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Commercial Law — Company law — The basic elements of a company

Date Citation Note
10.12.1973 Com. 356 Case Saillofest v. Région Alpes 2000 et al. Action alleging the de facto existence of a company. French law has a rich stable of different types of corporate entities, the conditions for the formation of which are carefully set out by different statutes. The essential characteristics of corporate existence are, however set out in Article 1832 of the Civil Code, which provides “a company is created by two or several persons who agree by contract to devote to a common enterprise property, or their own services, with a view to sharing the profit, or benefit from the savings, which may result therefrom.
In cases set out by the law, it may by created by the will of one person.
The members undertake to contribute to any losses”.
There is often tension between these principles and the practice of forming contractual “joint ventures” between several parties for one-off transactions, particularly in the fields of construction and finance. Clearly, the interest of creditors of the venture is to claim that the conditions of Article 1832 are met, that a de facto company (akin to an English partnership) has been formed, and that each of the venturers is therefore jointly and severally liable for any amounts unpaid by any of the others.
This case, concerning a joint publicity venture involving the construction of chalets on the first floor of the Eiffel Tower, is a classic example of this problem.
Held: Despite an exhaustive analysis of the facts by the court below, there was no clear intention to form such a joint enterprise fulfilling the conditions of Article 1832.
04.03.1970 Com. & Fin. No. 86 Application for Review N° 67-12.782 Case Société Affichage Giraudy v. Cazauran Another case showing the ambiguity of joint ventures and the risk of a court finding the existence of a “de facto” company. This somewhat lengthy judgement analyses in some depth (with references to facts) the elements upon which such a finding may be based.
20.07.1908 Civ. D.P. 1909.9.93 Case Failite guiches v. veuve Baradat et Autres An earlier case, this time in the area of financing, involving an allegation as to the existence of a “société en commandite”, (akin to an English Limited Partnership). The case brings out the potential dangers underlying multilateral contractual arrangements involving property and profit shares. The defendants were investors on the stock market who operated through a banking house belonging to one Guiche, which got into financial difficulties. The defendants and Guiche entered into an agreement under which, inter alia, the defendants would leave their credit balances with the bank, Guiche would take over certain securities of the defendants, credit the corresponding amount to the accounts of the defendants, and reimburse his debt to the latter by paying them 33% of his business profits. There were also strict conditions as to the level of loans the business could take on, the make-up of current expenses and the right of the investors to assign their interests. The words “commandite” and “commanditaire” (limited partner”) were used in the agreement. Guiche then went out soliciting, and obtaining, loans and financing by presenting the arrangement as a limited partnership. When Guiche fell into bankruptcy, creditors of the business claimed that there was a limited partnership between him and the defendants, that the latter’s accounts, which should have been their contribution to the capital of the partnership, had been falsely credited, and that they should therefore pay into the bankrupt partnership amounts equal to the spurious credits. The court had to decide (i) whether there was such an entity, and (ii) whether the defendants were negligently liable under Article 1382 of the Civil Code for allowing or facilitating the actions of Guiche.
Held: (i) none of the conditions set out in Articles 1832 et. seq. of the Civil Code were fulfilled;
(ii) it was not proved that any of the defendants had any intention to enable Guiche to act as he did, or that they imprudently became involved in them.