Classification of French legal companies

Before addressing the substantive aspects of corporate law and business organizations in France, the foreign investor should become acquainted with the classification of French business entities into sociétés commerciales and sociétés civiles, hereinafter respectively referred to as “commercial companies” and “civil companies.”

There are two generic types of companies in France: commercial companies and civil companies. The distinction between the two types of companies is important to make when considering, inter alia, the liability of the shareholders for the debts of the company.

All companies, no matter what their purpose or activities, are deemed commercial if they have the juridical form of a société anonyme, société à responsabilité limitée, société en nom collectif, société en commandite simple, société par actions simplifiée or société en commandite par actions. All other companies are normally civil.

While commercial companies may carry out any activity, be it civil or commercial, a civil company may not have as its purpose, nor may it engage in, commercial activities. An exhaustive recital of civil and commercial activities has not been promulgated by statute; the French Commercial Code does, however, characterize the following activities as commercial:

—      the purchase of personal property for resale, either in kind, or after being worked and used,
—      the purchase of real property for resale, unless the purchaser has acted with a view to constructing one or more buildings and to selling them either as a unit or individually,
—      the operations of intermediaries for the purchase, subscription to or sale of real property, businesses or shares of stock,
—      the rental of personal property,
—      the activities of enterprises for manufacture, commission or carriage by land or by water,
—      the activities of enterprises of supply or agency commission houses, establishments for sales at auction or public spectacles,
—      the operations relating to exchange, banking and brokerage,
—      the operations of public banks,
—      the operations between Traders, 11  merchants and bankers,
—      the transfer, as among persons, of bills of exchange,
—      the operations of a construction enterprise, as well as the purchase, sale and resale of vessels for internal and external navigation,
—      maritime shipping,
—      the purchase and sale of gear, rigging and stores,
—      those activities, including insurance, relating to maritime commerce,
—      entering into agreements for salaries and the hiring of crews,
—      the hiring of crews for service on merchant ships, (, arts. L.110-1, L.110-2).

 Where a civil company is regularly engaged in commercial activities, its shareholders may be held personally liable to third parties for such activities because, inasmuch as the civil company may not have as its corporate purpose a commercial activity, third parties may claim that such commercial activity was not the act of the civil company, but instead was carried out by a de facto  commercial company extant among the shareholders of the civil company and that such shareholders may thus be held personally liable for obligations of the de facto commercial company.

It is therefore of utmost importance for the foreign investor to select the appropriate generic form of company he wishes to utilize, balancing the distinguishing features of each form of company.