Key points
- The absence of a shareholders’ agreement does not deprive you of the right to exit, but it removes the contractual mechanisms on price, valuation and timing that would have organised it.
- In an SARL (private limited company), transfers to third parties require approval; in the event of refusal, the shareholders must, within three months, acquire the shares or have them acquired, and the company may also buy them back.
- In an SAS (simplified joint-stock company) without a clause in the articles of association, transfers are free, which makes exit easier but exposes the company to the entry of an unwanted third party.
- The shareholder may sell freely, negotiate with the remaining shareholders or call on an expert; certain court remedies exist in the event of abuse or serious disagreement.
- Without an agreed valuation mechanism, setting the value of the shares may require an expert, which shows why it is worth drafting an agreement from the start of the relationship.
The absence of a shareholders’ agreement does not deprive a shareholder of every right to exit. But it deprives them of the contractual mechanisms that would have organised that exit: a defined buy-back price, an agreed valuation procedure, timing and conditions known in advance. Without these mechanisms, the exit depends solely on general company law and on the goodwill of the other shareholders, which can make the situation long, costly and contentious.
What general company law provides, depending on the company form
In an SARL, transfers of shares to third parties require the approval of a majority of the shareholders representing at least half of the shares. Shares can be freely transferred between shareholders, unless the articles of association provide otherwise. If approval is refused, the shareholders must, within three months (a period the court may extend), acquire the shares or have them acquired, or the company may buy them back by reducing its share capital; failing that, the shareholder may complete the transfer originally planned (Article L. 223-14 of the French Commercial Code (Code de commerce) (in French)). Failing agreement, the price is set by an expert under the conditions of Article 1843-4 of the French Civil Code (Code civil).
See also: negotiating a shareholders’ agreement.
In an SAS, the articles of association freely set the conditions for transferring shares. If the articles contain no clause, transfers are free between shareholders and to third parties, which may paradoxically expose the shareholders to the entry of an unwanted third party but also allow a shareholder who wishes to leave to find a buyer freely.
Options for a shareholder who wants to leave
Without an agreement, several routes exist. A free sale to a third party is possible in the company forms that allow it. Direct negotiation with the remaining shareholders is often the fastest route, even though it may result in a price below the real value of the shares when no valuation mechanism has been agreed. Calling on an expert to value the shares makes the price discussion more objective.
When the other shareholders refuse to buy or offer a clearly inadequate price, court remedies remain limited. Serious disagreement between shareholders that paralyses the functioning of the company may, in certain cases, ground a claim for early dissolution for just cause (Article 1844-7, 5° of the Civil Code). Abuse of majority, for its part, allows certain corporate decisions to be challenged. However, the law on commercial companies provides no court-ordered withdrawal comparable to that available in non-trading companies (sociétés civiles) (Article 1869 of the Civil Code).
Valuing the shares when there is no agreement
Without a valuation mechanism set out in an agreement, the value of the shares must be determined. Several methods exist (net asset value, profitability, comparison with comparable transactions) and the parties may disagree on which method to use. In the cases provided for by law or by the articles of association, such as a refusal of approval in an SARL, Article 1843-4 of the Civil Code entrusts the valuation to an expert appointed by the parties or, failing that, by the president of the court. This step makes the procedure heavier and more costly.
Why this shows the value of a shareholders’ agreement
The difficulty of leaving a company without an agreement shows why it is worth providing for these mechanisms from the start of the relationship between shareholders, when relations are harmonious and everyone is ready to compromise. An agreement drafted in a conflict situation is always harder to negotiate and less balanced.
For assistance with drafting an agreement or managing a contentious exit, see our pages on shareholders’ agreement lawyer and shareholder exit lawyer services.
