Corporate restructuring in France through changes in capital shareholding

Corporate restructuring is the process of redesigning legal, ownership, operational and other aspects of a company.

It is undertaken in order to respond to the various needs of the company, such as positioning the latter to make it more profitable or to help it survive a current financial crisis.

As a result, there are many different methods to restructure a company in France: these include a total transformation in the nature of the business, such as by a merger (“fusion”), or a simple change in the management of the company with the introduction of new shareholders in the capital (“prise de participation”).

The takeover of the management of a company by a change in the shareholding can either be friendly or hostile(against the will of the other managers), although the latter can only be performed in a listed company.

Concerning friendly takeovers (“prise de participation concertée”) an outsider of a company can acquire a majority shareholding either by purchasing existing shares from the dominant shareholders or subscribing to new shares issued by the company following a capital increase (“augmentation de capital”).

It is important to note that in the event of a capital increase, to acquire a majority shareholding the buyer must ensure that the existing shareholders refuse to exercise their preferential subscription right (if any). Moreover, he must detain in theory a minimum of 51% of the shareholding to control decisions in an Ordinary Shareholders Meeting and 61% to control decisions in an Extraordinary Shareholders Meeting, although these percentages may vary according to the company articles in a French simplified limited company (“Société par actions simplifiée, SAS”). In the event that a subscription to a capital increase is insufficient to gain a majority shareholding, the buyer can also combine his subscription with the purchase of existing shares.

If the subscriber or purchaser does not become a majority shareholder, or only becomes a majority shareholder once a number of requirements have been fulfilled, there are other methods to enable him to control the company and protect his minority interest. For example, in a French simplified limited company (SAS) a veto right or plural voting right can be attached to the shares issued for the benefit of the new shareholder, allowing him to block certain decisions taken by shareholder meetings or to have a voting majority. Moreover, the articles of the company that have the power to determine how the company is managed can provide for the creation of an executive committee where the above named shareholder has a right to veto certain management decisions.

Therefore, although it appears essential to have a majority shareholding to control the company it is still possible to have a dominant position with a protected minority interest encouraging all forms of capital investments.

Finally, the restructuring may include (i) subscription of shares (up to, for example, 30%) and (ii) a call option to buy 21% within 3 to 5 years, giving the investor rights to become a majority shareholder, within a given period of time.   It is important to secure the minority-shareholding stage with a French shareholders agreement giving veto and other rights to the minority shareholder.