French Business Law Flashcards
What is the historical background of French Business law?
From commercial law to business law
First only commercial law, by and for merchants. No business
Commercial Code of 1807 - badly written and non complete
Independent professionals like farmers and artist did not deserve specific rules
In further drafting they constinued focusing on commercial activities. Status for commercial companies (sociètes) in 1867 and SARL 1925
1909 specific rules for going concern
1926 and 53 specific rules for commercial leases
What is the historical development of French Business Law?
There are less and less differences between rules that apply to merchants and other independent professionals
Some rules that only applied only to merchants now apply to other professionals: Prescription (2008) (5 years) and insolvency law (procedure collective)
The rules that were created from the beginning for all professionals: Competition law, status of entrepreneur individuel (2022)
What are the different professionals in Business Law?
- Merchants (commercants)
- Craftsmen or artisans (artisans)
- Liberal professionals (professions libérales)
- Farmers (agriculteur)
What are merchants? (The conditions)
Art L 121-1 Com C Those who carry out commercial acts as their usual profession
- Must be independent (act for yourself, no employe)
- Must be your usual profession (way to earn your living, intend to make profit)
- Must carry out commercial acts (commercial activity)
Art 110-1 Com C contain a big list of commercial activities
Trade
Banker if movable assets
Bill of exchange
Supply activity, like supplier of electricity
What are the main rules applying to merchants?
To prove existence of contract, you need a written document in principle.
There are exceptions, like agreement of value of less than 1500 euros.
Art 110.3 If the other party is a merchant and the act is a commercial act, you can use any kind of proof regardless of value of agreement.
Joint and severally liable. (different than civil law where it must be said in the contract)
Commercial Courts (ARt 721-3 Com C): Tribunaux de commerce
Do not consists of professional judges, but professionals
Also have jurisdiction over artisens
What are the rules on Arbitration?
Art 2061 CC: Valid between independent professionals (not only merchants)
Arbitration = Act of entrusting a private peson with the task of settling a dispute
Arbitration clause = Agreement by which the parties to a contract promise in advance to submit to arbitration any disputes that may arise in connection with that contract (Art 1442 new CPC)
Arbitration agreement = Agreement by which the parties to a dispute which has arisen submit to arbitration - there already is a dispute between the parties
What are the rules on protection of the Personal Patrimony?
In French law everyone has a patrimony, which contains all your rights, debts, properties and obligations.
In order to encourage creation of companies, the legislator has made protection for the patrimony of independent professionals
Limited Liability Sole Proprietorship (EIRL) - old status before a new law
Special Purpose Patrimony - possibility to create a professional patrimony (to seperate personal and professional patrimony)
New status of individual entrepreneur (2022) - applies to every independent professional, they have their own professional patrimony. Automatic, even the content. No need to declare assets.
There are exceptions. You can sell the Professional Patrimony or break it to a company and it can be considered an asset itself. Possibility to buy the professional patrimony and bring a professional patrimony to company you created.
What are the main rules regarding Farmers?
Art L 331-1 of Rural and Maritime Fishing Code:
“All activities corresponding to the control and exploitation of a biological cycle of a plant or an animal and constituting one or more states necessary for the development of this cycle,
as well as activities carried out by a farmer which are an extention of the act of production or which are supported by the farm”,
are considered agricultural
Agricultural activity, for example control and exploration, buying a cow, production of vegetables
Agricultural activity is civil activity, not commercial. But this is less and less true. For instance. they can also benefit from Insolvency law and have agricultural going-concern
Rule of proof is not same. No presumtion of several liability –> Civil law applies, Art 1310
Civil courts, not commercial
What are the main rules concerning Craftsmen/Artisans (criterias)
- Manual work: Must be activity of production, transformation or provision of services.
You must work for yourself. So it must be your own manual work. - Personal work: You must work with your hands yourself
- No speculation on the other production factors of the business
So not too many machines or employees or sub-contractors
Max 5 employees.
Rule of proof - Civil Code. No presumtion on being jointly and severally liable.
Give examples of Craftsmen.
Butchers, locksmiths, plumbers/heaters, bakers, pastry cooks, garage owners, fishmongers, hairdressers
Fonds artisanal (crafts going concern)
Reminder, if you have a lot of employees you are not a craftsman, but a merchant.
What are the main rules concerning Liberal professionals?
Art 29 of Law of March 22 2012: Liberal professions: persons together exercising on a regular basis, independently, and under their responsibility, an activity to provide in the interest of client or the public services that are mainly
- Intellectual
- Technical
- Or care services
By means of appropriate professional qualifications and in compliance with ethical principles or professional deontology
Civil activity, except for dentists
No presumtion of jointly and severally liable.
Give examples of Liberal professionals.
Doctors, surgeons, lawyers, notaries, architects, private teaching
What are specific assets that the merchants may own?
The going concern
The commercial lease
What is the going concern for a merchant? (le fonds de commerce)
Asset which includes all the movable (not the immovable) properties used for the exercise of the commercial activity
Division between tangible and intangible movable property.
What are the tangible movable property in the going concern?
Equipment and cools used when he carries out the activity
Merchandise - stocks, raw material, goods that are going to be sold to the costumer
What are the tangible movable property in the going concern?
- Equipment and cools used when he carries out the activity
- Merchandise - stocks, raw material, goods that are going to be sold to the costumer
What are the intangible movable property in the going concern?
- The commercial name (under which the merchants carries out his business)
Family name, fancy name, name of the company if carried out by company
Bordas Case: Commercial name is intangible property - The external sign
That makes it possible to identify the establishment of the shop - The clientele or customer base
All the persons who deal with the company on a contractual level
Are a group of persons but also a value for going concern
Derives from other assets, like nice location, famous trademark or right to sell alcohol - The right to lease, the commercial property
- Licences and authorisations
- Industrial property rights
Which are the Industrial property rights?
Patent (brevets)
Trademarks (les marques)
Designs and models
What signifies the Patent?
Must be an invention: A solution to a technical problem
Have to ask INPI. They will check if conditions are met
Exclusive right of exploitation for 20 years (monopoly) Filing date important.
Conditions L 611-10 of Intellectual Property Code
- An invention which is new
- Which results from an inventive activity (from a person competent in the field of invention, not obvious for experts)
- Which is likely to have industrial applications (possible to manifacture and sell to customers)
For some, even if these are met, they still dont fall within the scope. For instance scientitif theories
Infringement action - if someone uses your invention without protection, possibility to sue
What signifies the Trademark?
Art L.711-1 CPI Sign used to distinguish the goods or services of a natural or legal person from those of others, which must be represented in the national trademark register in such a way as to enable any person to determine precisely and clearly the object of protection conferred on its owner
Protection for 10 years. Every year you pay. It is renewable indefinetely.
Registered in INPI.
For instance letters, symbols, drawings, even sounds
Louis Vuitton, Perrier, Geant
Infringement action possible.
What signifies the Designs and Models?
Monopoly conferred on any new industrial design, shape or object
Max protection: 25 years (5 years renewable 5 times)
Infringement action possible.
Civil and criminal penalties possible.
What is the lease of the going concern?
Art L 144-1 Com C. A Contract by which the owner of a going concern (the lessor: le bailleur) grants the lease, in whole or in part, to a manager ( the lessee: le locataire-gérant) who runs it at his own risk
You lease your concern to someone else
The purpose?
Most of the time of critical situations
Or a minor receives a business as inheritance
Or technique for buyers of the concern to test it before buying it.
What are the conditions for leasing a going concern?
- Lesse must have commercial capacity
- Lessor must sell a going concern which exists
- Contract must be published in a legal advertisement within 15 days of its conclusion
- Until the publications, the owner remains liable for the debts generated by the operations of the business (Art L 144-7 Com C)
Case 29th January 2013: Cour de Cassation considered: There was still a clientele if stoppage of activity for 23 months. And still a going concern because still a clientele.
Who is the merchant? The only one is the lesse/manager. He must be registered with commercial activity.
What are the effects of the lease of the going concern? (The obligations for the parties)
Obligations of the Lessor/owner?
- Must make the business available to thelesse
- Give all the information, keys
- Must guarantee against hidden effects
- Must guarantee peaceful positions, not compete, not take back what you transfered
Obligations of the lesse
- Must run the business reasonably. “Comme un pere de la famille” - Den goda familjefadern
- Must pay fees “royalties” to the Lessor
What are the effects to third parties in the lease of the going concern?
People who are not in the contract, often creditors
Art L 144-6 Com C Creditors of the lessor
They may if the lease puts at risk the payment of their rights, ask the commercial court to declare their claims immediately payable
There is a risk they the lessor does not earn enough money to pay them and therefore put them at risk.
L 144-7 Com C Creditors of the lesse. Until the going concern lease contract is published, the owner of the business (lessor) is jointly and severally liable for the debts incurred during the operation of the business.
Incitament to publish the lease.
How can the lease contract of the going concern be terminated?
There is no right for the lesse to renew the contract
Various kinds of termination of contract and reasons for its ending
- End of the contract, end date. No right for the lesse to renew contract (different from commercial lease)
- If the lesse do not pay royalties
- If the lesse does not run the business
If the lesse causes damages to the going concern, he may be liable for it and pay damages. For instance broke tools.
The lesse cannot claim compensation for the increase in value that he as brought to the going concern.
At the end of lease, the lesse must immediately pay all his debts
So it is better to buy a going concern than to lease it.
What are the conditions for the sale of the going concern?
- Must meet the traditional conditions of a contract. Consent, capacity, content, purpose, lawful, must exists (see french law of obligations 21/10)
- Formal conditions. Express references required (Art L 141-2 Com C): Day of transfer, the document shows the monthly turnover, end of the last financial years and the month before the month of the sale - important information of the buyer
What are the effects/obligations for parties of a going concern?
Obligations for the seller
- Guarantee of deliverance: Put buyer in effective position of going concern, like presenting customer base, explain tools, inform the lessor of the building
- Guarantee of quiet enjoyment. The seller must do nothing which allows him to take back what he soled, not compete.
- Guarantee against hidden defects. Possibility to ask for full reimbursement of the purchase price or price reduction.
Obligations for the buyer
- Must pay the price, but must not pay immediately, but in 10 days: The opposition period
The creditors may oppose. The price may be payed to the creditors directly, instead of to seller.
What is the commercial lease?
A contract, but also an asset
Concerns the premises on which the going concern is run
Contains rules which tend to protect the merchant/owner of going concern.
Application: Lease contract is a contract by which the lessor makes a property available for the lesse.
What are the conditions for the commercial lease?
The lesse must be a merchant registered with the RCS or a craftsman registered with RDM (Art L145-1 Com C)
Exception to register if do not own but is the only party what will benefit from the status of commercial lease
Neither liberal professionals or farmer benefit from the commercial lease and its protection.
Owner of premises
–> Commercial lease with lesse of premises
–> Lease of going concern with lesse of going concern
Art L 142-5 Com C
Must be a commercial activity/going concern operated by the lesse
The lease must concern a building or premise intented for the exercise of the commercial activity
- No truck, not just land. Must be a building.
What kind of contracts are not in the scope for the Commercial lease contract?
- Contracts that are too short
Art L 145-5 Com C: Leases of less than 3 years, seasonal rents - Contracts that are too long
Between 17 years and 99 years.
What are the rules on the Duration of the Commercial lease?
Duration of 9 years
Mandatory for the lessor
Every three years the lessor may terminate the contract, but he must meet very precise conditons.
May terminate by Notice of Beliefs- registered letter.
How can one change the activity in the Commercial lease? (Rights of lesse)
Déspecialisation - the right to change the activity
Déspecialisation partielle: In part. You run additional activities connected or complementary indicated in the leases.
Case law: Piano bar, karoke are complemantary to bar or hotel business
Déspecialisation plénière: A total modification. Not complementary. Requires permission from lessor.
Is subleasing allowed? (Rights of lesse)
Subleasing is prohibited in principle.
It could be provided in the lease-contract, but no right.
Opposite to Civil law, see 17.17 CC.
How can one transfer the lease? (Rights of lesse)
The lease contract is a contract but also an asset. And a part of the going concern.
If you sell the going concern –> The lease goes with it.
The seller of the going concern must present to the owner the buyer of the going concern, which will be the lessor.
What are the lesse’s obligations regarding the rent?
Rent revisions every 3 years (same rent 3 years)
Principles for the new rent:
Fixed according to rental value, what takes into account:
- the specific nature of the premises,
- the use of the premises, (what kind of activity will occur)
- the respective obligations of the parties,
- the local market factors (the commercial attractiveness of the neighborhoo, is it a nice area? restaurants near by? the prices for rent obtained in the immediate neighborhood)
The rent cannot exceed a legal platform.
The rental value will not apply all the time. Protection against too high increases of rent, there is a legal ceiling.
What are the rules applying at the end of the lease?
Lesse has the right to renewal of the contract or right to an eviction indemnity
Not an absolute right because the lessor has the right to refuse. But he will have to pay eviction indemnity.
What are the 4 main types of company?
- SNC Société en nom collectif: General partnership
- SARL Société à responsabilité limitée: Limited Liability Company
- SA Société anonyme: Corporation
- SAS Société par actions simplifiée: Simplified shares company
What is the definition of company?
Art 1832 CC
1 § A company is created by two or several persons who agree by contract to assign property or their industry to a common purpose with a view to sharing the profit or benefiting from the economy that may result therefrom.”
2 § “It can be created, in the cases provided for by the law, by the act of will of a single person.”
3 § “The shareholders undertake to contribute to the losses”
What are the conditions of the company’s contract?
- Two or more shareholders
Exception: Single shareholders companies. Art 1832 2§
EURL, SASU, SAS - Existence of contributions
- The sharing of profits and losses
- The will to act in the company
What is the exception to the Two or more shareholders-principle?
Single shareholders companies. Art 1832 2 §
EURL Entreprise unipersonnelle à responsabilité limitée - single shareholder SARL
SASU Société par actions simplifiée unipersonnelle - single shareholder SAS
What are contributions?
Capital = Sum of all the constributions (except services)
The contributions contributes to the social capital of the company and the shareholders receive some “rights in the capital”, shares, in exchange.
Shares (droit sociaux) consists of Parts sociales and Actions:
Some companies issue shares called Actions: SA, SAS
Some issue shares called Parts Interest-shares/Parts sociales: SNC, SARL, Société civiles
Rules that apply to them are very different, for instance regarding tax.
How can one benefit from contributions?
If company with actions, you will receive actions.
If parts sociales, you will receive those.
The more you contribute to the company, the more you will receive. If you contribute 50 %, you will have 50 % of the profits.
In some companies you can have more rights to vote. If you contribute 50 %, you will have 50 % of votes in general meeting.
Not true in companies where you need unity. One vote per head.
What are the three types of contributions?
- Cash contributions - most common
- Contributions in kind - movable, immovable, tangible, intangible property. Car, going concern, asset.
Either the actual ownership of the asset or the right to use it. - Contributions in services - bring your work or noho for the company, not as an employed.
Is not taken into account as capital in the company. Because hard to give value.
