French corporate law in 2026: SAS, SARL, governance and capital operations for SMEs

A living body of law at the heart of corporate life

French corporate law is the legal foundation of any structure engaged in economic activity. It sets out the rules governing the creation, operation and dissolution of private legal entities. In 2026, the combined effect of the 2019 PACTE law, the 2021 ordinance on insolvency proceedings and the law of 9 March 2023 implementing the EU Mobility Directive continues to reshape the field, requiring active monitoring.

This article offers a practical overview of the questions most frequently raised by managers of French SMEs and mid-caps, as well as by foreign investors entering the French market: entity selection, day-to-day life, capital operations, shareholders'' agreements and director liability.

SAS or SARL: choosing the right corporate form

The choice between an SAS and an SARL is among the most structural decisions when forming or transforming a French company. Each form has distinctive features that must be matched to the entrepreneurial project and its expected trajectory.

SAS: statutory freedom and investor-friendly

The simplified joint-stock company (société par actions simplifiée — SAS), governed by articles L. 227-1 et seq. of the French Commercial Code, is characterised by significant statutory freedom. Shareholders may organise governance, share transfer restrictions and the allocation of powers between corporate organs as they see fit. The SAS may issue complex securities: preference shares with differentiated financial or voting rights, share warrants (BSA), founder warrants (BSPCE) and convertible bonds. This versatility makes it the vehicle of choice for private equity transactions, startup fundraising rounds and structures expected to evolve rapidly.

The SAS president and any chief executives are affiliated to the general social security regime (assimilated employee status). Their protection is extensive but contributions are higher than in an SARL.

SARL: a protective statutory framework

The limited liability company (société à responsabilité limitée — SARL), governed by articles L. 223-1 et seq., operates within a more rigid but protective statutory framework. Decision-making procedures, share transfer conditions and the powers of corporate organs are largely set by law. This rigidity is, paradoxically, a safety net for shareholders less familiar with corporate law and for closely held family-owned structures.

A majority manager of an SARL is treated as self-employed. Social security contributions are lower than in an SAS, but coverage is less complete, particularly for daily allowances and pensions.

Decision criteria

The choice between the two forms primarily depends on:

planned capital openings (an SAS is virtually mandatory where the entry of an investment fund is contemplated in the medium term);
the composition and number of shareholders (an SAS better accommodates an evolving shareholder base);
the manager''s desired social security regime (assimilated employee vs. self-employed);
tax considerations (corporate tax by default in both cases, with optional pass-through tax under conditions).

Day-to-day corporate life: meetings and related-party agreements

Corporate housekeeping — sometimes called "secrétariat juridique" — is often neglected by SME managers. Yet failure to comply with annual formalities is a meaningful source of risk: criminal sanctions, shareholder disputes, difficulties on a future sale or fundraising round.

Annual shareholders'' meeting

SARLs (article L. 223-26 of the Commercial Code) and joint-stock companies (articles L. 225-100 and L. 227-9) must convene their shareholders within six months of fiscal year-end to approve the financial statements. Failure to convene exposes the manager to criminal fines (article L. 242-10) and allows any interested party to seek the judicial appointment of an ad hoc administrator.

Approved financial statements must be filed with the commercial court registry within one month of approval. Failure to file may trigger court injunctions under penalty.

Related-party agreements

Agreements between the company and its directors or significant shareholders, excluding ordinary course transactions on arm''s length terms, are known as "conventions réglementées". They require prior board authorisation or shareholder approval based on a special statutory auditor''s report (articles L. 225-38, L. 227-10 and L. 223-19 of the Commercial Code).

Procedural omission does not automatically void the agreement, but it exposes the director to liability where prejudice to the company is established.

Ultimate beneficial owner register

Since the ordinance of 1 August 2017, every registered French company must declare its ultimate beneficial owners (individuals directly or indirectly holding more than 25% of share capital or voting rights, or otherwise exercising equivalent control). The UBO register (RBE) is filed with the commercial court registry and updated upon any change.

Failure to declare or update the RBE is sanctioned by criminal fines up to €7,500 (€37,500 for the legal entity), as well as potential restrictions on rights.

Capital operations: increases, reductions and the "coup d''accordéon"

Capital operations structure the company''s growth, the arrival of new investors or the cleaning-up of a deteriorated financial position.

Cash capital increases

Cash capital increases follow a rigorous path: extraordinary shareholders'' resolution (or president''s decision in an SAS under prior delegation), minimum payment-up of capital (one quarter of par value in an SA or SAS, full payment in an SARL), deposit of funds with a notary, bank or the Caisse des dépôts, statutory amendment and registry filings within one month.

Where shareholders enjoy preferential subscription rights (DPS), these must be respected or expressly removed by special motivated resolution, supported by a statutory auditor''s report where applicable.

Capital reductions

Capital reductions may be loss-driven (offsetting accumulated losses) or non-loss driven (share buy-back for cancellation, distribution to shareholders). In the second case, creditors enjoy a one-month opposition right from registry filing (article L. 225-205 of the Commercial Code).

The "coup d''accordéon"

A "coup d''accordéon" combines a loss-driven capital reduction (often down to zero) immediately followed by a capital increase. This tool is used to clean up a deteriorated balance sheet while bringing in fresh investors. The Usinor case law (Cass. com., 17 May 1994, no. 91-21.364) accepts massive dilution of historic shareholders provided the operation is necessary to the company''s survival.

Equity below half of share capital

Article L. 225-248 of the Commercial Code requires the manager, where shareholders'' equity falls below half the share capital, to consult shareholders within four months of approval of the accounts. The meeting must decide either anticipated dissolution or regularisation within two years. Failure to consult engages the manager''s liability and may trigger an application for the appointment of an ad hoc administrator.

Shareholders'' agreements: an essential contractual tool

The shareholders'' agreement is a contract among some or all shareholders, organising their relations alongside the bylaws. It offers confidentiality — unlike publicly filed bylaws.

Essential clauses

The most frequent clauses cover:

governance (composition of corporate organs, qualified majority decisions, veto rights, periodic information);
share transfers (approval, pre-emption, tag-along, drag-along);
liquidity (future sale, IPO, buy-back);
deadlock resolution (buy-or-sell clauses, expert);
non-compete and non-solicitation (limited in time, geographic scope and activities, with financial counterpart where applicable).

Interplay with the bylaws

The agreement is enforceable only against its signatories (article 1199 of the Civil Code). On breach, the beneficiary may generally obtain damages but rarely specific performance of a transfer. Clauses whose effectiveness depends on enforceability against third parties (pre-emption, approval) must appear in the bylaws. Consistency between the agreement and the bylaws is essential.

Director liability

Directors face three liability tracks.

Civil liability

Directors are liable to the company, shareholders and third parties for breach of the bylaws, statutory violations or management faults (articles L. 223-22 for SARLs, L. 225-251 for SAs). Liability towards third parties requires a "detachable fault" — a fault of particular gravity, incompatible with the normal exercise of the mandate (Cass. com., 20 May 2003, Seusse, no. 99-17.092).

Criminal liability

Several offences specifically target directors: misuse of corporate assets (articles L. 242-6 and L. 241-3 of the Commercial Code), presentation of inaccurate accounts, failure to convene meetings, failure to declare cessation of payments within statutory deadlines.

Tax liability

Article L. 267 of the Tax Procedures Book allows the public accountant to engage the director''s personal liability in case of fraudulent manoeuvres or grave and repeated breaches of tax obligations rendering recovery of taxes impossible.

Risk prevention

Prevention involves rigorous documentation of decisions, traceability of preliminary analyses (risk memos, legal opinions), subscription of D&O insurance and — in case of financial distress — early recourse to prevention tools (mandat ad hoc, conciliation).

Conclusion

French corporate law combines a significant amount of routine practice (annual corporate life) with strategic dimensions (structural operations). Legal security depends as much on day-to-day rigour as on anticipation of future transactions. Recent developments — the 2023 Mobility Directive, PACTE simplifications, reforms of business distress law — confirm that the field requires permanent monitoring and a regular dialogue between managers, in-house counsel and external advisers.