A division is an operation whereby a pre-existing business or company is split into 2 or more different and legally independent businesses or companies. The company being split ceases to exist as a result.
A division can be achieved by:
Any company with legal personality and any economic interest group (EIG) may be divided.
A company incorporated under the law of a foreign country may be divided if permitted by the law of the country in question.
A division is permitted when one or more of the companies or EIGs being absorbed or dissolved is engaged in:
Division by absorption is permitted when the company being absorbed is in liquidation, on condition that the company's assets have not yet been distributed to the partners.
A société à responsabilité limitée (SARL – limited liability company), a société coopérative (SCOP – cooperative company) or EIG may not take part in a division as a company or EIG unless the partners meet the eligibility criteria to become partners or members of the receiving company/EIG.
The draft terms of the division must be filed with the Registre de Commerce et des Sociétés (RCS – Trade and Companies Register) for publication in the Recueil Electronique des Sociétés et des Associations (RESA – electronic compendium of companies and associations), at least one month prior to the ruling of the general meeting on the division.
The managerial bodies of the companies taking part in the division must produce the draft terms of division in writing. This is a key document for third parties and partners. However, at this preliminary stage, it does not represent a binding commitment on the part of the company.
The draft terms of division must specify:
If an asset and/or liability item has not been apportioned in the draft terms of division, and its apportionment cannot be determined from the latter, if the item is:
The report from the management of the companies taking part in the division is sent to the companies' partners. It explains the legal and economic grounds for the planned division and, in particular, the ratio applicable to the exchange of units or shares.
The statutory auditor produces a report on the terms of the division for each company. Their intervention is mandatory.
However, the managerial teams of the companies involved may agree to appoint an independent expert. That expert will be appointed by the President of a district court.
The report must specify:
A corporate division is a complex procedure. As such, it is important to ensure that partners are able to make decisions in full awareness of the facts. Thus, all partners must be able to exercise their right:
Each partner is entitled to this information upon request, free of charge. If the partners so agree, the company may circulate this information electronically, or publish it online.
Decision to divide the company
A division requires the approval of the partners, shareholders or holders of securities carrying voting rights in each of the companies in question.
The decision is subject to the same conditions of quorum and majority as for the articles of association.
The minutes of general meetings which decide upon the division or, where the division does not require the approval of the general meetings, the draft terms of division, are established by notarial deed. The notary must verify and certify the existence and legality:
Generally speaking, the approval of all partners is required in partnerships, and of the holders of capital securities, as their rights will be affected.
The approval of all partners is required when the companies being split or the receiving companies are:
The approval of all partners is required for the companies being split where the receiving company is:
The unanimous approval of holders of non-capital securities is required when the companies being split, or the receiving companies, are:
In other cases, the division does not need to be approved by the general meeting of the receiving company if:
Creditors and bond-holders in the companies taking part in a division, whose receivables pre-date the publication of the notification of the division in the RESA, may demand securities in respect of their receivables, provided they can demonstrate that:
The request must be sent, within 2 months, to the district court having jurisdiction over the district where the debtor company's registered office is located. Such a request will not halt the division.
The debtor company may void the request by settling the debt owed to the creditor. Should they fail to do so, if the security is not provided by the set deadline, then the debt is payable immediately.
The receiving companies are jointly liable to the creditor or bond-holder of the split company who has not obtained satisfaction from the company to which the receivable has been transferred. However, the joint liability of the receiving companies is limited to the net assets apportioned to each of them.
The holders of securities, other than shares or units, carrying special rights, must enjoy rights in the new companies at least equivalent to those which they enjoyed in the company being split. This principle does not apply if a change in those rights had been duly approved by a general meeting of the holders of said securities, ruling in the same conditions required for a change to the articles of association. In the event of differences of opinion, the securities in question can be redeemed at the price at which they were valued in the draft terms of division.
The following dissolved companies and their partners are liable, jointly or severally as applicable, to third parties for the undertakings of the dissolved company made prior to the division, and to the date on which the division is enforceable against third parties:
However, they may be exempted from such liability by an express clause inserted into the draft terms of division and the notification of division duly published in the RESA.
The following receiving companies and their partners are liable to third parties, either jointly or severally, for any undertakings made by the dissolved company prior to the division, and which, through the division, are transferred to the receiving company:
The division takes effect when the necessary decisions have been made within the companies in question.
The division has no effect with respect to third parties until the required documentation has been published in the RESA.
The receiving company may undertake all publication formalities incumbent upon the split company.
The partners in the split company who believe that their interests have been harmed may hold the members of the governing bodies and the experts involved in the division liable for misconduct.
The split company is dissolved and ceases to exist as a legal entity.
The assets and liabilities of the split company are transferred to the receiving company. This transfer is automatic and does not require and specific formalities.
However, to be enforceable against third parties, the transfer must comply with the specific laws on ownership rights applicable to:
The liabilities to be transferred include both known debts and any debts which may not have been disclosed during the division process.
The partners in the split company become partners in one or more of the receiving companies, as per the apportionment provided for in the draft terms of division.
Ongoing contracts, including employment contracts, are automatically transferred to the receiving company.
In partnerships wherein the partners are personally liable, these individual partners:
As a variant of the restructuring process, 2 companies may agree:
In these 3 cases:
Every legal stage in the division process is taxed separately. The operation may sometimes prove extremely costly in terms of taxes. However, a preferential treatment regime has been implemented to:
A division can only be declared null and void by a court. Proceedings to have a court declare a division null and void can only be brought within 6 months of the publication of the notice thereof. The court may grant the company time to rectify the situation.
Causes of annulment are:
The decision nullifying the division must be published in the RESA. The receiving company remains bound by its contractual obligations.