The idea of buying a boat as a group appeals to many people who love the sea, whether for fishing, pleasure or even a commercial activity. It's an age-old practice that allows you to share the costs and pleasures of sailing. But beware: owning a shared vessel is not something you can improvise. French law provides a specific legal framework for this situation: co-ownership of ships, often associated with the term "quirat". This system is quite distinct from the classic system of joint ownership of property, for example. For a full understanding of the rights and obligations associated with this system, see our essential guide to ship co-ownership.
Understanding how a ship's co-ownership is set up and how it is organised on a day-to-day basis is fundamental from the outset. It's not just a question of raising funds; a formal framework is required, involving written documents and official publicity. Important decisions concerning the vessel cannot be taken lightly; they must be subject to majority shareholding. Finally, the management of the vessel may be entrusted to a manager, but this is not an obligation. This article explains the steps involved in setting up a joint-ownership ship and the key operating principles. It is crucial to plan how you will leave co-ownership, as unforeseen circumstances can arise and lead to differences of opinion between the co-owners. The end of co-ownership of vessels may be requested by one of the members, but this must be done in accordance with the rules laid down in the legal framework. In addition, factors such as the state of the marine market and maintenance costs must be taken into account when making decisions on the continuation or dissolution of the joint ownership.
How is co-ownership of a vessel created?
Unlike a simple verbal agreement between friends, the creation of co-ownership of a vessel requires precise formalities. The law is clear: any contract concerning the ownership of a ship, and therefore any agreement establishing joint ownership between several people, must be recorded in writing. Article 10 of the founding law of 3 January 1967 on the status of ships explicitly states this. This document is not simply a recommendation; failure to comply with it would render the agreement null and void. It is this initial document that will serve as the basis for the necessary administrative procedures. It is therefore essential to draft this document carefully in order to protect the rights of the ship's co-owners. A well-drafted contract sets out not only the rights and obligations of each party, but also how the vessel will be managed. This avoids potential disputes and ensures that the partners can live together peacefully.
These formalities are mainly carried out by the customs authorities. This is where the ship will be officially registered and, if the conditions are met, will obtain the right to fly the French flag via the "acte de francisation". Each ship that has been registered has a "fiche matricule", a sort of administrative identity card held by customs. This form is vital because it lists not only the characteristics of the vessel but also, and this is what interests us here, the names of all the co-owners and the number of shares (quirats) that each holds. This information is contained in the "acte de francisation", which must be on board when the ship sets sail. This publicity is at the heart of the system.
Who can become a co-owner and allow a ship to be franked? The rules, defined mainly by Article 219 of the Customs Code, are fairly technical. To put it simply, a vessel can be registered as a free trader if it was built in the European Union, or if at least half of it is owned by nationals (individuals or established companies) of the European Union or the European Economic Area. It is therefore possible to join forces with French or European legal entities (companies) or individuals to form a co-ownership.
One notable exception concerns "small ships", those with a gross tonnage of less than 10 tonnes. The decree implementing the 1967 law (decree of 27 October 1967, article 6) specifies that they do not have to be registered. If the formalities for freeholding are not completed, the specific regime of maritime co-ownership (as described in the 1967 law) will not automatically apply, due to the lack of official publicity. The owners will then have to choose another framework: joint ownership under the Civil Code, an association under the 1901 Act, or even a conventional company. They may also decide, by means of a written agreement between them, to voluntarily adopt the rules of maritime co-ownership.
Proving your status as a co-owner: different issues for different people
The question of who is actually a co-owner may arise, and the answer will depend on who you ask. Between the co-owners themselves, the situation is relatively flexible. If a disagreement arises over the participation of one or other of the co-owners, case law accepts that proof of co-ownership can be provided by any means (written documents, witness statements, etc.). Anyone claiming to be a co-owner who is not listed on the official documents will have to prove their entitlement.
The situation is radically different when it comes to third parties, i.e. anyone outside the co-ownership: suppliers, creditors, authorities, etc. For them, the only thing that counts is the official publicity provided by the registration number and the "acte de francisation". It is the appearance created by these documents that takes precedence. In practical terms, a creditor who wants to claim payment of a debt will only be able to turn to those whose names appear on the francisation deed as co-owners.
Imagine the headache if the situation were different! Publicity ensures the legal certainty of exchanges. As a result, a person whose name does not appear on the registers cannot be sued by the co-ownership's creditors, even if he or she participated financially in the purchase or operation. Conversely, a person registered as a co-owner will not be able to claim that he or she is not really a co-owner in order to avoid his or her obligations to creditors. The registration is binding on third parties.
We sometimes hear the term "hidden partner". The expression refers to the person who finances the ship behind the scenes without being officially declared. It's a misleading notion. Legally, in the eyes of third parties, this person is quite simply not a partner. He or she is simply a lender or investor in the co-ownership, but not a member. However, this does not mean that they are immune from liability. If it is so involved that it behaves like a de facto partner, it could be considered a "participating partner", as provided for in article 1871 of the Civil Code, and be liable for debts under certain conditions. It is therefore generally unwise to seek to remain "hidden" for the wrong reasons.
Who decides on co-ownership of a ship? Majority rule
Unlike traditional joint ownership, where unanimity is often required, co-ownership of a vessel operates on the majority principle. Article 11 of the law of 3 January 1967 lays down this fundamental rule: decisions concerning the operation of the vessel are taken by a majority of interests, i.e. shares or quirats. Each shareholder has a number of votes proportional to his or her share of ownership. If you own 3 quirats out of 24, you have 3 votes.
This majority is, in principle, an absolute majority: it must represent more than half of all existing shares (for example, 13 quirats out of 24), and not just more than half of the shares of those present or voting. This is a basic rule, one might say a rule of public order, which co-owners cannot change in their initial contract to give more weight to some than to others in relation to their shareholding.
However, for certain particularly serious decisions, the law requires a larger majority, or even unanimity. This is the case, for example, for :
- Mortgaging the entire vessel: the agreement of a majority of co-owners representing three-quarters of the value of the vessel is required (Law 1967, art. 25). The majority is calculated here in terms of value, not just the number of shares.
- Decide on the voluntary sale of the vessel (auction): a majority representing more than half of the value of the vessel is required (Law 1967, art. 27).
- Authorising the transfer of a share that would result in the loss of the vessel's freehold status: the unanimous agreement of all the other co-owners is required (Law 1967, art. 22).
Majority rule is not synonymous with the dictatorship of the largest shareholders. The 1967 law provides protection for minority shareholders. Article 12 allows them to challenge a majority decision in court within three years. There are two possible grounds: either a defect in the way the decision was taken (formal defect), or abuse of the majority. However, abuse of the majority is difficult to prove: it must be shown not only that the decision is contrary to the general interests of the co-ownership, but also that it was taken with the sole aim of favouring the majority to the detriment of the minority. In practice, legal action on this basis is rare. The action must be brought before the competent court (civil or commercial depending on the nature of the activity) in the vessel's home port.
Organising management: the role of the manager
If the majority decides, who carries out the day-to-day running? The law provides for the possibility of entrusting the management of the ship to one or more persons: the manager or managers (Law 1967, art. 14). This appointment by the majority is optional. In the past, when there were few co-owners and they were often sailors themselves, there was no need for a manager. Today, with co-owners who are sometimes far removed from the maritime world or companies investing in expensive vessels, the need for a manager has become frequent and useful. What's more, appointing a manager also helps to better protect the rights of shipowners, by ensuring optimal management and informed decision-making. This strengthens trust between the co-owners, who can then be sure that their interests are safeguarded in the face of the legal and operational issues involved in running the vessel. As a result, the role of manager is becoming indispensable in the modern maritime context.
If a manager is appointed, his or her name must be published, in particular on the registration form and the "acte de francisation" (Decree 1967, art. 7, 92). This publication is essential because, failing this, or if no manager has been expressly chosen, the law considers that all co-owners are deemed to be managers (Law 1967, art. 15). This has important consequences, particularly in terms of liability, as we shall see in a later article.
The manager may be one of the co-owners (sometimes referred to as the shipowner-manager) or a person from outside the co-ownership. The manager may be an individual or a legal entity, such as a specialist management company.
What powers does it have? With regard to third parties, they are very broad. Article 17 of the 1967 law states that the manager has "full powers to act on behalf of the co-ownership in all circumstances" as part of his management remit. He may therefore enter into contracts necessary for the operation of the vessel (bunkering, minor repairs, transport, chartering - with exceptions such as bareboat chartering), insure the vessel, represent the co-ownership in legal proceedings, and choose the captain and crew, who will owe him obedience (Law 1967, art. 18). It is important to note that even if the co-owners have attempted to limit his powers in his contract of appointment (for example, by prohibiting him from exceeding a certain budget), these limitations have no effect vis-à-vis third parties. A supplier who contracts with the manager does not have to check whether the manager complies with any internal limitation clauses. This protection for creditors is reminiscent of company law.
If there are several managers, the law (art. 16) requires them to act by mutual agreement. In theory, therefore, each has a right of veto over the decisions of the other. This may seem protective, but it also runs the risk of paralysing management if the managers do not agree.
The manager is, of course, accountable to the co-owners for his management, but the law does not impose any particular formalities as in the case of companies (no compulsory annual management report, for example). He is liable for any mismanagement, but his liability is generally assessed as an obligation of means: he will not be criticised for a poor commercial result if he has acted diligently and competently. He will be liable to the co-owners if he exceeds the powers granted to him under the agreement.
How do his duties end? The Executive Chairman may be dismissed by the majority that appointed him. It is debatable whether this can be done without cause ("ad nutum") or whether it must be justified, but a brutal or vexatious dismissal could give rise to a claim for damages. The manager may also resign freely, unless he or she intentionally causes harm to the co-ownership. In all cases (dismissal, resignation), the termination of office must be published (1967 Decree, art. 7, 92).
Finally, what happens if the co-ownership becomes ungovernable? For example, if there is no majority to take decisions or appoint a manager, or if decisions are systematically overturned on the grounds of abuse. The law (art. 13) provides a solution: a co-owner can ask the home port court to appoint a provisional manager. The judge will then determine the duration and scope of this appointment, which may even go as far as organising the sale of the vessel if the situation is hopelessly deadlocked.
Setting up and organising ship co-ownership raises a number of specific legal issues. Our team is at your disposal to help you secure your project and clearly define everyone's roles.
Whether you are a professional or an individual, our firm can provide you with recognised expertise in commercial and maritime law for the management, financing or resolution of disputes relating to your business.
You can also deepen your understanding of the more general aspects of the legal status of inland waterway vesselswhich share a certain logic with sea-going vessels.
Sources
- Law no. 67-5 of 3 January 1967 on the status of ships and other sea-going vessels (relevant articles, in particular 10, 11, 12, 13, 14, 15, 16, 17, 18, 22, 25, 27)
- Decree no. 67-967 of 27 October 1967 implementing law no. 67-5 (relevant articles, in particular 6, 7, 8, 9, 88 to 96)
- Transport Code (Provisions potentially recodifying certain articles of previous texts, in particular Book I, Title I of the Preliminary Book and Title I of Book I of Part Five)
- Customs Code (in particular article 219 on the conditions for francisation)
- Civil Code (in particular article 1871 on joint ventures)
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