Newsletter Corporate M&A Department

The necessity of registering acquired shares to obtain shareholder status in limited joint-stock companies

In a decision dated 18 September 2024 (Cass. com. 18-9-2024 no 23-10.455 F-B), the Commercial Chamber of the French Supreme Court ruled on the conditions for transferring ownership of unlisted shares. In particular, this ruling clarifies the conditions required for the effective transfer of ownership, excluding the application of the general rules of sales law.

In this case, the transferees of shares in a simplified joint stock company (SAS) wished to appoint an ad hoc agent to convene a general meeting of shareholders. The seller of the shares argued that the transferees were not shareholders of the company, since they had not paid for the shares and no share transfer order had been issued, therefore the transfer of ownership of the disputed shares had not taken place.

The Pau Court of Appeal, relying on article 1583 of the French Civil Code governing sales, ruled that the transfer was complete and valid when there was agreement on the assets and on the price. It decided that actual payment of the price and delivery of the shares were not essential conditions for the transfer of ownership. In addition, the company's articles of association mentioned the new shareholders, who had been invited to attend the previous general meetings.

The Supreme Court (Cour de Cassation) declared null and void this ruling, basing its decision on articles L. 228-1, R. 228-8, R. 228-9 and R. 228-10 of the French Commercial Code. It pointed out that the provisions of article 1583 of the French Civil Code do not apply to the transfer of shares not admitted to trading by a central depository or to a settlement and delivery system mentioned in article L. 330-1 of the French Monetary and Financial Code.

According to these specific provisions of the French Commercial Code, ownership transfer of shares occurs only upon their registration in the buyer’s individual account or in the company's register of registered shares, as from the date notified by the company.

This ruling of the Supreme Court provides several clarifications regarding the validity of share transfers in limited joint-stock companies.
 

• The registration in an account is the determining condition for ownership transfer: the transfer of ownership of the shares is conditional on their registration in the purchaser's individual account or in the company’s register of registered shares (Articles L. 228-1 and R. 228-10 of the French Commercial Code). The Supreme Court (Cour de Cassation) thus ruled out the application of the general rules of sale, in favour of the specific provisions of the Commercial Code governing securities.

 

• Broader interpretation of "account registration": The Supreme Court (Cour de Cassation) adopted a broad approach to the registration in an account requirement. Whereas Article L.228-1 of the French Commercial Code provided that ownership of shares could only be transferred after registration in the purchaser's individual account, the Court has broadened this condition. It decided that shares were transferred by registration either in the purchaser's individual account or in the company's share transfer register (Cass. com. 18-9-2024 no 23-10.455 F-B). Registration in the share transfer register therefore entails the transfer of ownership of the shares. Thus, the first entry in one of the two registers is therefore sufficient to transfer ownership of the securities to the transferee.

 

• Clarification of the effective date: The effective date of the transfer corresponds to the date of the date of registration in the account. However, this date cannot be earlier than the date on which the company is notified of the transfer, ensuring traceability of share movements.

In this ruling, the Supreme Court (Cour de Cassation) reiterates the specific rules applicable to the transfer of ownership of joint-stock companies’ shares, reinforcing legal certainty in this type of transfer, and recognises the possibility of transferring shares by registration in the share transfer register, thereby broadening the procedures initially provided for in the French Commercial Code.


 

Validity of using tax Cerfa form as a share transfer order for limited joint-stock companies

In a second ruling dated September 18, 2024 (Cass. com. 18-9-2024 no. 22-18.436 FS-B), the Commercial Chamber of the French Supreme Court ruled on the validity of the tax Cerfa Form n°2759 as a valid share transfer order, allowing the transfer of shares in a non-listed joint-stock company.

In this case, the seller of shares in a simplified joint stock company challenged the validity of the transfer, arguing that it did not comply with legal and statutory provisions. He argued that there was no share transfer order duly signed by the transferor and the transferee, which he claimed was in breach of Article L. 228-1 of the French Commercial Code and the company's articles of association. The articles of association expressly provided that the transfer had to be formalised by a share transfer order.

The Supreme Court (Cour de Cassation), while reaffirming Article L. 228-1 of the French Commercial Code, clarified that the transfer of ownership of shares results from their registration in the buyer’s individual account or in the register of registered shares, as prescribed by Law. Regarding the share transfer order, the Court provided two major clarifications:

• Absence of any specific formality imposed by Law: The Court emphasised that no legal or regulatory provision lays down any specific mandatory form for share transfer orders. This lack of formalism leaves room for flexible interpretation, provided that the document used meets the requirements for registration of the shares.

 

• Tax Cerfa form n°2759 is a valid share transfer order: tax Cerfa Form 2759, which is primarily used for tax declarations related to share transfers, was deemed valid as a share transfer order. The Supreme Court (Cour de Cassation) ruled that this form, containing all necessary information to register the transfer in the purchaser's individual account and in the company's register of registered shares, meets legal requirements, unless the company’s articles of association specify otherwise (i.e., requiring a specific format for share transfer orders).

This ruling marks an important stage in the interpretation of formalities relating to the transfer of unlisted shares. Until this ruling, it seemed necessary to produce both a share transfer order and a tax Cerfa 2759 form when selling unlisted shares.
By validating the use of the tax Cerfa 2759 form as a share transfer order, the Supreme Court has adopted a pragmatic approach that respects contractual freedom and current practices. However, it remains essential to check the provisions of the company's articles of association, which may impose specific requirements for the transfer of shares.

In these two decisions rendered on 18 September 2024, the French Supreme Court reiterated the specific rules applicable to transfers of shares, while adopting a more flexible and pragmatic approach to the conditions governing the validity of such transfers.
 

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Authors: Ana Brandao, Attorney-at-Law & Partner at BDO Avocats, and Lucie Besson, Junior Legal Counsel.