Key points
- The approval clause (clause d’agrément) allows the existing shareholders to approve or refuse the entry of a newcomer into the share capital, in order to preserve the composition of the shareholder base.
- In an SARL (French private limited liability company), a statutory approval requirement governs transfers to third parties; in an SAS (simplified joint-stock company), no approval requirement exists unless the articles of association or the shareholders’ agreement provide for one.
- To be fully effective, the clause must appear in the articles of association: in the shareholders’ agreement alone, it is enforceable only against the signatories, not against the company.
- It makes it possible to exclude an unwanted candidate and can provide for a priority buyback of the shares in the event of refusal, so that the transferor is not left in deadlock.
- It cannot make the shares absolutely non-transferable; its terms (time limit, buyback, valuation) must be defined, and it is distinct from the pre-emption right (in French).
Approval clause: definition, role and procedure
The approval clause makes the transfer of shares subject to the prior consent of the company or its shareholders. It controls the entry of newcomers into the share capital and protects the cohesion of the shareholder base. Its rules vary with the type of company: statutory in the SARL, purely contractual in the SAS. To take full effect, it must appear in the articles of association. This page sets out its definition, its purpose, the procedure and the effects of a refusal. Every situation is different.
What is an approval clause?
Definition and purpose
The approval clause requires consent to be obtained before parts sociales or shares (actions) are transferred to a third party. It allows the existing shareholders to approve or reject a candidate seeking to enter the share capital. Its purpose is to control the composition of the shareholder base. It preserves balance and trust between shareholders.
This clause meets a common concern: preventing the arrival of an unwanted third party. A competitor, a hostile investor or an incompatible shareholder can thus be kept out. The approval clause acts as an entry filter. It protects the stability of the group of shareholders over time.
Articles of association or shareholders’ agreement?
Where the clause is set out determines its force. Written into the articles of association, it binds the company and third parties. A transfer made in breach of an approval clause in the articles of association is void. Placed in the shareholders’ agreement alone, the clause binds only its signatories. It is not enforceable against the company or against third parties acting in good faith.
The practical consequence is clear. An approval clause set out only in a shareholders’ agreement offers fragile protection. A breach of it in principle gives rise to damages rather than to the annulment of the transfer. For full effectiveness, the clause must appear in the articles of association. The choice of document therefore determines the whole reach of the mechanism.
The approval clause by type of company
In the SARL: a statutory approval requirement
The SARL has an approval requirement laid down by law. Article L223-14 of the French Commercial Code (Code de commerce) provides that parts sociales may be transferred to third parties outside the company only with the consent of a majority of the shareholders representing at least half of the parts sociales. The articles of association may provide for a larger majority. This approval requirement protects the intuitu personae nature of the SARL.
The procedure is regulated. The proposed transfer is notified to the company and to each shareholder. If the company remains silent for three months, consent is deemed given. This statutory framework applies even where the articles of association contain no specific provision.
In joint-stock companies
Unlisted joint-stock companies may introduce an approval clause through their articles of association. Article L228-23 of the Commercial Code authorises this clause for the transfer of shares or of securities giving access to the share capital. Any transfer made in breach of a clause in the articles of association is void. Approval does not apply in certain cases, such as a transfer to a spouse, an ascendant or a descendant.
In the SA (French public limited company), the procedure is set out in Article L228-24 of the Commercial Code. The request for approval states the name of the transferee, the number of shares and the price offered. Approval results from a notification or from silence kept for three months. In the SAS, Article L. 227-14 of the Commercial Code (in French) allows the articles of association to make any transfer of shares subject to the prior approval of the company, and the articles of association organise the procedure. Article L. 227-15 of the Commercial Code (in French) renders void any transfer made in breach of the clauses of the articles of association. Where the articles of association contain no such clause, no transfer is subject to approval. Freedom to transfer then remains the rule.
Approval procedure and refusal of approval
How the request proceeds
The request for approval follows precise formalities. The transferor notifies the company of the proposed transfer, with the identity of the transferee, the number of shares and the price. The competent body decides within the set time limit. Compliance with these steps determines the validity of the transfer.
What happens if approval is refused?
A refusal cannot lock in the transferring shareholder. In the SARL and the SA, the law provides a way out. In the event of refusal, the shareholders or the company must acquire the shares, or have them acquired, within a set time limit, failing which the transfer may in principle go ahead. The price is set by mutual agreement or, failing that, by an expert under Article 1843-4 of the French Civil Code (Code civil). In the SAS, what follows a refusal is governed by the articles of association. This mechanism protects the transferor against a lasting deadlock.
The approval clause cannot make the shares absolutely non-transferable. It regulates the transfer without prohibiting it permanently. Its terms (time limit, buyback and valuation) must be defined with care. A poorly drafted clause creates disputes and paralyses transfers. Advice from a lawyer on the approval clause makes its drafting and implementation legally sound.
The approval clause is often combined with other provisions. The pre-emption right, the temporary lock-up clause and the tag-along clause together govern the transfer of shares. Each pursues its own objective and follows distinct rules. Fitting them together requires consistency, otherwise the articles of association and the shareholders’ agreement may contradict each other. Coordinated drafting avoids deadlocks and protects future transfers.
Frequently asked questions
What is an approval clause for?
It controls the entry of new shareholders into the share capital. It makes it possible to exclude an unwanted transferee and to preserve the composition of the shareholder base.
Is an approval clause mandatory in an SARL?
A statutory approval requirement applies automatically to transfers to third parties (Article L223-14 of the Commercial Code), even without a provision in the articles of association.
Does an SAS need an approval clause?
Yes, if you wish to control transfers. Where the articles of association contain no such clause, no transfer is subject to approval in an SAS.
What happens if approval is refused?
In the SARL and the SA, the shareholders or the company must acquire the shares, or have them acquired, within the statutory time limit, failing which the transfer may in principle go ahead. The price is set by mutual agreement or by an expert (Article 1843-4 of the Civil Code). In the SAS, the articles of association organise what follows a refusal.
Is an approval clause in a shareholders’ agreement enough?
No. In the shareholders’ agreement alone, it is enforceable only against the signatories. To be effective against the company and third parties, it must appear in the articles of association.
Official sources
- Article L223-14 of the French Commercial Code (statutory approval of the transfer of SARL parts sociales to third parties: majority of the shareholders representing at least half of the parts sociales) – Légifrance (in French)
- Article L228-23 of the French Commercial Code (approval clause in the articles of association of unlisted joint-stock companies; transfer in breach is void) – Légifrance (in French)
- Article L228-24 of the French Commercial Code (approval procedure: notification, silence for three months deemed approval) – Légifrance (in French)
- Article 1843-4 of the French Civil Code (price of company shares set by an expert in the event of disagreement) – Légifrance (in French)
This article presents the state of the law for general information purposes. It does not constitute legal advice. Every situation is different and deserves a dedicated analysis. Content compliant with the professional ethics rules of the legal profession.
