French Business Law

A preemption right (also called a right of first refusal) is the right to acquire shares from a shareholder who wishes to sell them. The beneficiary of the preemption right can be : one or more specific shareholder(s) of the company all shareholders of the company, in which case each of them will have a pari passu right to acquire a fraction of the shares for sale which will be…

According to French case law, the notification already sent by the beneficiary of a pre-emption right informing the seller of shares of the exercise of such right prevents the seller from withdrawing from the pre-emption process under pretext that the prospective purchaser has withdrawn from the sale. Indeed, the notification, by the selling shareholder, of the contemplated sale (which triggers the exercise of a pre-emption right) constitutes, pursuant to French…

To be valid, a pre-emption clause must indicate the price which must be paid for the purchase of the shares upon exercise of the pre-emption right. Generally, the pre-emption purchase price is equal to that offered by the third party purchaser. The parties may however agree on a different price. The pre-emption clause may thus provide that the pre-emption purchase price will be equal to the “fair market price” of…

To be validly exercised, a pre-emption right must be exercised within the time frame set forth by the pre-emption clause. If the beneficiary of a pre-emption right fails to comply with all conditions regarding the exercise of its pre-emption right, including time limitations, he/she will be considered to have waived the exercise of such a right and the selling shareholder will be free to proceed with the contemplated sale. Similarly,…

Can a pre-emption right be validly exercised over a fraction of the shares for sale? A pre-emption clause will be deemed invalid if its purpose or effect (alone or in combination with other clauses, such as a prior approval clause) is to prevent a shareholder from selling its shares. This is why pre-emption clauses generally provide that in the event that the beneficiaries of a pre-emption right fail to pre-empt…

A pre-emption clause may grant to certain shareholders (shareholders 1) a priority pre-emption right enabling them to pre-empt all or some of the shares for sale by priority over certain other shareholders (shareholders 2). The remaining shareholders (shareholders 2) will be able to pre-empt some or all of the shares for sale only if shareholders 1 do not exercise their pre-emption right or if they do not pre-empt all of…

The conditions of exercise of a pre-emption right are those set forth in the applicable pre-emption clause. Most often, a pre-emption clause imposes on the pre-emption right beneficiary to notify its intention to pre-empt by sending a pre-emption notification, which will constitute an offer to purchase. The notification formalities prescribed by a pre-emption clause should be strictly complied with. Indeed, according to French law, in the event that a beneficiary…

A pre-emption clause generally provides that in the event that a shareholder contemplates to transfer its shares, the selling shareholder must notify such contemplated transfer to the beneficiaries of the pre-emption right and to the company itself. The pre-emption clause should detail the information which the selling shareholder must provide upon notification in order to enable the beneficiaries of the pre-emption right to exercise such right. Account should be taken…

Combination of a pre-emption clause and a prior approval clause The existence of a pre-emption clause does not render the shares inalienable. Such clause does not furthermore render inexistent or inapplicable a prior approval clause if such clause is contained in the bylaws of the company. The seller of shares may, and must, submit to the approval of the shareholders (or other competent body, as the case may be), the…

What is a shareholder loan? A shareholder loan is a loan granted to a company by a shareholder. It takes the form of an account opened in the books of the company in the name of a shareholder. The main advantages for a shareholder to finance a company by means of a shareholder loan (instead of share capital contributions) lies in the possibility to: obtain repayment of the loan at…