Approval clause in a SAS: how to draft it well

Quick answer. The approval clause in a SAS makes a new shareholder's entry subject to the company's consent (article L227-14 of the French Commercial Code). Placed in the articles, it must specify which transfers are covered, the deciding body, the response deadline, the effect of silence and the consequences of a refusal. A transfer made in breach of the clause is void (article L227-15).

When you set up a SAS with several partners, you choose this form for its flexibility. But that flexibility has a downside: without a safeguard, any shareholder can sell their shares to whoever they like, and you end up partnered with a stranger, a competitor or a founder's former spouse. The approval clause is precisely the tool that locks down entry to the capital. It still has to be drafted properly, because an imprecise clause backfires on the very people it was meant to protect.

This article is a practical monograph on this single clause. For the full overview of the clauses to arbitrate, see instead how to draft a SAS's articles and their essential clauses.

The approval clause makes a share transfer subject to the company's prior consent. Its purpose is to control the shareholding: to decide who may, or may not, become a shareholder. It is an instrument of capital stability, especially useful in family companies, professional firms and startups keen to keep control over their cap table.

The legal basis is article L227-14 of the Commercial Code: "The articles may make any transfer of shares subject to the company's prior approval." Two words matter. "May": the clause is optional, you have to provide for it. "The articles": it must appear in the articles to produce its full effect, not in a mere shareholders agreement.

Our take. The articles-versus-pact distinction is no lawyer's nicety. An approval clause set out in the articles is enforceable against everyone and its breach voids the transfer. The same clause housed in a shareholders agreement stays confidential, but its breach usually results only in damages, without cancelling the sale. For a genuinely effective lock, the clause goes in the articles.

The choice depends on your priority: a maximal, enforceable lock, or discretion. In most multi-shareholder SAS files, we recommend a statutory clause for transfers to a third party, supplemented where appropriate by a pact for finer commitments.

An effective approval clause is never a generic sentence copied from a template. It must settle, point by point, the questions that will arise the day a transfer occurs.

1. The scope of transfers covered#

Specify which operations trigger approval: transfer to a third party, transfer between shareholders, transmission to a spouse, to heirs or by gift, contribution to a company. A clause covering only "transfers to third parties" leaves inter-shareholder transfers free, which can be enough to upset the balance of power.

2. The deciding body#

The SAS offers broad freedom (article L227-9 of the Commercial Code): approval can be entrusted to the shareholders collectively, to the president or to a committee designated by the articles. This choice is not neutral, notably for the seller's voting right, detailed below.

3. The quorum and majority#

State the decision rule: simple majority, qualified majority or unanimity. An imprecise rule ("by majority") fuels litigation the day opinions diverge.

4. The response deadline and the effect of silence#

Set a deadline to rule on the approval request and specify what silence means: tacit approval or refusal. Without this, the seller can stay blocked with no clear remedy, and the company exposes itself to a court application.

5. The consequences of a refusal#

Organise the buy-back: by the shareholders, by an approved third party or by the company (which must then cancel the shares). Provide the price method; failing agreement, article 1843-4 of the Civil Code allows recourse to an expert. A clause silent on price turns every refusal into deadlock.

1. Notification of the transfer plan. The seller informs the company (and, depending on the articles, the shareholders): identity of the buyer, number of shares, price and terms.
2. Convening the competent body. The president or the shareholders are seized in the form and within the deadline set by the articles.
3. Approval or refusal decision. The body rules according to the quorum and majority set. The decision is notified to the seller.
4. If approved: the transfer can proceed on the notified terms, then the transfer order and the share movements register are updated.
5. If refused: the buy-back mechanism is triggered within the statutory deadline, failing which approval may be deemed granted.

This is one of the most sensitive questions, and one of the most often badly drafted.

Where approval results from a collective decision of the shareholders, the seller cannot be deprived of their voting right on their own request. This rule stems from the public-policy right of every shareholder to take part in collective decisions (article 1844 of the Civil Code), which case law links to the right to vote. A statutory clause purporting to exclude the seller from the vote would be deemed unwritten: as long as approval has not been validly given, the transfer is not complete and the seller remains a shareholder, with all their rights.

Where approval is instead entrusted, by the articles, to a restricted body (president, committee) rather than to the shareholders collectively, there is by hypothesis no vote of the shareholders on the request. The question of depriving someone of a voting right then does not arise in the same terms: the seller does not take part in a collective decision, because there is no collective decision.

The underestimated risk. Many sets of articles copy a wording providing that "the seller does not take part in the vote." If approval is a collective decision, this clause is inoperative: it will be set aside, and an approval voted in the seller's absence can be challenged. The right reflex is to align the wording with the body actually chosen, rather than importing a template clause designed for a different structure.

Article L227-15 of the Commercial Code is clear on the principle: "Any transfer made in breach of the statutory clauses is void." The text speaks of nullity, without qualifying it.

That qualification is supplied by the case law of the Cour de cassation and by legal doctrine: it is a relative nullity. In concrete terms, the action for nullity is open to the company and to the shareholders whose consent was required, but not to the seller themselves, who cannot rely on their own breach. The time limit to act is three years from the day the nullity is incurred (article L235-9 of the Commercial Code).

The takeaway. The statute sets out a plain "nullity"; it is case law that makes it a relative nullity, time-barred after three years. The distinction has a practical effect: a buyer who circumvented the clause cannot then invoke the nullity themselves to undo the sale, and the action of the aggrieved shareholders must be brought within the deadline. Beyond that, the irregular transfer becomes settled.

The approval clause is often, wrongly, confused with two neighbours.

• The pre-emption clause gives existing shareholders a right to buy back as a priority the shares being transferred. It does not filter the buyer's identity; it protects the capital allocation.
• The lock-up clause simply prohibits transfer for a period capped at ten years (article L227-13 of the Commercial Code). It binds the founders over the early years.
• The approval clause filters the entry of a new shareholder without prohibiting the transfer as such.

These three clauses are not mutually exclusive: they often combine. For the issues of transmission and price, see also the registration duties on share transfers and, ahead of a deal, how to draft a letter of intent for a transfer.

A minority shareholder of a services SAS wants to sell their 20% to a competing company offering a better price. The articles contain an approval clause entrusted to the shareholders collectively, by a two-thirds majority. Two points structure the file. First, the seller keeps their voting right on their own request, since the decision is collective: the required majority must therefore be counted including them. Second, in case of refusal, the buy-back mechanism set out in the clause applies, with, failing agreement on price, possible recourse to an expert under article 1843-4 of the Civil Code. A clause silent on these two aspects would have left the file in uncertainty, to the advantage of a seller eager to sell.

• The approval clause (article L227-14 of the Commercial Code) makes a share transfer subject to the company's consent; it is optional and must appear in the articles.
• It must specify the scope, the deciding body, the quorum/majority, the deadline, the effect of silence and the consequences of a refusal.
• Where approval is a collective decision, the seller cannot be deprived of their voting right (article 1844 of the Civil Code); any clause to the contrary is deemed unwritten.
• A transfer made in breach of the articles is void (article L227-15); case law treats it as a relative nullity, time-barred after three years (article L235-9), open to the aggrieved shareholders and the company, not the seller.
• The lock-up clause is capped at ten years (article L227-13); approval, pre-emption and lock-up combine.
• A template clause copied from a model is the classic trap: the wording must be calibrated to your governance.