Key points
- A start-up’s governance defines who decides what, and how, from the earliest stages, so that the company can move fast on day-to-day matters and protect the shareholders on strategic ones.
- The articles of association define the legal form, majority rules, management powers and changes to the share capital; the SAS (simplified joint-stock company) offers broad organisational freedom that must be calibrated.
- Beyond the bodies required by law, a strategic committee or a board can be created; incoming investors generally ask for representation and a right to information.
- The articles of association and the shareholders’ agreement can limit the manager’s powers internally for certain decisions, but these limitations cannot be relied on against third parties.
- The list of reserved matters must be calibrated: too long, it paralyses the company; too short, it exposes minority shareholders to decisions taken without them.
- The shareholders’ right to information can be extended contractually through regular reporting, which must be defined in the shareholders’ agreement or the articles of association to be enforceable.
A start-up’s governance is not a topic reserved for listed companies or large organisations. From the earliest stages, the rules that define who decides what, how and under which conditions determine the company’s ability to move fast on ordinary matters while protecting the shareholders on strategic ones.
Poorly designed governance from the outset generally shows up at the worst moment: when the founders disagree, when an investor enters the share capital or when an urgent decision cannot be taken for lack of clear rules.
The articles of association as the foundation
The articles of association define the legal form, the majority rules for collective decisions, the powers of the manager or managers, the conditions for changing the share capital and the procedures for convening and holding shareholders’ meetings. For an SAS, the most common form for French start-ups, the articles of association offer broad organisational freedom. This freedom is an opportunity, but it requires the founders to make considered choices rather than adopt a standard template without asking the right questions.
The articles of association must be readable, consistent with the shareholders’ agreement and suited to the intended trajectory. Articles copied from a generic template without adaptation often create unforeseen situations.
Which governance bodies should a French start-up have?
Beyond the president (président), the only corporate officer required by law in an SAS, the managing directors (directeurs généraux) that the articles of association may provide for, and the shareholders’ collective decisions, a start-up can set up advisory or decision-making bodies: strategic committee, board of directors, technical committee. These bodies must have clearly defined roles to be useful without weighing down the company’s operations.
When investors enter the share capital, they generally ask for representation on these bodies and for regular information rights. Anticipating this change in the initial governance makes the transition simpler.
Powers of the president of an SAS
The president of an SAS represents the company and binds it in dealings with third parties. However, the articles of association and the shareholders’ agreement can limit the president’s powers internally for certain categories of decisions (commitments above a certain amount, hiring of senior executives, signature of certain contracts). Provisions of the articles of association limiting the president’s powers cannot be relied on against third parties (Article L. 227-6 of the French Commercial Code (Code de commerce) (in French)), and those of the shareholders’ agreement bind only its signatories. These limitations nonetheless organise internal accountability and require the president to consult the shareholders on important decisions.
Reserved matters
The list of decisions that the manager alone cannot take without the prior consent of the shareholders or of a specific body is one of the most useful governance tools in a start-up with several founders. It generally covers: fundraising transactions, disposals of significant assets, financial commitments above a defined threshold, changes of business activity and recruitment decisions for key positions.
Calibrating this list matters. If it is too long, the company can no longer move forward without constantly consulting its shareholders. If it is too short, minority shareholders are exposed to strategic decisions taken without them.
Reporting and information for shareholders
Shareholders who do not take part in day-to-day management are entitled to regular information on the company’s situation. This minimum legal obligation can be supplemented contractually by a broader right to information, in particular for investors: monthly or quarterly reporting, access to the accounts, audit rights. These mechanisms must be defined in the shareholders’ agreement or the articles of association to be enforceable.
How governance evolves
A start-up’s governance necessarily evolves with the company. What works with three founders no longer works after a Series A with three investors on the cap table. Providing in the articles of association and the shareholders’ agreement for mechanisms that allow governance to evolve without renegotiating everything is a useful precaution.
Further reading: a robust shareholders’ agreement.
See our page dedicated to our start-up lawyer services to learn more about how we assist with structuring and governance.
