The independent retailers' collective shop: understanding its legal operation

Joining forces to face up to the competition from large integrated chains is a constant preoccupation for many independent retailers. The collective shop is one of the solutions devised to meet this challenge. It enables entrepreneurs to pool certain resources and benefit from a common image, while retaining ownership of their own business. But this form of organisation is not just a simple business idea; it is based on a precise legal framework, defined mainly by articles L. 125-1 et seq. of the French Commercial Code.

Understanding this legal framework is essential for any retailer considering joining or setting up a group shop. It determines the very structure of the group, and the rights but also the constraints that will weigh on each member. This article explores the fundamental aspects of this system: what legally defines a collective shop? How is it organised? And what is the actual status of participating retailers?

What is a collective shop as defined by law?

Created as a response to the crisis in traditional retailing and the rise of the superstore, collective shops were given a specific legal framework in 1972. The idea was to enable independent retailers to come together to offer a credible alternative, by adopting some of the advantages of large shops without sacrificing their autonomy.

Collective shops should not be confused with other forms of group retailing. Unlike a traditional shopping centre, where retailers are often simply tenants of a property developer, and where integration can be minimal (sometimes limited to an association for entertainment), the collective shop implies a greater willingness to cooperate and a structured joint organisation. It also differs from the concession of departments in a department store, where the retailer is subject to the very strict directives of the licensor, or from total integration, where all the shops belong to one and the same company.

For a retail complex to qualify as a general shop under the law, and therefore potentially subject to the specific rules of the French Commercial Code, it must meet four cumulative criteria, defined in article L. 125-1.

The enclosure unit: a shared space

The first criterion is material: retailers must be located "within the same premises". In practical terms, this generally means that they carry on their business within the same main building. The question has arisen as to whether the presence of partitions separating the various shops is compatible with this concept of unity. The prevailing interpretation, confirmed during the initial parliamentary debates, is that the enclosure relates to the building itself. The existence of partitions, which are sometimes necessary for safety reasons or because of the nature of the activity (a jeweller's shop, for example), does not therefore rule out classification as a collective shop.

On the other hand, this requirement seems to exclude from membership activities which, for practical or regulatory reasons, would be carried out in completely separate premises or annexes outside the main building (such as an associated service station).

Unity of name: a common sign

Collective shops must operate "under the same name". It must have a common name, a collective identity recognisable by customers. This requirement was introduced in particular to facilitate joint communication and advertising operations.

However, this does not prevent each member retailer from retaining and using its own individual sign inside the shop. The unity of the name is aimed at the whole, not at erasing the individual identities of each participating retailer.

Common rules: collective discipline

This is undoubtedly one of the most characteristic aspects of the collective shop: operations are carried out "according to common rules". This collective organisation is generally formalised in a set of internal rules that are binding on all members.

The French Commercial Code (article L. 125-11) gives examples of areas that may be covered by these rules: opening days and hours, organisation of annual holidays, advertising, management of competing activities between members. But this list is not exhaustive. The condition is met if there is a common discipline that necessarily affects the total freedom to operate each business. The strictness and scope of these rules vary greatly from one shop to another.

Individual ownership of the business: fundamental independence

The last, but by no means least, criterion is that members run their business or craft enterprise "without alienating ownership". Each trader or craftsman remains in control of his business, responsible for its management and results. There is no merging of businesses into a single entity.

Article L. 125-5 of the French Commercial Code confirms this: even if the business is transferred or created in the general shop, no mention is made of it to the pooling structure in return for the shares received. These shares do not represent the value of the individual business. This is a fundamental difference from the creation of a traditional company through the contribution of existing businesses. The question of whether each member has his own distinct "customer base", a traditional criterion of goodwill, is less relevant here than the legislator's desire to guarantee the legal and economic independence of each operator within the collective structure.

What legal structure for the collective shop?

The organisation of a collective shop cannot be based on simple informal agreements. The law requires the creation of a specific legal entity which is the keystone of the whole. According to article L. 125-2 of the French Commercial Code, this entity has a dual mission:

• On the one hand, it is responsible for property management: it owns or at least enjoys (for example, through a lease) the buildings housing the shop.
• Secondly, it is responsible for collective commercial management: it defines and implements joint policy, organises and manages shared services (security, maintenance, collective advertising, events, etc.).

Choosing the structure and legal form of this legal entity is a decisive step.

Property structure: unitary or dualist?

A strategic question arises from the outset: is there a need for a single structure to handle both property and commercial management, or is it preferable to create two separate entities (dual structure)?

The dual structure often involves setting up a company (e.g. an SCI) that owns the property and leases it to the management structure (the GIE, Cooperative or SAS grouping the retailers). This type of arrangement can have a number of advantages:

• It allows third-party investors (non-traders) to be involved in financing the property.
• The value of the management structure's shares is lower (as it does not own the premises), which can make it easier for new members to join or leave (less costly buy-back of shares in the event of exclusion or departure).
• Outgoing members may keep their shares in the property structure and continue to receive income from property.

However, the dualist structure also has its drawbacks:

• It can complicate governance and relations between the two entities.
• It may make it impossible to use certain types of financing, such as property leasing, which in principle is reserved for the end user (the law has relaxed this rule, but only if the management structure is itself the lessee of the lease - article L. 125-3 C. com.).
• The management structure, which is simply a tenant acting without any profit motive of its own, could be denied the benefit of the protective status of commercial leases if it is not considered to be operating a genuine business on its own account. This could create a precarious situation if the lessor (the property company) decides not to renew the lease.

The unitary structure, in which the legal entity of the merchants is also the owner of the building, offers greater simplicity and security in terms of property, but can make the shares more expensive and the exit of members more costly.

Choosing the legal form: GIE, Cooperative or SAS?

The law of 1972, and today the French Commercial Code, did not create a legal form of company. sui generis. They require a choice of three existing forms for the central legal entity of the collective shop:

1. Economic Interest Grouping (EIG) : The EIG is a highly flexible structure that allows a great deal of freedom in terms of internal organisation (administration, distribution of votes, etc.). It is well suited to a cooperative structure with no profit motive for the group itself. Its major disadvantage is that its members have unlimited joint and several liability for the EIG's debts. What's more, its purpose is limited: for example, it cannot directly purchase goods for resale on behalf of its members (which is more the role of a central purchasing body).
2. The Société Coopérative de Commerçants Détaillants : This form (governed by articles L. 124-1 et seq. C. com.) is specifically designed to bring together retailers. Its purpose is broader than that of an EIG, in particular as a central purchasing or referencing body. The liability of members is limited to their contributions. However, its operation is more regulated than that of an EIG, in particular because of the principle of "one member, one vote" at general meetings, regardless of shareholding.
3. Société par Actions Simplifiée (SAS): Initially, the 1972 law also targeted the société anonyme (SA) with variable capital, but this form was abolished for non-cooperative SAs. The SAS, created later, now offers a very interesting alternative. It combines a high degree of freedom under the articles of association (similar to that of an EIG) to organise governance and relations between partners, with the major advantage of liability limited to the amount of the contributions made. It is often the preferred solution because of its flexibility and legal certainty.

The choice will depend on the priority objectives of the members: desired level of flexibility, limited liability, need for a central purchasing function, etc.

Administration and internal operations

Whatever form is chosen, the operation of the collective shop relies heavily on the rules of procedure. This document, which must be appended to the Articles of Association (or to the contract establishing the EIG), sets out the common rules governing the life of the shop (opening hours, advertising, charges, discipline, etc.). It is the group's operational charter.

In addition, to maintain a balance and avoid domination by one or a few powerful members, the law imposes specific majority rules for the most sensitive decisions. Article L. 125-10, paragraph 2 of the French Commercial Code stipulates that any decision concerning the approval of a new member, the exclusion of a member, or the amendment of the Articles of Association or the internal regulations must be taken by an absolute majority of the members (and not on the basis of the capital held), or even by a higher majority if the Articles of Association so provide.

Merchant members: what rights and obligations?

Joining a community shop necessarily changes the way a retailer does business. They retain their independence, but must do so within a collective framework.

Members' rights in the shop

The fundamental principle is that each member remains the owner of his business and manages it autonomously, subject only to compliance with the common rules defined in the internal regulations. They retain the right to sell their business, lease it out or pledge it, applying the usual rules of commercial law for such transactions.

Membership of the group structure (GIE, Coopérative or SAS) confers social rights: the right to take part in collective decisions, the right to benefit from shared services. But the most tangible right is undoubtedly that attached to its shares: the the right to use a specific site within the collective shop, as specified in article L. 125-4 of the French Commercial Code. This location is not set in stone: it can be modified by agreement with the members' meeting, or even vary according to seasonal activities if the articles of association so provide.

Members' obligations

The corollary of independence is respect for collective constraints. Members have two types of obligations:

• Technical requirements : They derive directly from the internal regulations. Retailers must comply with the established rules concerning the nature of the activity authorised on their site (to avoid anarchic internal competition or the abandonment of activities deemed necessary to the overall attractiveness), common opening hours, any price ranges, layout or decoration standards, participation in collective advertising campaigns, etc. They must also ensure that these rules are compatible with their own constraints (franchise contract, collective agreement applicable to their staff, etc.). It must also ensure that these rules are compatible with its own constraints (franchise contract, collective agreement applicable to its staff, etc.). Failure to comply with these obligations may result in sanctions or even exclusion. It should be noted that the rules governing the management of competing activities must comply with competition law (articles L. 420-1 et seq. C. com. on anti-competitive practices apply).
• Financial obligations : Members must contribute to the running costs of the shared structure. This includes the costs of maintenance, caretaking, insurance of common areas, electricity, advertising and entertainment, and possibly rent if the structure does not own the premises. The allocation of these costs is often a sensitive issue. A simple allocation based on the surface area occupied can be unfair, as some activities requiring large surface areas (e.g. furniture) may be less profitable or less attractive than others requiring little space (e.g. jewellery). More complex allocation keys, incorporating sales, location within the shop or potential for attracting customers, are often necessary but must be clearly defined to avoid conflicts.

Joining a collective shop: the entry process

Entry to a collective shop, whether at the time of its creation or later, is generally subject to the agreement of the members already present. Selection may be based on commercial criteria (nature of the complementary activity, financial soundness) but also on legal criteria.

In principle, only registered traders and artisans can be members of the grouping structure (art. L. 125-1 C. com.). This can pose a problem when it comes to integrating certain liberal professions (pharmacists, for example) or highly regulated activities whose constraints are incompatible with common rules. These players will sometimes have to have a different status, as a simple tenant of the structure, which may be less satisfactory for the coherence of the whole.

To control who enters the shop, the articles of association almost systematically provide for approval clauses. The law provides a framework for their implementation in the case of transfer of shares, transfer by death (unless the heir was already involved in the business), and management leasing of the business (art. L. 125-12 and L. 125-14 C. com.). Approval is a collective decision taken by a specific majority as described above. Note, however, that if a member carries on his business via a company, the transfer of control of that company does not entail the transfer of shares in the joint structure and is therefore not subject to this legal approval, unless there is a broader clause in the articles of association. This is a potential loophole that needs to be anticipated.

There are also safeguards for third parties: creditors with a lien or pledge on the business of a trader wishing to join the shop must be informed and may object if their guarantees are reduced (art. L. 125-7 and L. 125-8 C. com.). Similarly, if the business is already under a management lease, the agreement of the tenant-manager is required for the transfer to the general shop (art. L. 125-6 C. com.).

Leaving the collective shop: exit procedures

There are several ways for a member to leave the collective shop:

• Voluntary withdrawal : Although not explicitly detailed in articles L. 125-1 et seq., the right of withdrawal is generally recognised, deriving from the common law governing EIGs or cooperative/variable capital companies. The articles of association may set out the terms and conditions.
• Transfer of shares : The outgoing member finds a successor who buys his or her shares (subject to approval by the other members).
• Exclusion: This is the most serious measure, and may only be imposed for serious reasons, typically a serious or repeated breach of the internal rules after a warning has been issued but not acted upon (art. L. 125-15 C. com.). The decision is taken by the members' meeting by the required majority. However, the excluded member retains the right to present one or more transferees for his shares, in accordance with the conditions set out in the Articles of Association.

Compensation on discharge

The law provides for outgoing members to be compensated in cases where they are forced to leave or where it is difficult for them to do so: exclusion, or voluntary departure (withdrawal, death) followed by a refusal to approve the transferee or the heirs presented.

In these situations, article L. 125-17 of the French Commercial Code provides that the outgoing member (or his successors) retains the option of transferring or selling his business to an external third party. However, the value of a business separated from its location in an attractive commercial complex is often very low, or even zero.

The key point is therefore the obligation on the new assignee of the site (if there is one) or, failing that, on the grouping structure itself, to reimburse the outgoing shareholder the "value of his shares".. This is not simply the return of the initial contribution, but the actual value of the shares at the time of exit, determined by taking into account the assets (furniture, any real estate, intangible elements such as the shop's reputation, etc.) and liabilities of the structure. To this value must be added, where applicable, compensation for the added value added to the site by the specific improvements made by the outgoing member.

Determining this value can be a contentious issue. The law provides that it is set by the general meeting or, in the event of disagreement, by an expert appointed in accordance with article 1843-4 of the Civil Code. In principle, payment (or the provision of a bank guarantee or deposit) must be made before a new member moves into the vacated site (art. L. 125-18 C. com.).

Judicial review of decisions

Collective decisions on approval or exclusion can have very serious consequences for the members concerned. This is why the law provides for judicial review. Any member may refer the decision to the tribunal de grande instance (now the tribunal judiciaire) within one month of being notified of it (art. L. 125-16 C. com.).

The court has broad powers: it can annul the decision, reform it, or even substitute its own decision. Except in specific cases (exclusion for non-use of the pitch or non-payment of charges), appeals to the court have suspensive effect, which means that the contested decision cannot be applied until the court has given its ruling.

Navigating the legal framework of collective shops requires a careful analysis of the articles of association and regulations. If you are thinking of joining or setting up such a structure, or if you are experiencing difficulties as a member, our team, with its wealth of experience and expertise, can help you. expertise in commercial lawcan provide you with a solution tailored to your situation. Contact us to assess your options.

Sources

• French Commercial Code: Articles L. 125-1 to L. 125-18