Limitations on the powers of the managers of a French General Partnership which may result from its bylaws

The bylaws of a French General Partnership may include limitations on the powers of its managers (“gérants”) (French Commercial Code, art. L 221-4, para. 1).

Such limitations of powers may prohibit the managers from undertaking commitments on behalf of the General Partnership beyond certain financial or strategic thresholds, without the prior authorization of the partners.

Decisions which exceed the limitations of the powers of the managers (“gérants”) must be authorized unanimously by all partners (French Commercial Code, art. L 221-6, para. 1).

If the managers (“gérants”) refrain from taking certain decisions within their competence as managers, the partners of the General Partnership may not take such decisions in lieu of the managers. The French Supreme Court has ruled, for example, that legal proceedings on behalf of a General Partnership must be carried out by its statutory legal representative, who is the managing partner (“gérant”), and not by any partner (shareholder). The general body of shareholding partners of the General Partnership does not therefore have the capacity to represent the company in legal proceedings nor to delegate these powers to a third party (French Supreme Court, 22 November 2013 n° 12-24.658).

If the managing director breaches a clause restricting his powers, the partners may seek compensation from him for the loss suffered as a result. They may also dismiss him and claim that the breach of the articles of association constitutes a “just cause” for dismissal thus depriving him from his right to damages for wrongful dismissal.

Powers of the managers (“gérants”) of a French General Partnership in the absence of limitations contained in the bylaws of the partnership

If the bylaws of the General Partnership do not contain a clause limiting the powers of the manager (“gérant”), he or she may perform “all acts of management in the interest of the company” (art. L 221-4, para. 1). Acts of management are broader than acts of administration, and may include acts of disposal insofar as they concern the operation of the company.

Whatever the extent of the manager’s powers, his/her decisions must be consistent with the company’s interests. The company’s interests must be understood in a “broad” sense, i.e., by taking into consideration the social and environmental stakes of the company’s activity (French Civil Code, art. 1833).

Distribution of powers between multiple managers (“gérants”) of a French General Partnership

The bylaws of the General Partnership may distribute the powers to manage the company among several managing partners. For example, in consideration of their technical, sales, HR or other capabilities. However, the clauses contained in the bylaws regarding the distribution of powers among managers (“gérants”) or their limitation, will apply as an internal measure only, that is, they will be enforceable in the relations of the managers among themselves or with the shareholders, but may not be enforced against third parties.

Indeed, third parties are entitled to ignore the distribution of powers among the managers or their limitations, and assume that all managers have equal unlimited powers to act on behalf of the General Partnership within the limits of its corporate purpose.

As an exception to the above rule, the financial statements and management report of the General Partnership must be approved by all the managing partners. In the event of disagreement between them, a mention must be included in the report and each of them must submit their respective proposals concerning the contents of the financial statements and the report to the shareholders, to enable them to make an informed decision during the Annual General Meeting.

If the bylaws do not contain specific provisions on the distribution of powers among managers, their powers will be governed by the following provisions (art. L 221-4, para. 2 of the French Commercial Code):

• Each managing partner may carry out all acts of management (in the broadest sense: acts of administration and acts of disposal concerning the operation of the business) in the interest of the company;
• Each manager will have the right to object to any transaction proposed by another manager before such transaction is concluded. Each manager therefore has a right of veto, which may be exercised before the conclusion of the transaction.

The objection to the conclusion of a transaction may be made in any form, provided that it is clearly stated and may be proved (bailiff’s writ, registered letter with return receipt, declaration before witnesses).

In addition, a manager would be liable to the company if he failed to oppose an act by a co-manager which would be contrary to the company’s interests, exceeds the corporate purpose of the company or falls within the competence of the partners.

Powers of the manage(s) of a French General Partnership with regard to third parties

As third parties are entitled to ignore the limitations of powers of the managers of a French Company, which are deemed to be internal measures only, all engagements undertaken by the managers on behalf of the General Partnership are binding on the Partnership, unless they fall outside its corporate purpose (art. L 221-5, para. 1 of the French Commercial Code).

Provisions contained in the bylaws limiting the powers of the managers may not be relied upon against third parties (art. L 221-5, para. 3 of the French Commercial Code).

If there is more than one manager, each of them may separately bind the company by acts falling within the corporate purpose. As a result, provisions in the bylaws providing, for example, for the joint signature of all managers for all or some management acts are unenforceable against third parties. Consequently, such acts will be binding on the company even if taken in breach of the provisions in the bylaws regarding signature.

Even if a manager objects to the acts of another manager, this objection has no effect with regard to third parties, unless it is established that they had knowledge of it (art. L 221-5, para. 2).

Delegation of powers by the manager of a French General Partnership (SNC)

The managing director may delegate to other persons the power to perform certain acts.

Agreements between the French General Partnership and a manager (“gérant”)

The French Commercial Code does not provide for any procedure to review agreements entered into between the manager (“gérant”) of a French General Partnership and the Partnership itself.