Background
Mr. and Ms. [W] each owned half of Company [W], then organized as a limited liability company (SARL), and served as its co-managers. Under a May 28, 2019 agreement, they promised to sell all their shares to Ms. [A] for €360,000. Ms. [W] transferred her 50 shares to Ms. [A] on June 30, 2019 for €180,000.
At a shareholders’ meeting that day, the shareholders approved the transfer, recorded that Ms. [A] would become a shareholder on July 1, and resolved to convert the company into a simplified joint-stock company (SAS) effective July 1. Company [W] nevertheless sought annulment because the proposed transfer had not been formally notified to the company and each shareholder as required for an SARL transfer to an outsider. Ms. [A] sought repayment of the purchase price and compensation from Ms. [W]. The Agen Court of Appeal annulled the transfer and awarded Company [W] €4,500 for nonpecuniary harm.
The Court’s Holding
The Court of Cassation upheld the annulment. Because the transfer was executed on June 30 and its effects had not been postponed, while the conversion to an SAS took effect only on July 1, the transaction involved shares in an SARL. The mandatory requirements of Articles L. 223-14 and R. 223-11 of the Commercial Code therefore applied.
Those provisions required the proposed transfer to be notified to the company and every shareholder by extrajudicial act or registered letter with acknowledgment of receipt. The absence of notice to the company required annulment even though the sellers were the company’s managers, all existing shareholders knew the transaction’s terms, and the shareholders unanimously approved Ms. [A] at the June 30 meeting.
The Court partially quashed the judgment, without remand, as to the €4,500 damages award. In the operative part of its appellate submissions, Company [W] had challenged only the order requiring Ms. [W] to repay the share price. Because the unchallenged rejection of the company’s damages claim was not dependent on that issue, the Court of Appeal had not been seised of the damages claim and could not award relief on it.
Key Takeaways
- The legal form of the company when a transfer occurs determines whether the statutory rules governing SARL share transfers apply; a conversion effective the following day does not convert an already completed transfer into an SAS share transfer.
- For a multi-member SARL, formal notice of a proposed transfer to an outsider must be given to the company and each shareholder by one of the prescribed methods. Actual knowledge, managerial status, and unanimous shareholder approval do not cure noncompliance.
- An appellate court may rule only on judgment provisions expressly challenged in the operative section of the parties’ submissions, together with provisions dependent on them.
Why It Matters
The decision underscores that parties cannot substitute actual knowledge or unanimous corporate approval for mandatory statutory notice when transferring SARL shares to an outsider. Transaction documents and corporate conversions must be sequenced carefully, because even a one-day difference in effective dates can determine the governing transfer regime and the validity of the sale.
It also reinforces the formal limits of French appellate review: a request appearing in the argument is insufficient when the relevant first-instance ruling is not challenged in the submissions’ operative section.