La vie d'une société :From Creation to Dissolution
A company, as a legal entity, represents an entity distinct from its partners, endowed with its own assets, rights, and duties. Its creation, operation, and dissolution are governed by a precise legal framework, the ignorance of which can lead to serious consequences.
Summary
- Creation of a company: A company, a legal entity, is created by signing the constitutive statutes. To legally exist, the company must be made public via a legal announcement and registration at the Commercial Court Registry, which will issue the Kbis, the company's identity card.
- Operation of a company: The company has its own assets, rights, and duties. It is managed by a manager who acts on its behalf and binds it by his signature. The company has a corporate purpose defined in the statutes, limiting the scope of its activities. It must keep rigorous accounting, distinguish professional expenses from private expenses, and organize at least one annual general meeting of partners.
- Statutory amendments: Any amendment to the statutes, such as a donation of shares or the death of a partner, must be formalized by minutes of an extraordinary general meeting, registered and filed at the Commercial Court Registry. A legal announcement may also be necessary, which entails significant costs.
- Dissolution and liquidation: The dissolution of the company, decided in an extraordinary general meeting, marks the cessation of activity. A liquidator is appointed to manage the company's assets and receivables. A final liquidation-sharing deed is then concluded among the partners, before the company is removed from the Trade and Companies Register.
- Risks of non-compliance: A company without regular social life (bank accounts, accounting, general meetings) risks being considered fictitious and null, leading to tax consequences and personal liability of the manager. The tax administration may also adjust abnormal management acts, i.e., expenses not made in the interest of the business. The creation of a company mainly for tax purposes may be qualified as abuse of rights and sanctioned.
It is important to comply with legal obligations to ensure the validity and sustainability of a company.
Context
A company is a legal entity. To be constituted, a company needs one or more persons who will bring it to life. To exist, this company must be made public. It will have its own assets, rights, and duties.
The birth of the company
The constitution of the company
A company is constituted by the conclusion of a legal act, the signing of the constitutive statutes. Complementary acts may be concluded between the partners: minutes of the constitutive general meeting, internal regulations, agreement for the provision of owned or leased assets, commitment to retain shares...
In the statutes, acts performed by a natural person before its constitution may be taken up as having been done in its name and on its behalf and binding it.
Legal publicity
For the company to have its own legal personality, it must be made public. Legal publicity makes it enforceable against third parties, visible, tangible in a way. The constitutive statutes can be registered with the tax registration service. If the company becomes owner of real estate, the notarized deed must be published in the real estate registry. A legal announcement must be published in a locally authorized newspaper, with the essential elements of the company. The constitutive statutes must be filed via the One-Stop Shop https://www.inpi.fr/ with the Commercial Court Registry. It is on the day of registration at the registry, on the Trade and Companies Register (RCS), that the company's legal personality will be recognized. The Kbis then issued will become the company's identity card. At the same time, the One-Stop Shop will have registered the company with INSEE to obtain one or more SIRET numbers, establishments, with NAF activity codes according to its corporate purpose.
Transfer of ownership
The company thus constituted and published then becomes owner of the assets contributed as share capital or sold via partners' current accounts. The manager(s) must therefore open a bank account in its name to deposit cash contributions. For equipment, vehicle transfer forms must be completed to change registration certificates. If loans are transferred with the financed assets to the company, delegation of these loans must be made with the bank and the debit account changed. With the Kbis, the company manager can prove he has the right to sign on behalf of the company and bind it. All suppliers and customers will request a copy of the Kbis, likely accompanied by a company bank details (RIB). Invoices must now be issued in the company's name with its own intra-community VAT number. The manager must be able to prove his status to act on behalf of the company. For example, he must complete a small form with the post office to have the right to receive registered mail with acknowledgment of receipt in the company's name. The company must also insure its own assets, notably the internal use of operating buildings.
Keeping the company alive
The manager and operating partners keep the company alive
On a daily basis, it is the manager who acts on behalf and for the account of the company. By his signature, he binds the company.
In the statutes or in a shareholders' agreement, the manager's powers may have been limited: for certain important acts, the manager must obtain prior authorization from a majority of the other partners, as agreed between them. However, this limitation of the manager's powers only applies between partners and does not affect third parties.
The company has a corporate purpose defined in the statutes. The scope of its activities must be defined fairly precisely. The manager is required to perform acts within the corporate purpose and in the company's interest.
The operating partners, for their part, work on behalf and for the account of the company. They are entitled in return to compensation for this work, conventionally fixed, a remuneration that will be deducted before sharing the result among all partners.
The company's accounts must be regularly maintained
The company must have its own bank account and its own accounting. Yes, keeping accounting is mandatory, even for a GFA or an SCI. The Commercial Code requires keeping a journal, a general ledger, and an inventory book. Depending on the tax regime, accounting and tax obligations will be more or less detailed, and the intervention of an accountant will depend on this.
Within the company's accounting, it will be important to clearly distinguish professional expenses from private expenses and not to mix too much private payments on behalf of the company, and conversely company payments for private expenses. All these flows must be tracked within partners' current accounts. Cost-sharing of expenses can be decided by partners, for example for water or electricity consumption between the dwelling and operating buildings.
A rigorous monitoring of the company's accounts and general meetings is necessary to know each partner's rights in the company, notably tracking the amount of their current accounts.
Depending on its tax regime, the company will have a tax declaration to file, at least once per calendar year. If the company is not subject to corporate tax, its partners must transparently declare their share of the company's result on their income tax returns.
A partners' meeting at least once a year
For a company to live, it must be able to justify regular meetings of its partners, at least once a year for approval of the accounts closure in a general meeting, called an ordinary general meeting. The manager must present the company's accounting to the partners, at least the income statement and the balance sheet. The partners must decide on the allocation of the result. In principle, the partners' discussion should also cover projects for the coming years.
The manager must report on his management during this annual general meeting and submit it for approval by the other partners. This management report can be oral. Partners can ask questions to the manager and request to consult all legal, accounting, and tax documents of the company, and take a copy. Partners are thus the first to verify that the manager's acts have been performed within the corporate purpose and in the company's interest. In case of tax audit, the tax authorities may also check for "abnormal management acts."
The manager is also required to present at the annual general meeting a report on agreements made directly or through an intermediary between the company and one of its managers, outside ordinary operations concluded under normal conditions. This is the report on regulated agreements (see below). He must also mention agreements made between the company and a company in which the management is unlimitedly liable partner or manager.
Constructions / plantations
Is the company owner of real estate? At creation, partners may have contributed real estate (land, buildings) by notarized deed to the company. Subsequently, the company may also purchase real estate.
But most often, the operating company is only a tenant of these properties or beneficiary of a provision agreement (art L. 411-2 Rural Code on property of an operating partner or art L. 411-39 Rural Code on property leased by an operating partner). To make modifications to the leased property, the company must request the owner's consent. The agreement must be formalized in writing. If the company plants or builds on leased or provided land, the landowner will become owner of these improvements at the end of the contract. This is the principle of accession in ownership defined by the Civil Code. At the end of the contract or at the company's dissolution, the landowner (partner or not) must compensate the company for improvements to the leased property (art. L. 411-69 Rural Code and following).
Is the legal entity fictitious?
Courts have already considered companies fictitious that had no bank account and/or no accounting and/or no register of minutes of partners' general meetings. When the company is qualified as fictitious, the consequences are multiple, notably tax-related. (see below "what risks in case of non-compliance")
For agricultural operating companies, to avoid the risk of qualification of abuse of rights and fictitiousness of the corporate structure, the company must have at least a mailbox at its registered office, a fuel tank, operating equipment. For safety, a small reassuring autonomy in ownership by the company of at least one equipped rolling equipment is sought.
Legal publicity of statutory amendments
Statutory amendments must be subject to a partners' meeting decision, called an extraordinary general meeting. The minutes of this decision must be registered with the tax registration service, then filed at the Commercial Court Registry via the One-Stop Shop. The updated statutes by the manager must also be filed at the registry.
Even notarized deeds of donation of shares or succession transfer (following the death of a partner or the common spouse in the property of a partner) must follow this path to be enforceable against third parties and accessible to any interested party.
If the information appearing on the Kbis is modified, a legal announcement must also be published and a new Kbis will be issued by the registry.
Required registers
Besides accounting documents, the company must keep at its registered office a register of general meetings. This register must be paginated and initialed (by the mayor or the clerk). Minutes of all general meetings will be inserted there.
According to its statutory rules, the company must also keep a share register to track all movements of shares and make share transfers or donations enforceable against all partners.
Depending on what has been agreed in the company's internal regulations, partners may keep a notebook of weekly partners' meetings.
The death of the company: dissolution and liquidation
Partners may decide to dissolve the company in an extraordinary general meeting. Dissolution marks the cessation of the company's activity. The company is said to be in liquidation. A liquidator is appointed to proceed with the sale of assets and collection of receivables. The liquidator can be the former manager.
When the company no longer has stock, it must file its last tax return for cessation of activity.
Then the partners will conclude the final deed, the company's liquidation-sharing deed. Each partner's rights will be verified and balanced in the sharing of the company's last assets. Again, for these acts to be enforceable against third parties, they must be subject to legal publicity. The company will then be removed from the Trade and Companies Register and will no longer have legal personality.
Being compliant
| Yes | No | Not applicable | |
|---|---|---|---|
| Each partner has a copy of the company's statutes and its Kbis | |||
| I have a register of minutes of general meetings kept up to date | |||
| Every year, we hold a real partners' meeting to review the company's operation | |||
| The manager properly writes the report on regulated agreements and the annex to the OGM minutes | |||
| The company has its own bank account | |||
| The company has accounting | |||
| The registration certificates of the company's vehicles are in its name | |||
| Constructions made by the company have been authorized in writing by the landowner | |||
| On infogreffe.fr the list of "filed acts" includes all acts made to modify the company since its creation |
In case of non-compliance
Fictitiousness and nullity of the company
The risk is to consider a company having no independent existence, notably no regular social life, as fictitious. If the company is fictitious, the constitutive act may be considered null, and the company will lose its legal personality.
- Consequently, its assets belong undivided to the partners.
- The manager will be personally liable for acts he performed on behalf of the company.
- The nullity of the company entails the cancellation of limited liability linked to the corporate form; members become jointly and severally liable for debts.
- Specific tax rules applicable to companies will no longer apply (e.g., corporate tax, exemption of professional capital gains...), and a tax adjustment may be feared.
- Likewise, the social regime chosen by the manager will no longer apply and a social adjustment may be made.
NB: Conversely, the mere proof of absence of social life of a regularly constituted, identified, and registered company, whose statutory purpose has been fulfilled, is not sufficient to prove the company's fictitiousness (C. Cass. Com., November 15, 2017, no. 16-20193). It is only one clue among others.
Abnormal management act and tax adjustment
Tax case law has set a limit to entrepreneurial freedom: the abnormal management act. There is an abnormal management act when the company includes expenses in its charges that are not in the company's interest, the act having as sole objective to increase expenses to reduce taxable profit.
The abnormal management act may result from an expense or income that was not made although it should have been.
Abuse of rights and tax adjustment
For example, in case of creation of an SCI whose contributor reserves the enjoyment, the risk is qualification of abuse of rights. The corporate structure is considered fictitious, the sole purpose of holding the dwelling by the legal entity being tax avoidance. The tax administration will recalculate taxes due without deductions (e.g., CE February 8, 2019, no. 407641) and apply penalties.
Regarding abuse of rights, acts passed or performed from January 1, 2020, may be disregarded by the administration on grounds of fraud against the law, due to their primarily fiscal purpose (law 2018-1317 of 28-12-2018). Until then, abuse of rights was feared only if the sole purpose of an operation was exclusively fiscal. Now it is called "mini-abuse of rights."
Tax adjustment for abuse of rights may trigger criminal proceedings for tax fraud.
Regarding corporate tax, a general anti-abuse clause allows the administration to disregard arrangements made in fraud of the law for primarily fiscal purposes.
References
La version initiale de cet article a été rédigée par Aurélie Brunet.
Focus on company nullity:
- Civil Code: articles 1832 et seq. and articles 1844-10 et seq.
- Commercial Code: articles L 235-1 et seq. and articles L 621-2 et seq.
- Art. 1844-15 of the Civil Code: "When the nullity of the company is pronounced, it terminates, without retroactivity, the execution of the contract. Regarding the legal entity that may have come into existence, it produces the effects of a dissolution pronounced by justice."
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