5.1 Structural Change in France

In France, a partnership or company of one type can be freely converted into a partnership or company of any other type, and participate in a statutory merger or demerger with a partnership or company of the same or another type. This does not include the SEP, as that type of partnership is not a legal entity. In addition, a form of statutory demerger is available to the business person acting as an EIRL for the transfer of his EIRL assets and liabilities under a general title of succession. This was already discussed. Important to note about statutory demerger generally is that it must relate to an autonomous business activity and that it is not available to the SCP (or any other form of ‘civil’ partnership).

On the occasion of a conversion, merger or demerger, a shareholder who is not liable for the company’s debts may become a fully liable partner, or the other way around. In such cases, the liability rules for new and retiring partners will apply. A shareholder or partner cannot be forced to participate in a conversion, merger or demerger, if that were to create or expand personal liability for him.

French law provides for a creditor opposition procedure of thirty days prior to effectuation of the merger or demerger of companies. The transaction can already be effectuated before a court has decided on an opposition made. The parties to the demerger of a company may choose between either applying the creditor opposition procedure or cross liability. The latter means that the demerging company will remain liable for debts transferred; and that the acquiring company in the demerger will become liable for debts not transferred to it. For partnerships, there is neither a creditor opposition procedure nor cross liability. However, the (general) partners of a demerging partnership will remain liable for debts transferred, as if such partners had retired from the partnership. The transfer of assets and liabilities by way of merger or demerger can be invalidated on the basis of general fraudulent conveyance rules (action paulienne), if the conditions for that type of action are met.

Under section 1844-5 of the French Civil Code it is permitted that a partnership continues to exist for at least one year as a non-dissolved partnership, after the penultimate partner left the firm. This allows time for recruiting a new second partner or for conversion or merger of the partnership. Even after the oneyear period, dissolution does not automatically occur. However, from that time any interested party may request dissolution in court. If at the time of its dissolution a partnership has only one partner which is not a natural person, the partnership’s assets and liabilities will transfer to that last partner by law. These provisions do not apply to the SEP, which is not a legal entity.