More flexible rules for companies in formation

If you’re running a business, or planning to launch a new entrepreneurial venture, a recent legal development could be of great interest to you (e.g. to acquire a new real estate lease, a business, or simply to contract with a company not yet registered with the RCS, etc.).

The French Supreme Court has recently relaxed the rules governing actions taken on behalf of companies in formation, simplifying the process of setting up and expanding businesses.

Background: in company law, a company in formation is a business in the process of being set up, but which has not yet been officially incorporated as a legal entity.

Articles 1843 of the French Civil Code and L. 210-6 of the French Commercial Code provide that during this formative period, when the company does not yet have a legal personality, individuals may act on behalf of the company in formation to negotiate contracts and perform other acts on behalf of the future company.

At the time, case law imposed very strict formalities for this type of deed, which had to be concluded “by Mr. X, acting in the name or on behalf of the company in formation Y”. Deeds could therefore be annulled if the wording was not reproduced.

From now on, it is no longer necessary to specify this wording when concluding contracts or other legal acts prior to the official registration of your company. This flexibility means that acts carried out in the name of your company, even if it is not yet formally established, will no longer be automatically considered null and void.

Recent rulings by the French Supreme Court (Cour de cassation) have put an end to this severe rule, since the judge hearing a case involving a deed concluded by a company in formation now has the power to assess, on a case-by-case basis, “whether the common intention of the parties was that the deed should be concluded in the name or on behalf of the company in formation, and that this company could then, after acquiring legal personality, decide to take over the commitments entered into” (Cass. Comm, November 29, 2023, no. 22-12865, no. 22-21623 and no. 22-18295).

This decision marks a welcome step towards simplifying procedures for small and medium-sized businesses, giving them greater latitude during the crucial training period.

This is excellent news for entrepreneurs, who will be able to concentrate more on developing their business without fearing the legal consequences of formal errors.

As we await the first rulings following this reversal, we hope that it will simplify the lives and disputes of contractors who were unaware of these strict rules with sometimes serious consequences.

Practical application: previously, if your company entered into a contract with a company in formation, for example for the sale of a batch of computer equipment, and the company in formation failed to specify its status in the contract, the latter could be annulled.

As a result, not only did you lose a potential customer, but you also had to manage the return of sold equipment, a waste of valuable time and resources.

With the relaxation of case law, such complex and costly situations are now less likely to occur, offering greater legal certainty to VSEs/SMEs in their commercial transactions.

12 January 202417 April 2025

How to sell a business?

Many entrepreneurs and business owners own a successful business, but want to sell it to embark on a new entrepreneurial adventure, or change direction. Here’s how.

Valuation of goodwill

The valuation of a business is a crucial step in the sale process. It’s what enables you to sell as quickly as possible, and at the best possible price.

There are several factors to take into account when valuing your business…
Putting bids on sale and receiving offers

Advertise the sale of the business using the appropriate platforms (internet, specialized newspapers, specialized agencies, etc.) and sort through the offers from potential buyers. These offers can include the proposed price, terms of payment, etc.
Negotiation

If your lawyer hasn’t helped you identify the components of the business for sale, it’s time to approach him or her to negotiate the terms of sale (price, payment terms, deadlines, etc.) with potential buyers.
Signature of a promise to sell

The promesse de vente, also known as the compromis de vente, is a legal document that commits the seller and buyer to the sale of a business or other asset (real estate, shares, etc.).

Signature of the deed of sale

Once all the checks have been successfully completed, and the suspensive conditions lifted, the final deed of sale is signed before a notary. This officially transfers ownership of the business to the buyer.

On the day of signing, the buyer transfers the funds to the secure account of the lawyer acting as escrow (usually the seller’s lawyer). These funds will be returned to you once the tax solidarity period has expired.
Formalities following the sale

Your lawyers will take care of all the commercial and tax formalities following the sale. They will also follow up any objections from creditors.

We are available to support you at every stage of your business transfer, and are particularly experienced in rapid transfer exercises between parties with short, imperative deadlines.

18 December 202317 April 2025

Temporary financial difficulties: have you considered bankruptcy proceedings?

What are collective proceedings?

Although this term may seem obscure, it refers to a set of legal processes designed to support companies in difficulty.

In France, there are three types of collective proceedings:

Safeguard: for companies facing challenges but still able to pay their creditors;
Receivership: for those who can no longer honour their previous debts;
Judicial liquidation: for situations with no way out.

We’ll be focusing on the first two options, which are often misunderstood yet crucial.

A poorly perceived but effective tool

Despite their bad reputation, insolvency proceedings are a particularly useful tool for company directors who are experiencing temporary difficulties but wish to preserve their business. They offer a lifeline for managers facing temporary turbulence. Early intervention is key: the sooner the procedure is initiated, the better the chances of recovery.

How it works

As soon as the decision to open insolvency proceedings is pronounced, all legal actions by creditors are suspended. In addition, it is forbidden to settle debts incurred prior to the opening of insolvency proceedings.

The second effect of a decision to open insolvency proceedings is the provision of support. If requested at the outset of insolvency proceedings, the company can ask for the appointment of an administrator to help it make the right management decisions for the good of the business. In addition, throughout the duration of the proceedings, the judge can help the company, for example by ordering the termination of contracts deemed to be detrimental to the business (e.g. expensive and unnecessary franchise or lease management contracts, which the customer is not free to terminate).

Finally, the last effect of collective proceedings is the adoption of a safeguard or recovery plan which, once the business has stabilized, spreads debt repayment by the debtor over several months or years.

How can I benefit from collective proceedings?

If you are experiencing difficulties and would like to find out more about insolvency proceedings, or even apply for the opening of insolvency proceedings, DESRUMAUX AVOCATS can support you from the application stage and throughout the proceedings.

This will enable you to benefit from all the advantages of this procedure and ensure the long-term future of your company.

14 December 202317 April 2025

Non-competition clause in commercial contracts: crucial attention to the proportionality criterion

Non-competition clauses are not exclusive to employment contracts; they also feature in many commercial contracts to limit a business partner’s scope of activity at the end of his or her assignment.

To be valid, such clauses must protect the legitimate interests of the beneficiary, while at the same time being sufficiently limited in time and space, without unduly restricting the freedom of exercise of the debtor of the obligation.

In practice, these clauses often prohibit us from operating in a given geographical area or with specific customers for a period of one year.

The Versailles Court of Appeal (CA Versailles, September 14, 2023, no. 21/05171) considered the case of a service provider hired for a three-month contract, renewed over two years, with a company that had assigned him to one of its customers. The Court ruled that the one-year duration of the clause was disproportionate to the initial term of the contract.

This decision highlights the danger of standard clauses, which are not, by definition, adapted to the specific situation of each contract, and which can backfire on a contractor in the event of a dispute. As each situation is unique, an effective non-competition clause needs to be tailored to each individual case.

At DESRUMAUX AVOCATS, we understand the importance of these nuances. We are at your side to draw up customized commercial and employment contracts, offering you peace of mind and adequate protection. Your business is unique, and so should your contracts.

9 November 202317 April 2025

Where and how should tasks be divided between joint managers of an SARL?

Prevention rather than cure: are you ready to define who does what to avoid conflicts?

In many SARLs, several people share the management of the company, without having defined the division of tasks in writing.

In many SARLs, there is a main managing partner, and one or more co-managing partners whose role is limited to supporting the main managing partner in specific areas, such as finance or accounting. Sometimes, in principle, all the partners are managing partners, but only one is really active.

The French Supreme Court (Cour de Cassation) has recently considered such a case. Two partners dismissed one of the managing partners on the grounds that he was not carrying out the accounting tasks required to manage the company, and that the division of tasks between the three managing partners required him to do so.

The managing director contested his dismissal, arguing that not only was he not the only person authorized to carry out the accounting tasks, but that the division of tasks alleged by his co-managers was not recorded anywhere.

This is the reasoning adopted by the Cour de cassation: in the case of joint management, if the articles of association and extra-statutory deeds are silent, one of the managers cannot be blamed for failing to perform an obligation incumbent on the company, when there was no legal or material obstacle preventing the other managers from acting.

In this situation, the manager dismissed without cause may be entitled to damages paid by the Company.

If there is more than one managing director, we strongly recommend that you check that the distribution of obligations is set out in the articles of association or in an extra-statutory deed, so that everyone knows the exact extent of their responsibilities.

We can help you review your articles of association or partnership agreement to personalize them and adapt them to your operational organization.

A word of advice: A successful business is built on solid foundations. Clarify the roles of each co-manager so that you can move forward serenely in managing your business with your partner(s).

12 October 202317 April 2025

Breaking a contract before its term: resolutory clause vs. unilateral rescission

Business contracts are often lengthy, and it is not uncommon for one party to wish to terminate the contract early.

In such a case, the party wishing to break the contract usually refers to the clauses provided for.

In most cases, the contract provides for :

a duration clause, which stipulates that the contract is for a fixed term and is tacitly renewable, unless terminated before the end of the term;
a so-called “resolutory” clause, which lists a series of situations in which a party may terminate the contract before its term.

The resolutory clause, which lists an exhaustive number of situations in which it can be invoked, seems to be the only solution for breaking the contract.

In this situation, the party experiencing a situation not covered by the resolutory clause may feel that he has no solution at his disposal. But this is not the case.

Article 1224 of the French Civil Code provides that a contract may be unilaterally terminated by any party who has suffered a “sufficiently serious breach”.

The order of the termination options set out in this article left some doubt as to whether a contract could be unilaterally terminated when a resolutory clause existed.

New legal twist: The French Supreme Court (Cour de cassation) ruled on June 8, 2023 that the existence of a clause in the contract does not prevent the parties from having recourse to the mechanism of unilateral rescission.

Please note: unilateral termination is subject to certain conditions, as non-performance must be sufficiently serious.

It may therefore be necessary to send a formal notice to your co-contractor in advance, to demand that he or she respect his or her commitments.

DESRUMAUX AVOCATS can help you negotiate a contract or break one.

Staying well-informed and well advised are essential if you are to evolve serenely in the complex world of business contracts.

10 October 202317 April 2025

HOW TO CONCLUDE A CONTRACT FOR A COMPANY IN FORMATION

You’re a new entrepreneur, you’ve started or are about to start the formalities for setting up your company, and don’t intend to wait for your KBIS to be issued before starting your business. Your first acts will often be to sign a commercial lease, transfer a business or create a website. How do you sign a contract for a company that doesn’t yet exist?

1. Legal personality, a prerequisite for signing contracts

In order to conclude an act, it is mandatory to have the “capacity” to conclude an act. This capacity derives, among other things, from the fact of having legal personality. Two types of persons have legal personality: natural persons and legal entities.

The French Commercial Code contains an article which states that “commercial companies have legal personality from the date of their registration in the Trade and Companies Register”.

This means that your new company will only be able to enter into contracts once it has been registered with the RCS.

So how do you go about concluding deeds for your professional activity while you’re waiting for your company to be registered with the RCS?

2. The mechanism for taking over deeds concluded on behalf of a company in formation

If you want to sign a deed for your professional activity before your company is registered, you must sign in your own name and add the words “in the name and on behalf of the company”.

The more precise, the better. If you already know them, you can indicate the registered office, the amount of capital, etc.

Secondly, Article 1843 of the French Civil Code provides that “a company duly registered may take over the commitments entered into, which are then deemed to have been entered into by the company from the outset”.

These deeds will therefore be appended to the Articles of Association, and the signing of these by the partners will entail the assumption of these commitments by the company once it has been registered.

However, Article 1843 also stipulates that “persons who have acted on behalf of a company in formation before registration are liable for the obligations arising from the acts thus performed, with joint and several liability if the company is a commercial one, without joint and several liability in other cases”. If, for example, the commercial company fails to pay its rent under the commercial lease, the person who signed the deed may be liable.

3. Poorly drafted contracts: beware of penalties

What are the consequences of not complying with this precise formalism?

Without such formalities, the deed will be deemed to have been concluded by the company itself, even though it does not yet have the legal personality to enter into contracts.

The deed will therefore be absolutely null and void, with two consequences:

This nullity may be invoked by any interested party, in particular by a co-contractor wishing to withdraw abruptly.
The deed will not be subject to confirmation or ratification, and regular execution of the deed will not prevent this.

Many companies in the process of forming do without legal advice, or have their deeds drawn up by their real estate agent or chartered accountant. Legal errors in deeds are often revealed months or years later, and can become a real legal problem (cancellation of the lease, personal liability of the signatory, etc.). We strongly advise you to seek the assistance of a legal professional.

Please do not hesitate to contact our law firm DESRUMAUX AVOCATS so that we can help you in your efforts.

5 September 202317 April 2025

Consulting and Litigation: Prevent or Cure?

Imagine driving a car without checking the condition of your brakes. You drive along carefree until you have to stop suddenly – but the brakes don’t respond. An accident is inevitable.

The same is true in the business world.

A law firm can help you in two ways:

By advising you to avoid legal pitfalls, rather like a good mechanic checking your brakes. Legal counsel can help you understand complex regulations, ensure your company’s compliance, protect your rights, manage risks, and draft and review contracts. It can also give you a head start in negotiations, and help you avoid mistakes that could cost your business dearly in the future.
By defending you when a dispute arises, similar to car insurance after an accident.

The services are complementary, and our firm offers both.

Indeed, a company’s first contact with a lawyer is often through litigation. The financial outlay involved in seeking legal advice often forces the entrepreneur to postpone this expense as long as possible.

However, in most cases, with a prior investment in consultancy services, litigation could have been avoided.

In such cases, the company is obliged to invest in resolving the dispute, and then to entrust us with a consultancy mission to correct the contract or practice that gave rise to the dispute, so that it does not recur with another business partner or employee. In this case, the cost is doubled for the company, which also runs the risk of not emerging victorious from the dispute.

Litigation cannot always be avoided, even with early legal advice, but its chances of occurrence can be significantly reduced. If it does occur, litigation can be made far less painful by the reassurance of having acted in accordance with the law, and a far greater chance of victory.

Our legal advice is therefore as follows: it is better to invest in advisory services from the outset, so as to establish your company on a solid legal footing, than to endure litigation that could jeopardize the development of your business.

Some examples of avoidable litigation:

Business law :
- Conflictual termination of a contract whose obligations and conditions of termination were poorly negotiated beforehand
- Non-payment for services whose price or performance has not been clearly agreed in writing (quotation, contract, etc.).
Employment law :
- Non-compliance with a conventional termination procedure: failure to approve a conventional termination, failure to meet deadlines. The risk: invalidation of the contractual termination as a dismissal without real and serious cause.
- Implementation of a fixed-day contract for an employee under the Syntec agreement, even though he did not have sufficient autonomy and was not a manager with a minimum 3.3 grade (before the reform).

31 August 202317 April 2025

How to negotiate a commercial contract

You have a new business partner and want to frame your relationship with a contract. Your new partner has made you an offer but you don’t know what to think.

Here’s a summary of what you need to pay particular attention to.

1. Contract preamble

Contracts often contain a preamble that describes the context in which the parties came together.
If the contract is unbalanced, this can often be seen in the preamble, in the way the objectives and roles of the parties are described. If the preamble already doesn’t reflect your vision of the relationship, pay particular attention to what follows.

2. Contract duration and termination options

Many contracts proposed by one of the parties provide several possibilities for one of the parties to terminate the contract early (in the event of misconduct, late payment, change
of economic situation, etc.) without giving the other party the same possibility.

The contract is then very unbalanced, with the other party having to rely on the legal provisions of the Civil Code, which are sometimes less free, to terminate if it so wishes.

3. The parties’ liability clause

Contracts most often contain a clause on the liability of the parties, which may exonerate one party from all responsibility in the event of non-performance, or on the contrary place a heavy burden on the party who performs imperfectly.
The middle ground is most often found in the liability of the parties for direct and foreseeable damage resulting from their non-performance, and within the limit of the contractual amount. In this way, the parties can be made responsible without incurring
costs that are totally disproportionate to the purpose of the contract.

4. Special clauses

Depending on your situation, certain clauses may be particularly important to you. These may include, for example, the following clauses:

confidentiality clause,
intellectual property clause,
non-solicitation clause,
clauses stipulating a timetable or minimum number of orders, etc.

There is no standard wording for these clauses, which must perfectly reflect your wishes. However, a lawyer can help you to formulate your wishes clearly, so that there are no misunderstandings when the contract is applied.

5. Sanctions

If an obligation is not accompanied by a sanction, then nothing obliges your co-contractor to respect it.
It is therefore important to check that each obligation is accompanied by a sanction. It’s by anticipating any malfunctions in your contractual relationship that you can ensure that your relationship is secure.

28 June 202317 April 2025

Fonds de commerce or droit au bail: understanding the difference

In the complex and dynamic world of commerce, there are many legal terms and concepts that can seem interchangeable or confusing. Two of these often misunderstood notions are “fonds de commerce” and “droit au bail”. Understanding their essential differences is crucial to avoiding costly mistakes and legal disputes.

Leasehold rights are an element of goodwill

Goodwill encompasses all the essential elements of a business, from tangible assets such as equipment to intangible elements such as clientele and trade names.

The right to a lease is the right to occupy and enjoy commercial premises for a specified period, in accordance with the terms and conditions laid down in the commercial lease contract. It guarantees the stability and continuity of the business, as the tenant benefits from a certain protection against eviction, and can renew the lease under certain conditions laid down by current legislation.

Thus, a business includes the right to a lease, which is an intangible element. In the event of a sale of goodwill, the leasehold right is therefore usually one of the elements transferred.

Leasehold rights can be an independent element of goodwill

It is possible to transfer the leasehold rights without transferring the other elements of the business.

The transfer of leasehold rights alone can occur in a number of different situations. For example, a tenant may decide to assign his or her leasehold rights to another merchant, while retaining the other assets and intangible elements of his or her business. In this case, the transferee acquires the right to occupy and use the business premises, but not necessarily the other elements of the goodwill, such as the customer base, inventory, etc.

The transfer of leasehold rights, like the transfer of business assets, may be subject to restrictions or specific conditions set out in the initial lease agreement. Certain clauses may require the prior approval of the lessor, or require the assignee to meet certain conditions, such as financial capacity or experience in the relevant field of activity.

The risk of confusion

While in theory the distinction between leasehold rights and goodwill seems clear, in practice it’s not uncommon to be confused as to which is which. This is particularly the case when a business is sold without including many elements, and with a high-value right to lease.

Moreover, the parties may prefer one operation to the other.

For example, a purchaser of a business who wishes to take over the name, the lease and the clientele, without committing himself to current contracts, and to take over the employees, could request a transfer of leasehold rights instead of a transfer of business. Similarly, a seller in a hurry to avoid the cumbersome formalities of a business transfer may wish to disguise such a transfer as a business transfer.

Conversely, a seller who has a difficult relationship with the lessor may prefer a business transfer to which the lessor does not always have the right to object, rather than a transfer of leasehold rights which the lessor is more often than not entitled to refuse.

Bypassing the rules governing the transfer of these elements entails legal risks relating to employment law, commercial lease law, creditor reimbursement and taxation. Before committing to a transfer, it’s wise to be certain of its purpose. You may wish to consult a lawyer.