Reorganising your group: what needs securing between the holding company and its subsidiaries?

1. Each company has its own interest

A group has no legal personality. The holding company and its subsidiaries are separate companies, each with its own managers, any minority shareholders and its own creditors. A flow that serves the group but impoverishes a subsidiary without consideration can make its managers liable, in civil and sometimes criminal law. The courts accept that a subsidiary may make an effort for the benefit of the group, under strict conditions: a genuinely structured group, consideration for the subsidiary, and an effort that does not exceed its means. Outside that framework, the group’s interest covers nothing.

2. Intragroup agreements: approve what must be approved

In an SAS, agreements entered into with the president, a manager, a shareholder holding more than 10% of the voting rights or, where that shareholder is a company, the company that controls it, are the subject of a report presented to the shareholders, who rule on them (Article L. 227-10 of the French Commercial Code). Agreements relating to ordinary transactions concluded on normal terms are excluded (Article L. 227-11). In a single-shareholder SAS, the agreement is simply recorded in the register of decisions. An agreement that has not been approved still takes effect, but the interested party and, where applicable, the managers bear the harmful consequences for the company. SAs and SARLs have their own procedures, heavier in an SA, where the board must authorise the agreement before it is entered into.

In practice, the group should keep a list of its agreements, decide for each one whether it is ordinary and on normal terms, and document that choice. A cash management agreement or a substantial recharge easily falls outside the ordinary course.

3. Management fees and recharges: a real service, a justifiable price

A holding company that invoices services to its subsidiaries (management, finance, legal, IT) must be able to prove three things: the service exists, it does not duplicate what the subsidiary already does, and its price is consistent with its cost or with the market. The written contract describes the services, the calculation method and how it is revised. Reports, time spent and deliverables are kept. The tax treatment of these flows is settled with the group’s tax adviser when the contract is drafted.

4. Cash and current accounts: what the group can do without a bank

The banking monopoly does not prevent cash transactions between related companies where one of them exercises effective control over the others through shareholdings. A written cash management agreement sets the direction of flows, the cap, the interest rate and the exit terms, in particular if a subsidiary is sold. A subsidiary lending to its holding company must get something out of it: a normal return and an amount in line with its means. Shareholder current account advances are repayable at any time unless otherwise agreed: a lock-up agreement is negotiated where the bank or an investor requires one.

5. Seconding staff

An employee who works for several group companies is made available under a written framework: an agreement between the companies, the employee’s consent and an amendment to their contract. The cost is recharged at actual cost (salary, social charges, business expenses), with no margin. Beyond that, the arrangement may be classified as for-profit labour lending, which is prohibited outside the cases provided for by law.

6. Transferring shares within the group

A transfer between companies of the same group is still a transfer. The price must be justifiable: too low and it impoverishes the selling company, too high and it impoverishes the buyer, and minority shareholders as well as the tax authorities may challenge it. Approval and pre-emption clauses in the articles and the shareholders’ agreement apply, unless those documents provide an exception for intragroup transfers. The transfer may also fall within the related-party agreement procedure. The formalities stay the same: transfer deed, entry in the share transfer register, registration.

7. Simplifying the structure: dissolution without liquidation, merger, partial transfer of assets

Where a company holds all the shares of a subsidiary, it can dissolve it without liquidation. The subsidiary’s assets and liabilities pass to it at the end of the thirty-day period during which creditors may object or, if an objection is filed, once it has been dismissed or the creditors repaid or secured (Article 1844-5 of the French Civil Code). This mechanism does not apply where the sole shareholder is an individual. A merger follows a simplified procedure where the absorbing company holds the entire share capital of the absorbed company. A partial transfer of assets, which moves a business line to another group company, can be placed under the demerger regime. The choice between these routes depends on the contracts to be transferred, the employees concerned, the approvals to be obtained and the tax treatment.

8. The order of operations

A reorganisation is planned backwards: start from the target structure, then set the order of the deeds, the effective dates, the approvals to be obtained (banks, counterparties, authorities) and the formalities. Two mistakes come up again and again: launching a structural transaction before regularising existing agreements, and overlooking change-of-control or acceleration clauses in financing agreements, which a dissolution without liquidation or a merger may trigger.

Frequently asked questions

See also: the share sale; the corporate health check; annual accounts approval

This information is general and does not constitute legal advice. Every transaction calls for its own analysis.