#Share Transfer Approval Clause Lawyer in Paris, France

Approval clauses appear mainly in articles of association and shareholders’ agreements. Drafting them often calls for a lawyer to ensure they are valid and effective. They are common in start-ups, where the founders want to control who joins the capital. Our law firm, Hashtag Avocats, in Paris offers a dedicated service for these clauses and assists its clients throughout the process.

What is a share transfer approval clause?

The approval clause (clause d’agrément) makes any transfer of securities (shares, whether actions or parts) subject to the prior consent of the company or of the shareholders. Used mainly in companies, in the articles of association as well as in shareholders’ agreements, it has an equivalent in associations (non-profit organisations), whose statutes may make the admission of new members subject to approval. It makes it possible to control the make-up of the capital and to prevent conflict.

This clause allows shareholders to control, and prevent, the free “transferability” (in other words, the sale) of the start-up’s shares. Without such a clause, shares can be transferred freely, with no prior authorisation.

In a non-trading company (société civile), the logic is reversed. Article 1861 of the French Civil Code (Code civil) makes, in principle, any transfer of shares subject to the approval of all the partners, and it is the articles of association that may relax this rule, in particular for transfers between partners or to the spouse of one of them: see transferring SCI shares between partners or within the family (in French).

So, when a person offers to buy the shares of one of the start-up’s shareholders, the selling shareholder notifies the company of a request for approval stating the identity of the buyer, the number of shares and the price offered. In an SA (French public limited company), approval is given by notification or results from the company’s failure to reply within three months (Article L. 228-24 of the French Commercial Code (Code de commerce) (in French)); in an SAS (simplified joint-stock company), the articles of association organise the procedure and may provide for the other shareholders to be informed.

If approval is refused in an SA, the company must, within three months of the refusal, have the shares acquired by a shareholder or a third party or, with the seller’s consent, by the company itself with a view to a capital reduction; failing that, approval is deemed to have been given. In an SAS, the articles of association set out what happens after a refusal. The core benefit for the founders is simple: keeping control over who owns the capital.

What the approval clause contains

On the investors’ side, the approval clause can be an obstacle to the “liquidity” (in other words, the resale) of their stake. That is why they very often ask for the clause to be removed, for very precise wording, or for free transfers in certain cases.

By controlling the entry of third parties into the capital, shareholders preserve the balance of the capital. The approval clause must not be confused with the “anti-dilution” clause, which protects an investor if new securities are issued at a price lower than the one they paid.

Care must be taken to define the scope of the approval. The aim is to specify whether authorisation is required both when a third party wants to join the capital and when the sale is between shareholders.

In this respect, the subtlety lies in the fact that in the first case only the entry of new shareholders is controlled, whereas in the second the initial weight of each shareholder in the capital is also preserved. The clause should state whether approval must be sought only for a transfer of shares, or whether its scope is wider and also covers the transfer of any type of right attached to the shares, such as split ownership (démembrement de propriété), death, pledges, etc.

The clause should state who decides on approval. For simplicity, this task is often given to the company’s senior executive, for example the president in an SAS.

However, it is not unusual for the general meeting of shareholders to be designated to take the decision, unless a specific committee, or even a third party, is required.

This clause is a formidable hurdle for investors. It can stand in the way of a takeover by them or, at the very least, significantly hamper their restructuring transactions.

That is why they regularly require a clause stating that, in certain cases and notwithstanding the approval clause, the transfer will be free (known as a “free transfer”).

Note that in an SAS, the approval clause is adopted or amended by a collective decision of the shareholders taken under the conditions laid down in the articles of association: unanimity has not been required since Law No. 2019-744 of 19 July 2019 (Article L. 227-19 of the Commercial Code (in French)).

Examples of approval clauses

• A company may want to make sure that its shareholders do not sell their shares to just anyone. The approval clause then allows the company, or the shareholders depending on the articles of association, to give or refuse consent to the transfer.
• In a company, the other shareholders may want to control the entry of new members by requiring their prior consent before any admission.
• An association may provide in its statutes that the admission of new members is subject to the approval of a designated body, such as the executive committee or the board of directors.

Why instruct a lawyer for an approval clause?

Instructing a lawyer helps to ensure the validity and effectiveness of an approval clause. There are many reasons:

Reasons to instruct a lawyer	Explanations
Drafting a valid and enforceable approval clause	The approval clause must comply with the applicable statutory provisions and case law. A lawyer can help you draft a tailored approval clause, suited to your needs, whose validity has been checked against the applicable texts.
Securing the approval process	A lawyer can help you define the approval conditions (criteria for selecting new shareholders, approval procedure, etc.). They can also assist you in implementing the approval clause (notifying candidates, organising the vote, etc.).
Anticipating disputes	The approval clause is a potential source of disputes between shareholders. A lawyer can help you anticipate the risk of disputes and provide for solutions in the company’s articles of association. If a dispute arises, a lawyer can defend you before the courts.
Getting legal advice	A lawyer can advise you on all the legal aspects of the approval clause (tax, corporate law, etc.). They can also help you negotiate the terms of the approval clause with the other shareholders. Instructing a lawyer for an approval clause helps you protect your company and prevent disputes.

Key situations in which to instruct a lawyer for an approval clause:

• When the company has high added value and the shareholders want to preserve its know-how and culture.
• When the shareholders have different visions for the company’s development.
• When the company is in difficulty and the shareholders want to prevent the entry of a new shareholder who could destabilise the business.

Who is our approval clause service for?

Our firm, Hashtag Avocats, in Paris offers its support service for drafting and implementing approval clauses to various types of clients:

• Companies that want to control the transfer of shares, the entry of new shareholders or certain major decisions can benefit from the firm’s advice and expertise.
• To protect the integrity and long-term future of their association, its officers can include approval clauses that comply with the regulations in force.
• Shareholders and investors negotiating a shareholders’ agreement can also call on the firm to regulate transfers of securities.

How does Hashtag Avocats in Paris work with you?

Each client receives tailored support, adapted to their specific needs:

• First contact and analysis of the situation, during which the client sets out their request, expectations and the stakes involved.
• The firm studies the possible options, assesses the risks and opportunities and proposes one or more suitable solutions.
• Drafting of the approval clause by our lawyer, who prepares a clear, precise text that complies with the legal requirements.
• Negotiation with the other party (if necessary), led by our firm, which assists the client in any negotiation of the approval clause with the other party.
• Finalisation and implementation of the approval clause. Once all the parties have approved the text, it is incorporated into the relevant contract or articles of association.

Feel free to contact our firm to obtain tailored advice and receive support throughout the drafting and implementation of your approval clause.

Every situation is different: the information on this page is general and does not replace legal advice tailored to your case. The firm makes no promise of outcome; it commits to the means it deploys.