What is a French general partnership (“société en nom collectif” or “SNC”)?
The French equivalent of General Partnership is called a “société en nom collectif” or “SNC”. It is a commercial company by definition of the law, regardless of whether the activity it carries is of commercial or civil nature. It has legal personality.
The French General Partnership (“SNC”) is characterized by strong intuitus personae, which means that the personality of each partner plays, by virtue of the law, a decisive nature in the formation, operation and dissolution of the SNC.
Consequently, by virtue of French law, in a SNC:
- The transfers of shares, even between partners, must be authorized by all partners. This is to prevent that the original distribution of shares between partners be altered without the consent of all partners;
- Partners in a SNC are unable to leave the company against the wish of their co-partners;
- Managing partners can only be dismissed by a unanimous decision of the other partners;
- All partners are merchants and are jointly and severally liable for the company’s debts out of their personal assets.
What taxation applies when registering a French General Partnership (“SNC”)?
A French General Partnership (“SNC”) is taxed under the “industrial and commercial profits” regime if it carries out a commercial, industrial, craft or mining activity. The French General Partnership (“SNC”) is taxable under the “non-commercial profits” regime if it carries on a liberal profession.
Each partner is liable for income tax at the end of the financial year on the share of profits to which he or she is entitled, even if they are not distributed.
The taxable profit of a French General Partnership (“SNC”) is calculated before deducting the remuneration of partners working in the business.
Who can register a French General Partnership (“SNC”)?
In a French General Partnership (“Société en nom collectif” or “SNC”) all partners must be merchants (art. L 221-1, para. 1 of the French Commercial Code). Consequently, no one may become a member of a SNC unless he/or she has the capacity required to trade.
As the exercise of a commercial activity in France by foreigners is subject to obtaining a residence permit, a foreigner may not – unless he or she is a national of one of the EEA member states or does not establish residence in France – become a partner in a French General Partnership (“SNC”). To become a partner of a French General Partnership, a foreigner residing in France must obtain a residence permit or else he/she may be liable to criminal penalties.
Persons whose profession is incompatible with the exercise of a commercial activity may not participate in a French General Partnership (“SNC”). This is the case for lawyers, doctors and other professions which are incompatible with trade. The judge may also prohibit certain people from exercising a commercial profession; Such people will not have the right to become partners in a French General Partnership (“SNC”). This applies in particular to people convicted of offenses punishable by a prison sentence (e.g., French Criminal Code, art. 131-6, 15° and 314-10, 2°). Violation of this prohibition is punishable by two years’ imprisonment and a fine of €375,000 (French criminal code, art. 434-40-1).
Similarly, the law prohibits bankrupts from carrying on any business (art. L 653-2 of the French Commercial Code), unless they have been rehabilitated (art. L 653-11, para. 5 of the French Commercial Code). This ban may also be pronounced by the court, for a maximum of 15 years, against people who have committed tax offences (French Tax Code, art. 1750 and French Criminal Code, art. 131-27, para. 2).
If, during the life of the company, a partner is struck by one of these prohibitions or incapacities, the company is dissolved, unless otherwise stipulated in the bylaws or decided by the partners.
Legal entities may, within the limits of their legal capacity, be partners in a French General Partnership (“SNC”). However, this is practically forbidden for a non-trading company, since by becoming a partner of a SNC, the non-trading company would take on a merchant status.
The same individual or legal entity may be a member of several French General Partnership (SNC), thereby incurring unlimited liability in several companies.
What corporate purpose should a French General Partnership (“SNC”) have upon registration?
In France, each company must have a corporate purpose “objet social” which must be clearly assigned to it in its bylaws.
Regarding French companies incorporated in the form of General Partnerships (“SNC” or “société en nom collectif”), the wording of the corporate purpose is of particular importance.
Indeed, it is the corporate purpose of a SNC determines the limitations of the powers of the managing partners. Such limitations are the only way for the non-managing partners, who are indefinitely and jointly and severally liable for the company’s debts, to protect themselves against certain abusive decisions that the managing partners might be tempted to take.
By virtue of French law, the managing partners of a SNC have all powers to engage the company and any limitation in the articles of association of their powers are not enforceable against third parties. This means that the company will be bound by all acts and contracts made by the managing partners on behalf of the SNC even if such acts or contracts exceed the limitations of powers assigned to the managing partners in the bylaws.
However, the SNC is bound only by the acts of the managing partners which fall within its corporate purpose (art. L 221-5, para. 1 of the French Commercial Code). Therefore, however important or not the acts of the managing partners on behalf of the SNC, such acts will bind the SNC only if the comply with its corporate purpose.
It is therefore advisable to take particular care when drafting the corporate purpose of a SNC, and avoid vague formulas and imprecise definitions.
As with any other form of company, the corporate purpose of a SNC must be feasible and lawful.
Some activities are forbidden to French General Partnership (SNC) (e.g. insurance), while others are subject to regulations requiring professional qualifications or diplomas (e.g. running a pharmacy), or administrative authorizations.
What is the minimum and maximum number of partners in a French General Partnership (“SNC”)?
A French General Partnership (“SNC”) can only be validly incorporated if it comprises at least two partners (French Civil Code, art. 1832). Failure to comply with the rules relating to the minimum number of partners may result in the nullity of the company. There is no set maximum.
What is the share capital of a French general partnership (“SNC”)?
The law sets no minimum share capital.
What contributions can be made to a French general partnership (“SNC”)?
Contributions may be made in cash, in kind or in work. Contributions in work do not form part of the capital and do not give rise to the allocation of shares representing a fraction of the capital. However, the shares allotted in return for the work contribution give the right to a share in the profits and net assets (French Civil Code, art. 1843-2, para. 2). They also give the right to take part in collective decisions and to vote.
What corporate name may be chosen for a French general partnership (“SNC”)?
A French General Partnership (“SNC”) must be designated by a corporate name, which may include the name of one or more partners (art. L 221-2 of the French Commercial Code) or be purely fanciful. The corporate name must be immediately preceded or followed by the words “société en nom collectif” (art. L 221-2 of the French commercial code).
In principle, these words must appear in full. However, article R 123-238, 1°, which requires the company name to be indicated on all deeds and documents intended for third parties (in particular letters, invoices, advertisements and various publications), allows only the letters “FRENCH GENERAL PARTNERSHIP (SNC)” to precede or follow the company name.
What is the duration of a French General Partnership (“SNC”)?
A French General Partnership may not be set up for more than 99 years (art. L 210-2 of the French Commercial Code). This duration may ultimately be renewed. The company’s term runs from the date of its registration with the French Registry of Trade and Commerce (Registre du Commerce et des Sociétés) (art. R 210-2, para. 1 of the French Commercial Code).
What information to include in the articles of association of a French General Partnership (“SNC”)?
The articles of association of a société en nom collectif (“SNC”), which is the French equivalent of a general partnership, must be drawn up in writing (French Civil Code, art. 1835).
The articles of association of a SNC may be signed privately or before a notary.
The articles of association of a SNC must contain the following minimum mandatory information (art. L 210-2 of the French Commercial Code):
– the legal form of the company (i. e., a “SNC” or general partnership) ;
– the duration of the company
– the company name ;
– the address of the head office ;
– the corporate purpose of the company ;
– the amount of its share capital.
In addition, the articles of association must state:
- the identity of the partners (surname, first names, date of birth, profession, place of residence, nationality);
- the rules applicable to the choice of the manager(s) of the company;
- the powers of the managers ;
- the procedures applicable for consulting the shareholders and convening shareholders’ meetings;
- the majority required for the adoption of collective decisions ;
- how the company may be wound up.
The articles of association must be drawn up in as many originals as there are partners, with each partner receiving one copy (art. R 221-1).
The formation of a French General Partnership (SNC) is subject to the formalities, notably registration, applicable to all companies.
It is not necessary to file an original copy of the articles of association for registration of the company, as copies may be supplied (art. R 123-77, para. 1).
How to register a French General Partnership (“SNC”)?
A general partnership must be registered in order to acquire legal personality. Failure to register the FRENCH GENERAL PARTNERSHIP (SNC) with the RCS prevents the partnership from acquiring legal personality (cf. art. L 210-6, para. 1). Moreover, failure to comply with the formalities for registration may result in the company being declared null and void by any interested party. Moreover, the court hearing the nullity action may not declare the company null and void if it finds that there has been no fraud (art. L 235-2).