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August 1, 2019 - In response to the new challenges of the global economy, France recently passed the PACTE Act no. 2019-486, which aims to remove obstacles to the growth and transformation of companies.
The law has six objectives:
These six objectives have
been developed in the following three themes:
1. Liberating companies during all phases of their existence
The PACTE Act aims to liberate companies in all phases of their existence by simplifying business creation and company procedures, particularly with regard to workforce thresholds, and by facilitating business transfers.
In particular, the PACTE Act:
2. Enabling companies to be more innovative
The PACTE Act also aims to improve and diversify financing, through the following measures:
The law protects inventions
by encouraging the filing of patents, and helps to derive value from them in
particular by simplifying the filing process and introducing a procedure for
patent oppositions to combat counterfeiting. Essential national interests are
protected by tightening the controls on foreign investments in France,
strengthening the powers of the Minister of Economy where a foreign investment
that is subject to prior authorization has been made without such
authorization, and by reinforcing the “golden share” held by the State in the
capital of strategic companies, which allows sensitive assets to be controlled.
3. Promoting fairer businesses
In order to promote more responsible capitalism, the PACTE Act introduces a number of measures to promote greater social responsibility in businesses:
Successive alerts will focus on these topics in the coming weeks. The first alert is on the following theme: Management of companies based on their interests and, potentially, their "raison d’être.”
Management of companies based on their interests and, potentially, their "raison d’être.”
Before the enactment of the PACTE Act, the French Civil Code
provided only that "Every company must have a lawful purpose¹ and be incorporated in the
common interest of the shareholders." The PACTE Act enshrines a principle that has been developed
by case law by adding the following provision to article 1833 of the French
Civil Code: "The company is managed in its corporate interest...."
Further, the company must take into consideration "the social and
environmental issues related to its activity."
Lastly, the amendment of Article 1835 of the French Civil Code allows companies to specify their raison d’être in their articles of association. According to parliamentary debates, this raison d’être is “comprised of the principles that the company adopts and will allocate resources to uphold in the conduct of its business.”
These provisions came into effect the day after the Act was published in the Official Gazette of the French Republic, on May 24, 2019.
I. Management of the company in its corporate interest
Article 1833 of the French
Civil Code: "Every company must have a lawful purpose and be incorporated
in the common interest of the shareholders. The company is managed in its
corporate interest, while taking into account the social and environmental
issues related to its activity.”
1. A qualified consecration
of the notion of social interest
The PACTE Act enshrines the notion of “corporate interest”, which has been developed by case law. However, the law does not define this concept, as according to its recitals, “the notion’s application is based on its broad flexibility, which means it cannot be constrained by pre-established criteria.”
As for sanctions for failing
to comply with the new provisions of Article 1833, amendments have been made to
Articles 1844-10 of the French Civil Code and
L. 235-1 of the French Commercial Code to remove violations of the corporate interest as grounds for the company's nullity (L., Art. 169). Consequently, a management decision that breaches the company’s corporate interest cannot in any circumstances lead to the company’s charter being declared null and void.
However, the relevant
decision may be invalidated insofar as it violates a mandatory provision, and
an executive officer may be held liable on the basis of the rules traditionally
applied before the PACTE Act was adopted:
2. Taking account of social and environmental considerations
The wording of Article 1833
(2) of the French Civil Code provides that the company is managed in line with
its corporate interest "while taking into consideration the social and
environmental issues related to its activity". The legislator provides no
definition of “social and environmental issues.” Insofar as these issues are to be considered
within the context of the company’s activities, an in concreto analysis is
required, explaining why no definition was included in the legislation.
No management decision should be made without first taking into account the relevant social and environmental considerations. However, it is not a question of subordinating the decision to such considerations: the PACTE law establishes an obligation to take social and environmental issues into account, not to prioritize them. A decision with negative social and environmental consequences may thus be validly adopted if it is in the interests of the company (Legislative Editions, Permanent Dictionary Business Law, Bulletin, June 2019).
II. The ability to specify the company's raison d’être in its by-laws
Article 1835 of the French
Civil Code: "The by-laws must be established in writing. In addition to
determining the contributions made by each shareholder, they set out the form,
corporate purpose, name, registered office, share capital, and term of the
company, and the rules governing how it functions.The by-laws may specify a
raison d’être, comprised of the principles that the company adopts and will
allocate resources to uphold in the conduct of its business.”. The new Article 1835,
applicable to all companies, introduces the notion of the raison d’être of a
company. Changes specific to sociétés anonymes have also been made to require
the board of directors or management board to take the company’s raison d’être
(Art. L. 225-35 and L. 225-64 of the French Commercial Code, as amended.).
1. Definition of raison d’être
As is the case for the notion
of corporate interest, no definition of raison d’être has been provided by the
legislation. “The raison d’être (is) the expression of what is essential to
fulfil the company’s corporate purpose” (Notat-Senard Report). The raison
d’être is the statement of the values that the company intends to promote in
the achievement of its corporate purpose.
2. The legal regime applicable to the raison d’être
On the other hand, if the raison d’être is expressed through quantified objectives (for example, a commitment to devote a certain percentage of profits to precisely defined humanitarian actions), there are real legal risks if the objective is not met.
¹ Or « Objects » in English law.
² Atos: “At Atos, our mission
is to help shape the information space. With our skills and services, we
support the development of knowledge, education and research through a
multicultural approach and contribute to the development of scientific and
technological excellence. All over the world, we enable our clients and
employees, and more generally as many people as possible to live, work and
progress sustainably and in confidence in the information space.”
Carrefour: "To offer our customers quality services, products and food that are accessible to all through all distribution channels. Thanks to our employees’ expertise, a responsible and multicultural approach, our local roots and our ability to adapt to production and consumption patterns, we aim to be the leader in food transition for all."