Choosing a legal structure: SAS vs. SARL

One of the first decisions is how to structure the French target or acquisition vehicle. Foreign investors typically prefer the Société par Actions Simplifiée (SAS) due to its flexibility. An SAS can be formed with a single shareholder and minimal capital (as low as €1), and its governance can be freely tailored in the bylaws.

Importantly, share transfers in an SAS are generally unrestricted by law (unless the articles impose limits), facilitating future exit or restructuring. In contrast, a Société à Responsabilité Limitée (SARL), while also a limited liability company, is often used for smaller businesses. SARL shares (called parts sociales) face statutory transfer restrictions (pre-emptive rights for existing shareholders) and its managers must be individuals, not legal entities[5]. For foreign buyers seeking flexibility and easier transfers, the SAS is usually preferable.

Additionally, using an SAS has tax advantages on exit: the stamp duty on transferring SAS shares is only 0.1%, compared to 3% for SARL shares (above an allowance). In practice, it is common to convert a SARL into an SAS prior to sale to benefit from the lower share transfer tax.

Tax considerations and SPV structure

Cross-border M&A deals often involve setting up a French special purpose vehicle (SPV, “Newco”) to acquire the target. Using a French acquisition vehicle can allow the buyer to finance the deal with debt and consolidate tax results with the target (fiscal unity) to deduct interest costs.

France permits leveraged buyout structures where Newco borrows funds to purchase the target and then forms a tax group with the target to offset the target’s profits with Newco’s interest expenses. This interest deductibility (subject to anti-abuse rules and limits on interest stripping) can significantly reduce taxable profits post-acquisition.

Moreover, choosing the right form for the transaction affects transfer tax and registration duties:

• Share acquisitions generally attract much lower registration duties than asset acquisitions.
• Buying shares of an SA or SAS incurs only 0.1% duty.
• Acquiring shares of a real estate–rich company incurs 5% duty.
• Other company shares (like SARL) typically incur 3% duty (above an allowance).
• Asset purchases (business transfers) generally have higher transfer taxes and VAT implications.

For this reason, many foreign buyers opt for share deals when feasible. Overall, early tax planning with advisors is recommended – often a detailed legal and tax structuring memo is prepared to map out the optimal acquisition structure and financing, and to avoid double taxation (for example by considering withholding taxes under applicable treaties).

Delcade law firm in France (operating the FRELA service) is a full service law firm with tax and corporate attorneys who can assist with this type of structuring.

Due diligence for foreign buyers

Thorough legal, tax and financial due diligence is a must before signing any binding purchase agreement. Beyond the usual review of a target’s financials, contracts, employment liabilities, and litigation, foreign buyers should pay special attention to French-specific matters.

Corporate and real estate checks

• Confirm the target’s basic corporate compliance by checking its K-bis (French company registry extract) for up-to-date corporate information and any liens or pledges on shares.
• Verify that those signing on behalf of the French company have proper corporate authority.
• If the target owns real estate, examine property titles at the French land registry to ensure clear ownership and identify any encumbrances.

Key contracts and labor matters

• Review key contracts for change-of-control clauses, as French counterparties sometimes include provisions terminating contracts if the company is acquired.
• Labor matters are crucial: France’s labor laws mandate that if the target has a Comité Social et Économique (CSE / works council), that body must be informed and consulted prior to closing a share or asset deal.
• Ensure all social security contributions are paid and there are no pending disputes with employees.

Regulatory, environmental and licensing aspects

• Check environmental and regulatory compliance, especially if the business requires licenses or permits.
• Identify any missing authorizations that could jeopardize operations or delay closing.

Engaging French legal and accounting experts is highly advisable, as local nuances (from checking zoning permits to understanding tax audit exposure) can be easily missed without local expertise. At FRELA, there are specialized attorneys experienced in these cross-border issues.

Regulatory obligations for non-resident investors

Foreign buyers in France must be mindful of certain regulatory approvals and filings. Notably, France operates a foreign investment screening regime for strategic sectors.

Foreign direct investment (FDI) screening

If the target operates in sensitive industries (defense, security, critical technology, energy, etc.), acquiring control or even significant stakes may require prior authorization from the Ministry of Economy under Article L.151-3 of the Monetary and Financial Code. In particular:

• For non-EU investors, acquiring 10% or more of voting rights can trigger screening.
• For EU investors, acquiring 25% or more of voting rights can trigger screening.

Attempting a closing without this approval can void the transaction and potentially incur penalties. Early identification of whether a deal triggers screening is therefore essential.

Statistical and merger control filings

• Large investments must be reported for statistical purposes: any foreign direct investment over €15 million must be declared to the Banque de France within 20 days of completion. This is a compliance filing (for balance-of-payments tracking) rather than an approval, but it remains an obligation for non-resident investors.
• Antitrust (merger control) clearance should also be considered if the companies involved have substantial revenues in France or globally. French Competition Authority approval (and possibly EU Commission approval) is required before closing deals exceeding certain turnover thresholds.

In sum, foreign buyers should incorporate these regulatory steps into their deal timeline. With proper structuring, rigorous due diligence, and observance of legal formalities, cross-border M&A in France can be executed efficiently – often with the guidance of an experienced M&A lawyer in France to navigate local requirements.

Disclaimer

This article is provided for general information purposes only. Tax and legal rules may change, and the application of those rules will depend on your specific circumstances. You should not rely on this article as legal or tax advice.

Before making any decision, please contact a qualified French legal and tax advisor to confirm the latest applicable provisions and obtain tailored advice.