SAS: the regime of exclusion clauses complies with the constitution

Constitutional Council, Decision No. 2022-1029, QPC of December 9, 2022

By a decision of October 12, 2022, the Commercial Chamber of the Court of Cassation decided to refer several priority questions of constitutionality to the Constitutional Council, concerning the exclusion clauses in the articles of association of a simplified joint stock company (SAS) adopted pursuant to articles L. 227-16 and L. 227-19 of the Commercial Code.

In a decision dated December 9, 2022, the Constitutional Council found these provisions to be consistent with the Constitution.

I. The provisions of the Commercial Code

Article L.227-16 of the Commercial Code provides that:

“Under the conditions they determine, the articles of association may provide that a partner may be required to sell his shares.”

Article L. 227-19 of the Commercial Code provides that:

“The clauses of the articles of association referred to in Articles L. 227-13 and L. 227-17 may only be adopted or amended by a unanimous vote of the partners.

The clauses of the articles of association referred to in Articles L. 227-14 and L. 227-16 may be adopted or amended only by a decision taken collectively by the associates under the conditions and in the form provided for by the articles of association.”

II. The constitutionality of exclusion clauses included in the articles of association of an SAS

  1. The facts

In this case, a partner of an SAS, who was also an employee of the SAS, resigned from his position.

Then, by application of a statutory clause (according to which the status of partner is reserved for persons who are employees and/or corporate officers of the company) providing that in case of loss of this capacity by the associate, a decision of exclusion could be taken by the extraordinary general assembly, this associate was excluded following a vote of a general assembly.

It is in this context that the excluded former employee/partner sued the SAS for nullity of the decision to exclude him and of the forced transfer of his shares.

He also submitted four Questions Prioritaires de Constitutionnalité (QPC) to the Paris Commercial Court.

Two major problems relating to the infringement of a partner’s right of ownership of his corporate rights by the mechanism of statutory exclusion are raised here:

  • Article L. 227-16, which authorizes the insertion of exclusion clauses in a SAS (i) infringe the partner’s property rights without public necessity, and (ii) disproportionately interfere with the partner’s right of ownership without there being a public policy justification for the interference?
  • Does the combined application of articles L. 227-16 and L. 227-19, paragraph 2, of the Commercial Code, which authorize the insertion or modification of an exclusion clause under the conditions provided for by the articles of association, i.e., without each partner having necessarily consented to it, comply with articles 2 and 17 of the Declaration of the Rights of Man and the Citizen (DDHC)?

The Court of Cassation, seized by the Commercial Court of Paris, considered that the questions raised by the excluded former partner were novel and sufficiently serious to be referred to the Constitutional Council for examination (Cass. Com., October 12, 2022, n° 22-40.013).

The Court of Cassation also took advantage of this decision to refer a QPC to the Constitutional Council to affirm that the provisions of article L.227-19 of the Commercial Code (in the version created by law no. 2019-744 of July 19, 2019), were applicable to all simplified joint-stock companies, and not only to those created as of this date

This confirmation was long overdue.

  1. The opinion of the Constitutional Council

After stating the former partner’s objections to the aforementioned provisions of the Commercial Code with regard to the right of ownership, the Constitutional Council recalled that under the terms of article 17, the DDHC provides that: ” property being an inviolable and sacred right, no one can be deprived of it, except when public necessity, legally established, obviously requires it, and under the condition of a fair and prior compensation”. and that, according to Article 2 of the same Declaration, infringements of this right must be justified by a “It is in the public interest and proportionate to the objective pursued.”

Consequently, the Constitutional Council explains the content of the contested provisions and their effective consequences on the right of ownership.

In fact, it states that in “ Pursuant to the contested provisions of article L. 227-16 of the same code, the company’s articles of association may provide that, under certain conditions, a partner may be required to sell his shares. And according to the contested provisions of the second paragraph of article L. 227-19 of this code, “such an exclusion clause in the articles of association may be adopted or modified without the unanimous consent of the partners “.

He drew the following general conclusion: “the result is that a partner may be excluded from the partnership and forced to sell his shares, if necessary, in application of an exclusion clause to which he had not consented”.

With regard to the constitutional texts, the Constitutional Council considers that :

  • the sole purpose of the provisions of the Commercial Code is to allow a simplified joint stock company to exclude a partner pursuant to a clause in the articles of association.

Thus, “if the result is that a partner may be forced to sell his shares, they do not entail a deprivation of property within the meaning of Article 17 of the Declaration of 1789.

  • the above-mentioned provisions reflect the will of the legislator, who intended to guarantee the cohesion of the shareholders and to ensure the continuation of the activity of simplified joint stock companies.

On this point, the Constitutional Council relies on the preparatory work of the law of July 19, 2019, which amended article L.227-19 of the Commercial Code, and considers that by providing that the adoption or modification of an exclusion clause may be decided without the unanimous consent of the partners, the legislator intended to avoid situations of deadlock that could result from the opposition of the partner concerned to such a clause.

  • the constant jurisprudence of the Court of Cassation provides that the decision to exclude a partner can only be taken following a procedure provided for in the articles of association. This exclusion must be based on a reason, expressly stipulated in the articles of association, which is in the company’s interest and in accordance with public policy, and must not be abusive.
  • the exclusion of a partner gives rise to the repurchase of his shares at a transfer price fixed either in accordance with the terms of the articles of association or, failing that, by an agreement between the parties or by an expert (cf. article 1843-4 of the Civil Code).
  • Finally, the decision to exclude may in any event be challenged by the excluded partner before a court of law, which is then responsible for ensuring the reality and seriousness of the reason given. The same applies if the proposed repurchase price is disputed.

The Constitutional Council considers, taking into account all the elements mentioned above, that “the contested provisions do not disproportionately infringe the right of ownership.”

Consequently, they must be declared in conformity with the Constitution.

The Constitutional Council therefore settles the debate on the constitutionality of the exclusion clauses provided for in the articles of association of a simplified joint stock company (SAS), and considers them to be fully valid.

In conclusion, such exclusion clauses can be added/modified/removed from the articles of association of a SAS, without the unanimous agreement of the partners, without affecting the constitutional rights of any of the partners.

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