If you’re running a business, or planning to launch a new entrepreneurial venture, a recent legal development could be of great interest to you (e.g. to acquire a new real estate lease, a business, or simply to contract with a company not yet registered with the RCS, etc.).
The French Supreme Court has recently relaxed the rules governing actions taken on behalf of companies in formation, simplifying the process of setting up and expanding businesses.
Background: in company law, a company in formation is a business in the process of being set up, but which has not yet been officially incorporated as a legal entity.
Articles 1843 of the French Civil Code and L. 210-6 of the French Commercial Code provide that during this formative period, when the company does not yet have a legal personality, individuals may act on behalf of the company in formation to negotiate contracts and perform other acts on behalf of the future company.
At the time, case law imposed very strict formalities for this type of deed, which had to be concluded “by Mr. X, acting in the name or on behalf of the company in formation Y”. Deeds could therefore be annulled if the wording was not reproduced.
From now on, it is no longer necessary to specify this wording when concluding contracts or other legal acts prior to the official registration of your company. This flexibility means that acts carried out in the name of your company, even if it is not yet formally established, will no longer be automatically considered null and void.
Recent rulings by the French Supreme Court (Cour de cassation) have put an end to this severe rule, since the judge hearing a case involving a deed concluded by a company in formation now has the power to assess, on a case-by-case basis, “whether the common intention of the parties was that the deed should be concluded in the name or on behalf of the company in formation, and that this company could then, after acquiring legal personality, decide to take over the commitments entered into” (Cass. Comm, November 29, 2023, no. 22-12865, no. 22-21623 and no. 22-18295).
This decision marks a welcome step towards simplifying procedures for small and medium-sized businesses, giving them greater latitude during the crucial training period.
This is excellent news for entrepreneurs, who will be able to concentrate more on developing their business without fearing the legal consequences of formal errors.
As we await the first rulings following this reversal, we hope that it will simplify the lives and disputes of contractors who were unaware of these strict rules with sometimes serious consequences.
Practical application: previously, if your company entered into a contract with a company in formation, for example for the sale of a batch of computer equipment, and the company in formation failed to specify its status in the contract, the latter could be annulled.
As a result, not only did you lose a potential customer, but you also had to manage the return of sold equipment, a waste of valuable time and resources.
With the relaxation of case law, such complex and costly situations are now less likely to occur, offering greater legal certainty to VSEs/SMEs in their commercial transactions.
