Setting up a French SAS with co-founders: articles and key choices

Why do startups in France often choose the SAS?

The SAS is built on wide contractual freedom. Apart from a few mandatory rules, such as appointing a president, the shareholders themselves decide how the company is run, how decisions are made and how shares can be transferred.

That flexibility suits a founding team that wants to spread responsibilities across several executives, plan for a co-founder possibly leaving or prepare for investors coming in with preferred shares.

• The share capital is set freely and can be modest at the start, then increased during a fundraising round.
• Shareholders’ liability is in principle limited to what they contributed.
• Shares are easier to transfer than the shares of a SARL, subject to the clauses in the articles.
• An SAS can issue BSPCE (the French employee stock-option scheme) to employees and executives, subject to conditions, which a SARL cannot.

This treatment comes from article L311-3 of the Social Security Code, whose item 23 covers presidents and executives of SAS companies.

SAS, SARL, SASU: what are the differences for co-founders?

A SASU is simply an SAS with a single shareholder. A founder can start alone as a SASU and later bring in co-founders: the company then becomes an SAS without changing its legal form, provided the articles are updated.

What should the articles of an SAS with several shareholders cover?

The articles of association (statuts) are the company’s public document, filed with the register and available to anyone. They should therefore set the essential rules without going into confidential details between co-founders.

• ✓The company name, corporate purpose, registered office and amount of share capital.
• ✓How the shares are split between founders and the nature of the contributions (cash, assets in kind, skills and work).
• ✓The powers of the president and, where relevant, of the managing directors (directeurs généraux), as well as limits on those powers.
• ✓Rules for collective decisions: quorum, simple and qualified majorities, decisions that require unanimity.
• ✓Share transfer clauses: approval of a new shareholder, pre-emption, temporary lock-up.
• ✓Exit clauses: exclusion of a shareholder, buyback of their shares and the method for calculating the price.

President and managing director: who does what?

In many teams, the founder who handles relationships with investors and partners becomes president, while another co-founder is appointed managing director with powers to represent the company. This setup should reflect the division of co-founder roles agreed beforehand.

Articles or shareholders’ agreement: what goes where?

The articles are public and bind all shareholders, present and future. The shareholders’ agreement (pacte d’associés) is a private contract that binds only those who sign it and can contain more detailed commitments.

• In the articles: governance, majorities, approval of new shareholders, and exclusion clauses, which need to appear there to be fully effective.
• In the shareholders’ agreement: vesting, good and bad leaver clauses, non-compete, exclusivity, the detailed division of roles and pay policy.

The two documents must be consistent with each other, which is why it helps to draft them at the same time with the same adviser. Our guide to the shareholders’ agreement details the usual clauses.

The relevant provisions of the French Commercial Code are article L227-13 (shares made non-transferable for up to 10 years), article L227-14 (approval of share transfers) and article L227-16 (a shareholder can be required to sell their shares).

What are the steps to set up the SAS?

1. 1Agree among co-founders on the capital, the equity split, the roles and the decision rules.
2. 2Draft the articles, ideally with a lawyer or a chartered accountant, and prepare the shareholders’ agreement in parallel.
3. 3Deposit the cash contributions in a blocked account with a bank, a notary or the Caisse des dépôts (a French public financial institution), and obtain the deposit certificate.
4. 4Have contributions in kind valued by a contributions auditor (commissaire aux apports) where the law or the shareholders require it.
5. 5Sign the articles and appoint the president, then publish a notice of incorporation in a legal announcements publication.
6. 6File the registration application on the one-stop online portal for business formalities (guichet unique) and wait for the company registration extract.

Which mistakes should you avoid at incorporation?

• Splitting the capital exactly equally without a mechanism to break a deadlock between two co-founders.
• Copying template articles without adapting the exit, approval and majority clauses to your team.
• Granting all shares outright on day one, with no vesting in the shareholders’ agreement.
• Forgetting the rules on executive pay and how they will be decided.
• Overlooking the impact of a future fundraising round or a BSPCE plan on the cap table.

To stop such disagreements from escalating, also read our guide to preventing and resolving co-founder conflict.