Joint ventures in France: overview
A Q&A guide to joint ventures law in France.
The Q&A gives a high level overview of joint ventures law, including regulation of joint ventures, types of joint ventures permitted in the jurisdiction, whether corporate joint ventures are subject to the corporate law, formalities for formation and registration of joint ventures, statutory limits on duration, anti-trust rules, termination, rules relating to joint ventures with foreign members, and incentives.
This Q&A is part of the Joint Ventures Law Global Guide.
Domestic company joint ventures (JVs)
The concept of a joint venture has been developed in common law countries, and there is therefore no exact equivalent of this concept under French law.
Different structures can be used to organise a JV between two or more members, including:
Capital contributions (cash, in kind or assets).
Other types of entities, such as economic interest groupings (groupements d'intérêt économique) (GIEs).
Since 1995 and the introduction of a very flexible corporate structure, the joint-stock company (société par actions simplifiée) (SAS), it is easier to set up corporate JVs in France.
No specific legal framework applies to JVs. The applicable rules therefore depend on the type of JV. For contractual JVs, general contract law will apply. For corporate JVs, the applicable rules (mostly deriving from the French Civil Code and Commercial Code) will depend on the corporate form chosen for the JV. Because of the flexibility of the governance provisions applicable to SASs, corporate JVs are often incorporated as SASs. No additional rules apply to companies created with a view to establishing a JV.
Regarding competition law, Article L.430-1 II of the French Commercial Code provides that "the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity constitutes a concentration" (see Question 6).
The French Competition Authority's guidelines on merger control provide that the creation of a JV may result from:
The setting up of a totally new common structure.
The contribution of assets to an existing JV that the parent company previously held individually, if these assets, whether contracts, know-how or other assets, enable the JV to expand its business.
The acquisition, by one or more new shareholders, of the joint control of an existing company.
All types of JV agreements are allowed under French law. JV agreements must comply with the general rules of French contract law (for example, rules related to consent, protection of public order or the capacity of contractual partners).
Corporate JVs can take any existing corporate form, although some are much more common than others.
Companies without legal personality (sociétés en participation). These companies are created mainly where the purpose of the JV is a one-time project and where an incorporated entity (whether civil or commercial) is not appropriate (for example, because the JV partners intend to share profits without creating a company structure or establishing a capital). A société en participation is tax transparent. However, as it has no legal personality, it cannot enter into any legal act on its own. A société en participation must not be disclosed to third parties nor acts in commercial matters, otherwise partners will be indefinitely, jointly and severally accountable for their actions to third parties.
Commercial companies. Commercial companies are very commonly used for corporate JVs, when tax transparency is not required. They include:
Sociétés à reponsabilité limitée (SARLs). These companies are used for small and medium-sized businesses. Rules that apply to SARLs are listed in the French Commercial Code and are more flexible than those that apply to SAs (for example, SARLs can have a single shareholder, and statutory restrictions on share transfers (useful in JVs) are allowed).
Sociétés anonymes (SAs). These are not flexible enough to be used for JVs.
Sociétés par actions simplifiées (SASs). This is the most common corporate form used for JVs because of its flexibility. The shareholders of an SAS have great flexibility to reflect their agreement in the articles of association regarding corporate governance and restrictions on share transfers.
Other types of JVs
French economic interest groupings (groupements d'intérêt économique) (GIEs) can be an alternative to the SAS.
GIEs share many characteristics with French partnerships (sociétés en nom collectif). They are flexible structures (which include the voluntary nature of share capital and the freedom to set up rules on decision-making) and provide tax transparency benefits. The activity of the GIE must constitute an extension of the activity of its members, which fits well with JVs (except for full-function JVs or JVs heading group holdings). However, the liability of a GIE's member is subject to the principle of indefinite and collective responsibility. In addition, the managers must be natural persons and their powers cannot be limited to acts with third parties.
In practice, the vast majority of corporate JVs in France are SASs. This article therefore mainly deals with the rules that apply to SASs, and considers other corporate forms where relevant.
Formation and registration
When a company is created, its articles of association must be filed in French with the French Registry of the Commercial Court (Greffe). For all companies, all financial documents must be established in Euros and in French (French Commercial Code). Agreements other than the articles of association can be drafted in a foreign language, even where they are subject to French law.
Contractual JV agreements can be drafted in a foreign language and subject to French law. In a dispute before a French court, a sworn translation of the documents is required, which can increase the cost of litigation.
There is no public registry listing contractual or corporate JVs. Corporate JVs are registered with the French Trade and Companies Registry, like any other non-JV company.
Public sector bodies
Under French competition law, the creation of a joint-venture can be subject to the prior control and authorisation of the French Competition Authority (Autorité de la Concurrence) where two cumulative conditions are met:
The JV venture constitutes a concentration under Article L.430-1 of the French Commercial Code.
The turnover thresholds set out in Article L.430-2 of the French Commercial Code are met (see below).
A JV constitutes a concentration if it is a "full-function" JV (that is, when it performs "on a lasting basis all the functions of an autonomous economic entity"). This means that the JV must operate on the market performing all the functions usually carried out by other undertakings on this market. It must hold sufficient initial resources to work independently from its parent companies (for example, human resources, finance, staff, assets (tangible and intangible), commercial responsibility and so on), and be sufficiently autonomous from them. For example, a JV whose exclusive purpose is to realise a specific function on behalf of its parent companies or a JV whose only clients are its parent companies are not considered to be full-function JVs. In addition, the JV must operate on a lasting basis, which means that it must not be created on a temporary basis (for example for the mere realisation of a specific project with a definite term).
The turnover thresholds are as follows:
The pre-tax total global turnover of all undertakings concerned exceeds EUR150 million.
The pre-tax total turnover in France of each of at least two of the undertakings concerned exceeds EUR50 million.
The operation does not fall within the scope of Regulation (EC) 139/2004 on the control of concentrations between undertakings (Merger Regulation). The primary threshold is:
the combined aggregate worldwide turnover of all the undertakings concerned exceeds EUR5 billion; and
the aggregate EU turnover of each of at least two of the undertakings concerned exceeds EUR250 million.
The secondary threshold is:
the combined aggregate worldwide turnover of all the undertakings concerned exceeds EUR2.5 billion;
in each of at least three member states, the combined aggregate turnover of all the undertakings concerned exceeds EUR100 million;
in each of these three member states, the aggregate turnover of each of at least two of the undertakings concerned exceeds EUR25 million;
the aggregate EU turnover of each of at least two of the undertakings concerned is more than EUR100 million.
Where at least two of the undertakings concerned operate in the retail industry, the following lower thresholds apply:
The pre-tax total global turnover of all undertakings concerned must exceed EUR75 million.
The pre-tax total turnover in France of each of at least two of the undertakings concerned in the retail sector must exceed EUR15 million.
When a JV is created, the undertakings concerned are the companies creating the JV. In the case of a joint takeover of an existing business, the undertakings concerned are the companies taking control and the existing acquired business. However, when the pre-existing company was under the exclusive control of a company and one or several new shareholders acquire joint control while the initial parent company remains, the undertakings concerned are each of the companies exercising joint control (including the initial shareholder). In this case, the target company is not an undertaking concerned, and its turnover is part of the initial parent company's turnover. For the acquiring company(ies), or the companies that create or participate in a JV, the calculation of the turnover must take into account the entirety of the group's activities, and not only the activities of the subsidiaries that directly acquire control of the JV. In contrast, for the seller (if any), only the turnover of the sold assets must be taken into account.
If the JV is full-function and exceeds the turnover thresholds mentioned above, prior clearance by the French Competition Authority is mandatory. However, in the case of a "particular necessity", the parties can request an exemption from the Competition Authority to be entitled to implement the operation before obtaining the Authority's consent (Article L.430-4, French Commercial Code). Such exemptions are rarely granted in practice.
The JV members must notify their project, before its realisation, to the French Competition Authority. The review of the project by the Authority takes a minimum of:
25 working days in Phase I, if the French Competition Authority considers that the operation does not raise serious concerns of incompatibility with competition law.
65 working days in Phase II, if the French Competition Authority considers that the operation raises serious concerns as to its compatibility with competition law and opens an in-depth examination.
There are some "stop the clock" mechanisms. For example, the parties to the concentration can propose remedies to address the French Competition Authority's concerns (Articles L.430-5 and L.430-7, French Commercial Code).
The filing can take place as soon as the parties are able to present a sufficiently advanced project (for example, when they have concluded an agreement in principle, signed a letter of intent or on the announcement of a public offer). In practice, the filing is almost always preceded by a pre-notification. This is an informal phase during which the notifying party exchanges with the French Competition Authority, on the basis of draft documents, in order to speed up and facilitate the formal review period.
Companies that have carried out a JV subject to merger control without prior clearance can be subject to sanctions. The French Competition Authority can order the parties to notify the transaction under penalty, or ask them to return to the situation prior to the JV. The French Competition Authority can also impose a penalty of up to (Article L.430-8, French Commercial Code):
5% of the French turnover of the companies responsible for the filing.
EUR1.5 million for natural persons.
The authorisation of the French Competition Authority is the only authorisation required under French competition law. Prior approval cannot be avoided through a self-assessment carried out by the JV members.
Share capital and participation
Forms of participation
Contributions can be in cash, in goods, in assets, in kind or any other form. Every shareholder of a corporate JV must contribute, without exception.
The main types of contributions and the common rules that apply to all corporate forms are outlined below.
A JV member can classically contribute in cash, or through a loan to the JV (for example, in a shareholder's account). In that case, the repayment methods are set out in the articles of association or in a separate agreement between the corporate JV and the relevant member. If not, repayment can be requested at any time.
A JV member can also contribute to a corporate JV through its knowledge, workforce, or a service (apport en industrie). These types of contributions must be precisely mentioned in the articles of association; if not, they are considered non-existent. A member who contributes by an apport en industrie must effectively provide the service to the company and cannot run a competing business.
A JV member can also contribute in kind (that is, with any assets, tangible or intangible). For example, a JV member can contribute with a patent. This must be done in writing and mentioned in the French National Patent Registry (registre national des brevets). The same applies for a trade mark or a brand.
In any case, the commitment of the member to contribute must be made in writing, in the articles of association or a separate agreement.
Some contributions can also consist of the enjoyment of an asset for a fixed period of time without transfer of ownership to the corporate JV (for example, under a lease).
There are specific rules that apply to contributions to sociétés par actions simplifiée (SASs) under Article L.227-1 section 4 of the French Commercial Code. Since 2009, apports en industrie (see above) are allowed in SASs, and the contributor can receive shares in return for his contribution. The articles of association must specify the details of the subscription. These shares are not transferable and the contributions cannot be taken into account in the share capital, although the shares will give the member the right to vote.
All financial documents of a company must be established in Euros and in French (French Commercial Code). The only exception is a decision of the Paris Court of Appeal of 1994, which allowed a company to indicate its share capital by reference to the ECU (that is, the European Currency Unit, which was a group of currencies in the European Community used as a currency unit before the Euro replaced it), and not to the French franc. However, this case does not constitute a precedent. In addition, the decision would not be the same with other currencies, which can be rapidly depreciated, and over which the French State has no influence.
Duration and limits on membership
In corporate JVs, it is necessary to distinguish the agreement by which the parties decide to carry out a JV and the articles of association of the company. Articles of association of the company traditionally have a long duration (for example, 30 to 99 years). The JV itself is often created for a medium-term, and this is reflected in the agreement. A short duration may be a condition of the validity for some of the clauses of the JV agreement (for example, the withdrawal of shares).
The termination of the JV agreement does not automatically terminate the company, as the French courts consider that articles of association are stand-alone agreements. The drafters of the articles of association should therefore provide for this issue. If the duration of the articles of association and that of the agreement do not coincide, the agreement should not prevent the shareholders from doing what is necessary to dissolve the company.
Regarding contractual JVs, French law prohibits perpetual commitments. The parties to a permanent contract can therefore always terminate it at any time (after compliance with a notice period, if any). In most cases, JV agreements regulate deadlock situations and the termination of the JV. The question of the validity of "divorce clauses" under French law is debated.
Clauses that prevent parties from selling their parts of the corporate JV without the agreement of the board of the JV company may be invalid under French law. Lock-up clauses are prohibited under French law unless they are justified by serious and legitimate reasons, and limited in duration (for example, a maximum of ten years for a société par actions simplifiée (SAS)).
For contractual JVs, there is no specific legislative provision on the minimum number of participating members.
Regarding corporate JVs, the minimum and maximum number of members depends on the type of corporate form used. There is no maximum number of participants. The French Commercial Code sets out minimum numbers of members which depend on the type of company. A société par actions simplifiée (SAS) can have a single shareholder. An economic interest grouping (groupement d'intérêt économique) (GIE) must have at least two members. A GIE is automatically dissolved if it does not have more than one member.
Public sector bodies
Local authorities can only enter into JV agreements (or any type of contractual agreements) provided that the purpose of the JV is to set up or operate local public services or activities of general interest.
Similarly, the French state can only enter into JV agreements when there is a public interest in the development of the JV. As the existence of a public interest is less difficult to establish, the French state is in practice subject to fewer restrictions than local authorities.
PPP laws and regulations only apply when the JV concerns the financing by private entities of a facility for the use of which the state pays rental fees, before a transfer of ownership to the state.
Regarding merger control, the French Competition Authority's guidelines on merger control restate the EU principle of non-discrimination between the public and private sectors (Regulation (EC) 139/2004 on the control of concentrations between undertakings (Merger Regulation)). However, member states cannot be considered as undertakings as they hold interests in several other undertakings active in other markets than the undertaking(s) concerned by a specific operation. Consequently, where a public operator acquires a participation in a JV, for turnover calculation purposes, only the companies belonging to the same economic unit with the same autonomous decision power must be taken into account. See also Questions 6 and 15.
Non-competition and anti-trust clauses
During period of effectiveness
Non-competition clauses are allowed under French law provided that they comply with certain conditions established by case law. A non-competition clause must be:
Necessary for the protection of the interest of the company or the JV.
Limited in space and in time.
Justified by a legitimate aim and proportionate to the purpose of the agreement.
A non-competition clause must also take into account the specificity of the employee's function and provide a financial contribution for the employee if he becomes a member of the JV. These conditions are the same for all non-competition clauses and are not specific to non-competition clauses used in JVs. A clause will be invalid if the French courts consider that it is not sufficiently limited.
In the context of merger control, non-competition or anti-trust clauses can be considered as "ancillary restraints". French competition law is not as developed as European competition law on this issue. However, the French Competition Authority's guidelines on merger control provide that the Notice on restrictions directly related and necessary to concentrations (OJ 2005 C56/24) (Notice on Ancillary Restraints) constitutes useful guidance for the analysis of ancillary restraints. Regulation (EC) 139/2004 on the control of concentrations between undertakings (Merger Regulation) provides that "a decision declaring a concentration compatible shall be deemed to cover restrictions directly related and necessary to the implementation of the concentration" (Articles 6§1 and 8§1 and 2). The Notice on Ancillary Restraints adds that "a concentration consists of contractual arrangements and agreements establishing control (…). All agreements which carry out the main object of the concentration, such as those relating to the sale of shares or assets of an undertaking, are integral parts of the concentration. In addition to these arrangements and agreements, the parties to the concentration may enter into other agreements which do not form an integral part of the concentration but can restrict the parties' freedom of action in the market. If such agreements contain ancillary restraints, these are automatically covered by the decision declaring the concentration compatible with the Common Market".
French guidelines state that the notifying parties do not have to explicitly bring the existence of an ancillary restraint to the knowledge of the French Competition Authority provided that such restraint complies with the above principles. However, they may have an interest in drawing the Authority's attention to the provisions whose compatibility with competition law may raise concerns, given their form, scope or combination with others, or the competitive environment of the market(s) concerned.
When such restrictions are brought to its attention and when it is appropriate to examine them, the French Competition Authority determines whether they are directly related to the transaction and necessary for its completion, without being bound by the parties' statements. Restrictions are considered as directly related and necessary when, in their absence, the concentration could not be achieved or its viability would be compromised. If the restrictions of competition would exceed what is directly related and necessary, the French Competition Authority can decide to take action against these anti-competitive practices (Article L. 420-1, French Commercial Code).
Non-competition clauses following the termination of the JV are allowed but they must comply with the requirements mentioned above.
De facto company/partnership
Parties to an agreement who wish to introduce a form of profit-sharing normally create a legal vehicle. If not, the agreement may be characterised as a "de facto company".
French courts consider that the presence of inputs and the sharing of profits or losses are evidence of the existence of a company (pacte social). Judges can rely on the subsequent conduct of the parties.
A "de facto company" is deemed to be a société en participation, which, if disclosed to third parties and involved in commercial matters, is governed by the same rules as a société en nom collectif (a type of French partnership) (including indefinite, joint and several liability of the shareholders to all third parties). The existence of a "de facto company" also implies heavy tax consequences, as the company does not benefit from tax exemption. Therefore, where members of a JV wish to share profits, this frequently leads to the incorporation of a company.
Limiting member liability
Contractual JVs are subject to French contract law. Members of a JV agreement can validly agree that one of them participates in the venture without incurring any risk, loss or reward (for example, when participating in the JV as a manager only).
For corporate JVs, French law prohibits contractual arrangements between shareholders under which one of the shareholders incurs no risk, loss or reward. However, French case law has confirmed the validity of transfer agreements between shareholders limiting the risk of loss or reward for one of the shareholders. A shareholder may enter into a put option agreement under which the transfer price, when the option is exercised, must correspond to an amount at least equal to the amount of the initial investment in the JV, plus annual interest.
It is a full-function JV (concentration).
The parties' turnovers meet the thresholds set out in the French Commercial Code.
However, when the operation does not constitute a concentration and/or does not meet the thresholds, the JV agreement is likely to be assessed under the general anti-trust rules, and in particular the prohibition of anti-competitive agreements or practices. In this context, the French Competition Authority considers Regulation (EU) 330/2010 on the application of Article 101(3) of the TFEU to categories of vertical agreements and concerted practices (Vertical Restraints Block Exemption) and its guidelines, as well as exemption regulations and guidelines in specific sectors (for example, agriculture, insurance, postal services, professional services, transport and telecommunications).
Governance and limits on directors
French contract law allows the parties to a contractual JV to freely regulate the JV.
For corporate JVs structured as sociétés par actions simplifiée (SASs), shareholders can freely regulate the organisation and operation of the SAS in the company's articles of association. Shareholders are free to regulate the conditions of their entry and contribution to the company. The articles of association can include the following clauses:
Clauses requiring shareholders' prior approval for transfers of shares (including for transfers between shareholders).
Clauses allowing the exclusion of a shareholder through the redemption of its shares.
A third party (for example, banker, main supplier, licensor of a patent upon which the JV is set up) can intervene in the operation of a company, for example through a right of control or a right of veto over certain decisions. Such power must be managed carefully to avoid the requalification of the third party as a "de facto manager".
Regarding shareholders' voting rights, French corporate law prohibits depriving a shareholder of his right to vote, every shareholder being entitled to participate in "collective decisions" and to vote. However, preferred shares can be created with specific voting rights (for example, double voting rights). In addition, the voting right attached to such preferred shares can be suspended for a limited period of time. However, shares without voting rights cannot represent more than half of the share capital of the company.
The articles of association can only be set aside in the cases provided for by law. The articles of associations set out the majority and quorum required for making decisions. Different requirements can apply depending on the nature or importance of the decisions.
In corporate JVs, the eligibility of an individual as a member of the board of directors depends of the corporate form used.
There is no board of directors in a société par actions simplifiée (SAS), SAS members must set out in the articles of association the composition of the governing body and the way in which it will take collective decisions. Members can decide to establish a collective decision-making body or control body, and there is no statutory restriction on the eligibility of an individual as a member of such bodies.
SASs may be subject to the control of a statutory auditor designated by a collective decision of the shareholders on a proposal of the company's president or other management body mentioned in the articles of association. Control by a statutory auditor is mandatory if, at the end of the accounting year, two of the three following thresholds are met:
EUR1 million total balance sheet.
EUR2 million pre-tax turnover.
Average number of 20 permanent employees during the financial year.
An SAS must also be controlled by a statutory auditor where it controls one or more companies, or when it is controlled by one or more companies within the meaning of Article L. 233-16 II and III of the French Commercial Code (exclusive control or joint control).
A permanent agreement can be terminated at any time, subject to any notice period and provided that termination is not abusive.
A corporate JV can be dissolved through the means of termination mentioned in the articles of association, the realisation or extinction of the purpose of the company, and by decision of the shareholders.
Shareholders can decide the early dissolution of the company by appointing a liquidator at a shareholders' meeting (Article L. 225-246, French Commercial Code).
Choice of law and jurisdiction
Parties can freely decide to set up a contractual JV under a foreign law. However, JV parties cannot decide to enter into their agreement under a foreign law if it is only a way to avoid the application of French law mandatory rules.
Regarding corporate JVs, French companies are necessarily created under French law.
Parties are free to agree on choice of jurisdiction clauses, although the enforcement of foreign decisions in France requires the authorisation (exequatur) of a French court.
JVs with foreign members
Validity and authorisation
JVs with foreign parties are allowed under French law and are generally not subject to any statutory restrictions.
There is generally no minimum/maximum number of parties who must be local. However, foreign investors cannot own more than 50% of the share capital of a company that holds an authorisation for war equipment manufacturing and trading.
In specific sectors, JVs with foreign parties must be authorised by the French Ministry of Economy (for example, gambling (except casinos), private security, communications interception, dual technologies, cryptology, defence and military equipment).
See also Question 25.
Effect of foreign membership
Foreign investments are regulated under French law. Foreign investments include:
The acquisition of the control of a company registered in France (Article L. 233-3, French Commercial Code).
The acquisition (direct or indirect) of all or part of a branch of activity of a company registered in France.
For non-EU members only, exceeding the threshold of 33.33% of capital ownership of a company registered in France.
Foreign investments from a non-resident in the following sectors must be authorised by the Ministry of Economy:
Research, manufacturing or trading of arms.
Sectors that can cause harm to public order.
The Minister of Economy must reply within two months from the date the file is deemed complete. Before investing, it is recommended to contact the Minister of Economy in writing, to know if the future investment requires authorisation.
Other investments from a non-resident are only subject to a declaration to the French National Treasury (Trésor Public), except for the constitution of a company registered in France owned directly or indirectly by a foreign company.
In addition, a non-resident investor must make a declaration (for statistical purposes) to the French Central Bank (Banque de France) when both:
It acquires 10% of the share capital or voting rights of a company registered in France.
The amount of the investment exceeds EUR15 million.
There are no specific rules of competition law for JVs with foreign parties. Such JVs are caught by French merger control provisions if the turnover thresholds are met (see Question 6).
Economic or financial incentives
There are no minimum equity investments or contributions in kind thresholds for a foreign JV member. A foreign JV member must however comply with the authorisation and declaration requirements mentioned in Question 25.
The regulatory authorities
French Ministry of Economy
Main activities. The Ministry is responsible for authorising foreign investment in French JVs.
French Prudential Control Authority
Main activities. The French Prudential Authority is responsible for authorising the activities and controlling the day-to-day activities of banks and insurers.
French Authority for the Financial Markets
Main activities. The Authority for the Financial Markets is responsible for the protection of investors in public companies.
Description. Official website maintained by the French administration providing access to up-to-date legislation and case law from superior courts in civil, criminal and administrative matters. English translation of major regulations may be available and are for information purposes only. English translations are not updated as frequently as the French section of the site.
Ferenc Gonter, Partner
August & Debouzy
Professional qualifications. France, Avocat à la Cour (French attorney)
Areas of practice. Corporate aspects of real estate transactions; advising a wide range of French and foreign property investors and developers in France on complex property and construction issues; mergers and acquisitions; joint ventures; general commercial work.
Languages. French, English, Hungarian
August & Debouzy
Professional qualifications. France, Avocat à la Cour (French attorney)
Areas of practice. National and cross-border M&A transactions for financial, industrial groups and private equity houses, with an expertise in capital development transaction and the structuring of management package; company and securities law; frequently advises both listed and unlisted companies in their M&A transactions, restructuring operations (joint ventures, mergers and hive-downs, recapitalisations, dissolutions); corporate governance and compliance issues, including day-to-day corporate issues.
Languages. French, English