June 30, the date on which most French companies approve their financial statements, is also the date on which shareholders will be asked to vote on regulated agreements.
But what exactly is a regulated agreement?
The notion of regulated agreement is defined by the French Commercial Code.
It should be noted, however, that this definition varies according to the form of your company.
In the case of sociétés anonymes (public limited companies), we refer to article L.225-38 of the French Commercial Code, which states:
“Any agreement entered into directly or through an intermediary between the company and its Chief Executive Officer, one of its Deputy Chief Executive Officers, one of its directors, one of its shareholders holding more than 10% of the voting rights or, in the case of a corporate shareholder, the company controlling it within the meaning of Article L. 233-3,
[…]
agreements between the company and a company, if the managing director, one of the deputy managing directors or one of the directors of the company is an owner, partner with unlimited liability, manager, director, member of the supervisory board or, in general, a manager of this company.”
In the case of simplified joint stock companies, Article L.227-10 of the French Commercial Code defines regulated agreements as follows:
“[…] agreements entered into directly or through an intermediary between the company and its Chairman, one of its senior executives, one of its shareholders holding more than 10% of the voting rights or, in the case of a corporate shareholder, the company controlling it within the meaning of Article L. 233-3. […] “
In the case of limited liability companies, Article L.223-19 of the French Commercial Code stipulates:
“[…] agreements entered into directly or through intermediaries between the company and one of its managers or partners. […] “
One might be tempted to believe that all agreements meeting these fairly objective criteria are regulated agreements.
They are not!
Exception: standard agreements
Having defined the notion of regulated agreements and laid down the principle of control over such agreements, the texts specify that agreements entered into in this way are not regulated agreements subject to a shareholder vote if they relate to current transactions AND entered into under normal conditions.
Routine transactions are those which the company usually carries out in the course of its business, and normal conditions are those which the company could have expected to obtain in a contract with a third party.
“A priori” vs. “a posteriori” control
In public limited companies, regulated agreements are subject to a priori control by the Board of Directors. The Board must give its opinion on the agreements before they come into force.
In the case of limited liability companies and simplified joint-stock companies, however, this control is a posteriori, as it takes place at the Annual General Meeting called to approve the financial statements.
Voting on the report
In the case of simplified joint stock companies and limited liability companies, regulated agreements must be the subject of a specific report, which is submitted to the shareholders for approval.
Another difference, again based on the corporate form of the company concerned, concerns the shareholders authorized to vote on such regulated agreements.
In the case of limited liability companies, the manager or partner concerned may not take part in the vote, and his or her shares are not taken into account when calculating the quorum and majority.
This position is easy to understand, insofar as the interested partner would find himself both judge and party if he took part in the vote.
Nevertheless, it constitutes an undeniable infringement of the associates’ right to vote.
There are two main opposing principles: voting rights versus conflict of interest.
In contrast to the rules applicable to limited liability companies, the rules applicable to simplified joint-stock companies give priority to the voting rights of the partners, with all partners participating in the vote.
In summary
Particular attention must be paid to the classification of agreements entered into between the company and its officers/partners/directors, and the report submitted to the Board of Directors or the shareholders must be carefully drafted.