bylaws may, however, designate general partners or non-partners as managing partners. A legal entity may be appointed managing partner, in which case acts are carried out by its own officers.
Limited partners may not carry out any external management actions.
Société en nom collectif (SNC)
A commercial company whose share capital is divided into shares, and in which all partners are merchants and are indefinitely liable for their debts.
Unless otherwise stipulated in the articles of association, all partners are managing partners. The articles of association may designate or provide for the designation of managing partners, who may or may not be partners, natural persons or legal entities (in which case acts are carried out through their own managers). In principle, managing partners can only be dismissed unanimously.
Parent company
Company at the head of a group of companies, which directly or indirectly holds interests in the companies in the group. The parent company may carry out its own industrial or commercial activities in addition to managing its financial interests in other companies, or may limit its activities to these.
Limited liability company (SARL)
Commercial company whose capital is divided into shares, established by one or more persons who bear losses only up to the amount of their contributions. SARLs may have only one partner. The share capital of an SARL is freely determined by the articles of association. Only natural persons may be managers of an SARL, and in principle it is permissible to combine the position with an employment contract, provided certain conditions are met.
Sister company
In a radial group of companies, sister companies are those controlled by the parent company and having no other links between them.
In a pyramid-type group of companies, sub-subsidiaries are companies that are themselves subsidiaries of a subsidiary of the parent company, resulting from an uninterrupted sequence of successive controls.
Branch office
A branch is an autonomous, permanent establishment attached to a company, responsible for representing it in its dealings with third parties. While a branch presupposes management with a certain degree of freedom, it is merely an extension of the parent company and, unlike a subsidiary, has no separate legal personality or assets.
Operation by which a company is divided into two or more new companies. As with mergers, demergers are often a means of concentration, in that the new company is generally transferred to an existing company. The demerged company is dissolved, and its assets and liabilities are transferred to the new company. Like mergers, demergers are subject to merger control regulations, provided that the conditions in terms of sales are met.
Stock option
Mechanism enabling employees and corporate officers of a joint-stock company to subscribe for or purchase the company’s shares at a pre-determined price and for a certain period. The granting of these options is authorized by the Extraordinary General Meeting, which must also determine the terms and conditions for setting the price and the period during which the options may be exercised. The total number of options granted may not exceed 10% of the share capital, and no option may be granted to a beneficiary holding more than 10% of the share capital.
Titre participatif
Non-voting securities that can be issued by public limited companies, cooperative limited companies, agricultural cooperatives, mutual or cooperative banks, state-owned public and commercial establishments and mutual insurance companies. The profit-sharing certificate represents a debt owed by the issuing company to the holder, repayable in principle either when the company is liquidated, after all other creditors have been paid in full, or during the life of the company (but not before seven years have elapsed since issue) if the company wishes to make early repayment.
Titre réductible
In the case of a capital increase with preferential subscription rights, reducible subscription is the right of existing shareholders to request subscription to new shares in addition to those to which they are entitled by virtue of their preferential subscription rights, but which may be reduced if demand for shares is too strong in relation to the offer.
Irreducible subscription
In the case of a capital increase with pre-emptive subscription rights, the irreducible subscription entitles existing shareholders to subscribe to a number of new shares that cannot be reduced, and which is proportional to the number of shares already held by existing shareholders.
A financial technique imported from the United States for transforming illiquid assets, such as receivables, into negotiable securities. To do this, the assets are transferred to an ad hoc company, which finances their acquisition by issuing them in the form of securities to investors. These investors acquire a fraction of the securitized asset portfolio, in which several assets of the same category are mixed, in order to provide investors with a guarantee of repayment. This technique was initially used by banks to refinance their receivables arising from loans granted.
A warrant is an option certificate, i.e. a forward financial instrument, generally issued by a financial institution independent of the issuer, enabling the holder to acquire (“call warrant”) or sell (“put warrant”) an underlying asset (which may be a share, an index, etc.) at a predetermined price and maturity. It is up to the issuer to hedge its position in order to be able to meet its commitment at maturity.
Liability guarantee relating to a company’s equity, given by the transferor to the transferee, for a specified period and subject to a specified ceiling. The transferor undertakes to take responsibility for any reduction in shareholders’ equity that may be revealed after the transfer and which may be attributable to an event preceding the said transfer.