Holding shares in a company can take more complex forms than simple individual ownership. Joint ownership, which frequently arises as a result of inheritance or joint acquisition, is a perfect illustration. In this configuration, several people hold the same shares together, without their respective rights being materially divided. This situation, quite distinct from ownership strippingThis is governed by specific rules that set out the rights and obligations of each undivided owner, known as co-dividers. Understanding this system is essential if you are to anticipate blockages and protect both your personal interests and the smooth running of the company. For an overview, see our guide on share management and transfer in shared ownership offers an initial insight.
Shareholder status of undivided co-owners
The question of whether each co-divisor could be considered a shareholder in his or her own right has long been the subject of debate. Initially, case law held that joint ownership formed a whole, and that the principle of indivisibility of shares prevented each person from being recognised as a shareholder. This view posed a major problem: if the undivided co-owners are not partners, and the joint ownership does not have legal personality, who really has that status?
History and current recognition
The law has gradually evolved to adapt to the reality of the situation. In a series of decisions dating back to 1980, the Court of Cassation finally established a clear solution: each joint-owner is a shareholder. This recognition is based on the fact that each co-owner owns a share of the shares, has a right to the profits and contributes to the losses. It therefore brings together the essential elements that define a shareholder. However, while the status of shareholder is individual, its exercise is governed by the rules specific to joint ownership, which creates a fundamental distinction between the ownership of the right and its implementation.
Impact of PACS on joint ownership of shares
One particular situation illustrates the complexities of joint ownership. Before the 2006 reform, property acquired by PACS partners was presumed to be jointly owned. This meant that if a partner bought shares, even with his or her own funds, the partner automatically became an undivided co-owner and therefore a shareholder. This situation conflicted with company law, which requires a contribution to acquire the status of partner. The law has since changed this system, making separation as to property the default rule. Joint ownership now applies only where it is impossible to prove exclusive ownership of an asset. The risk is therefore reduced, but not totally eliminated, in the event of joint financing that is difficult to trace.
Individual exercise of rights conferred
Although joint ownership often requires collective management, the law recognises that each co-owner may exercise certain rights independently. This recognition of the status of shareholder has direct consequences for the prerogatives of each person, including with regard to acts of disposal such as the sale of shares. transfer or contribution of undivided shares.
Right to convene meetings
Each co-divisor must be personally summoned to all general meetings. Article R. 225-68 of the French Commercial Code is explicit on this point. This obligation is a direct consequence of the recognition of their status as shareholders. Failure to comply with this rule has serious consequences: it may result in the nullity of the resolutions passed at the meeting. Each undivided shareholder, even if he or she holds only a tiny fraction of the capital, therefore has an individual right to take legal action to have the meeting declared null and void. The notice of meeting also guarantees them the right to attend meetings, even if they do not vote individually, as we shall see.
Right to access company documents
For the right to participate in collective decisions to be meaningful, shareholders must be able to make informed decisions. This is why article L. 225-118 of the Commercial Code explicitly extends the right to information to each co-owner of undivided shares. This right covers the communication of company documents prior to general meetings (annual accounts, management reports, etc.) but also a permanent right to information on certain documents. If the company refuses to provide this information, the undivided shareholder can apply to the court for an injunction under penalty. This is a strong individual prerogative, designed to guarantee transparency in company management for all owners of the capital.
Collective exercise of rights and the role of the authorised representative
While some rights are individual, the most important prerogatives, those that commit the joint ownership, must be exercised in a unified manner. To prevent dissenting voices within the same joint ownership from paralysing the decision-making process, the law requires the appointment of a common representative.
Voting rights and the appointment of a single proxy holder
The principle is set out in Article L. 225-110 of the French Commercial Code: co-owners are represented at meetings by a single proxy. This proxy may be one of the joint owners or a third party. The proxy is appointed by mutual agreement between the co-owners. In the event of disagreement, the situation is not deadlocked: the most diligent joint owner may ask the President of the Commercial Court to appoint a legal representative. It is this agent, and this agent alone, who will exercise the voting rights attached to all the undivided shares. His mandate is generally limited to acts of administration, i.e. day-to-day management. For more serious decisions, such as the sale of shares or an increase in liabilities, the consent of all the undivided co-owners is still required.
Management expertise and pecuniary rights
The request for a management report, which aims to have one or more company operations examined by an expert, has undergone a change. Long considered to be a collective prerogative, the Cour de cassation has finally accepted that it can be requested by one or more undivided shareholders, provided that all the undivided shares reach the required capital threshold (5 % in principle). This solution protects minority shareholders in a joint venture.
For financial entitlements such as dividends, the principle is simple. The company pays the sums due to the joint-ownership entity, which is considered as a single entity for payment purposes. In accordance with Article 815-10 of the French Civil Code, this income increases the undivided interest. It is then up to the co-divisors to distribute these sums among themselves, in proportion to their respective rights. An undivided co-owner cannot therefore claim his individual share of dividends directly from the company.
The impact on the way the company operates
The presence of undivided shares in the capital is not neutral for the company. For the purposes of calculating quorum and majorities at general meetings, the block of undivided shares is taken into account as a whole. Joint ownership can therefore represent a significant weighting in votes, capable of tipping the balance on important resolutions.
However, this situation can also be a source of instability. A conflict between the co-divisors may make it difficult, or even impossible, to appoint an agent out of court, necessitating legal action. This inertia can paralyse the exercise of voting rights on this block of shares. If the undivided co-ownership holds a blocking minority, an internal disagreement may prevent the adoption of strategic decisions for the company. It is therefore important for company directors to identify these situations and understand the mechanisms involved, so as to anticipate any potential blockages in corporate governance.
The management of undivided shares raises complex issues at the intersection of company law and inheritance law. A clause that is misinterpreted or a right that is exercised incorrectly can have significant repercussions. To secure your rights and ensure the smooth management of your shares, professional advice is often essential. For an in-depth analysis of your situation and tailored advice, our law firm is at your disposal.
Sources
- French Commercial Code, in particular Articles L. 225-110, L. 225-118 and R. 225-68
- Civil Code, in particular articles 815 et seq. relating to joint ownership
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