Merger-Absorption in France 2026: Legal Framework, Tax Regime, and Accounting

Current as of 15 May 2026 | Reviewed by Samuel Hayot, chartered accountant (expert-comptable), Paris 8

A merger-absorption in France is, by legal definition, a straightforward operation: one company absorbs another, which disappears without liquidation, its entire assets and liabilities transferring to the surviving entity. In practice, the operation engages company law, tax law, accounting standards, and employment law simultaneously. When prepared properly, it genuinely simplifies structures. When improvised, it creates operational, fiscal, and social risks that take months to unwind.

This article covers the legal framework, the favourable tax regime under CGI art. 210 A, accounting treatment under PCG and IFRS 3, the distinction from TUP (universal transfer of assets) and partial contribution, a typical timeline, and three practical cases drawn from common configurations.

French mergers are governed by Articles L236-1 to L236-32 of the Commercial Code (Code de commerce). The core principles:

• The absorbed company (absorbee) is dissolved without liquidation.
• Its entire estate — assets and liabilities — is transferred universally to the absorbing company (absorbante).
• Shareholders of the absorbed company receive shares of the absorbing company in exchange for their holdings.

Dissolution is automatic: there is no liquidation procedure, no liquidator, no formal winding-up. This is precisely what distinguishes a merger from a share sale followed by a separate dissolution.

Article L236-9 requires a merger treaty (traite de fusion) signed by the legal representatives of both companies. This document is the cornerstone of the operation.

These four operations all fall under the "restructuring" umbrella, but they serve different objectives.

Our reading. The choice between these operations is not a matter of preference — it depends on the scope to be transferred, the shareholding structure, and the objectives. A group simplifying by absorbing a wholly-owned subsidiary will gain time with a TUP rather than a full merger. Two independent companies with distinct shareholders have no option but a classic merger with a negotiated share exchange ratio.

This is where the major tax issues are concentrated. The following table sets out both options.

Table: Merger tax treatment — standard vs favourable regime 2026#

The favourable regime is not automatic. An express election must be made in the merger treaty. More importantly, the absorbing company must undertake specific, cumulative commitments in that treaty:

1. Taking over the provisions of the absorbed entity at their fiscal value.
2. Continuing the depreciation schedules of the transferred assets without interruption.
3. Recording transferred assets at their net fiscal value (not fair value).
4. When a transferred asset is subsequently sold, computing the gain by reference to the original fiscal value.

The underestimated risk. In the files we handle, the most frequent error is not failing to elect the favourable regime — it is electing it without properly documenting the commitments in the treaty. An auditor or the tax authority may then challenge the neutrality of the operation and impose tax on unrealised gains plus late-payment interest.

The Merger Treaty (Commercial Code L236-9)#

The merger treaty must include:

• Name, legal form, and registered office of each party.
• Rationale, objectives, and conditions of the merger.
• Date of accounts used to establish the terms.
• Modalities of share issuance and effective date of entitlement.
• The share exchange ratio.
• Any cash payment (soulte), limited to 10% of the nominal value of the shares issued.
• Rights granted to holders of special securities and bondholders.

Approval by Extraordinary General Meetings#

The merger must be approved by the extraordinary general meeting (AGE) of each company. Required majorities:

• SA and SAS: in principle two-thirds of votes cast (statutes may vary for SAS).
• SARL: qualified majority per articles of association, generally three-quarters.

Merger Auditor's Report#

A merger auditor (commissaire a la fusion) is appointed by order of the president of the commercial court. They verify that the share exchange ratio is fair and that the net assets contributed are at least equal to the capital increase of the absorbing entity.

Important exception. SAS and SARL companies may waive the merger auditor's report if all shareholders unanimously agree (art. L236-10 al. 3 Commercial Code). This is common in owner-managed SMEs where valuation is not disputed.

Publication and Formalities#

• Filing of the merger treaty at the commercial court registry.
• Publication in the BODACC official gazette within 30 days.
• Amendment filing with the INPI (national business registry) for the absorbing entity.
• Deregistration of the absorbed entity.

The share exchange ratio is the relative value of the two companies. It determines how many shares of the absorbing entity each shareholder of the absorbed entity will receive.

Simplified example. If the absorbing entity is valued at EUR 1,000,000 and the absorbed entity at EUR 400,000, and the absorbing entity has 10,000 shares, one share is worth EUR 100. If the absorbed entity has 5,000 shares, one share is worth EUR 80. The ratio is therefore 0.8: for every 10 shares of the absorbed entity, the shareholder receives 8 shares of the absorbing entity.

Valuation methods used to establish the ratio typically include: adjusted net book value, earnings capitalisation, EBITDA multiples, and discounted cash flows. It is rare for a single method to be used alone. The expert-comptable plays a central role in producing this multicriteria analysis.

What the tax authority examines. The French tax administration may challenge a ratio that significantly benefits one group of shareholders over another, particularly in family groups where the ratio could serve undeclared wealth transfers.

Accounting for a merger differs depending on the applicable framework.

Under French GAAP (PCG — CNC Opinion No. 2004-01 of 25 March 2004)#

The PCG offers a choice between two methods:

Method 1 — Book values (valeurs comptables). Transferred assets are recorded in the absorbing entity's books at their carrying amount in the absorbed entity's accounts. This is the most common approach in mergers between companies under common control. It preserves accounting neutrality and avoids creating a large merger premium.

Method 2 — Fair values (valeurs reelles). Assets are recorded at their market value. A merger premium (prime de fusion) or merger discount (mali de fusion) may arise. This method applies when the two companies had no prior capital link.

The mali de fusion. If the carrying amount of the absorbed entity's assets exceeds the value recorded at the absorbing entity's level, a mali de fusion arises. It must be analysed: a "true" mali (previous overvaluation) or a "technical" mali (related to unrealised gains not previously recognised in the accounts). The technical mali is subject to annual impairment testing.

Under IFRS (IFRS 3 — Business Combinations)#

Under IFRS, the acquisition method is mandatory. It requires:

• Identification of the acquirer.
• Measurement of the consideration transferred (fair value of shares issued).
• Recognition of the identifiable net assets of the acquiree at fair value.
• Recognition of residual goodwill (or bargain purchase gain).

Under IFRS there is no option: fair values apply. Goodwill is not amortised but tested annually for impairment (IAS 36), or whenever there is an indication of impairment.

Where the absorbing company holds 100% of the share capital of the absorbed company, the Commercial Code (art. L236-3 II) permits a simplified universal transfer of assets (TUP).

Advantages of TUP:

• No merger auditor's report required.
• No shareholder approval needed from the absorbed entity (since there is only one shareholder: the absorbing entity).
• Faster and less costly procedure.
• Same legal effects: dissolution without liquidation, universal transfer of the estate.

Strict condition. Ownership must be exactly 100% with no exceptions. A single share held by a third party prevents TUP.

The favourable tax regime (CGI art. 210 A) applies equally to TUP as to a classic merger, subject to the same conditions.

A retroactive effective date can go back to 1 January of the current financial year. It must be explicitly stated in the treaty. The intercalary period (between the retroactive date and legal completion) requires careful accounting tracking.

The automatic transfer of employment contracts is mandated by Article L1224-1 of the Labour Code. Practical consequences:

• Contracts: transferred by operation of law to the absorbing entity, with preservation of seniority, salary, and acquired benefits.
• Works council (CSE): mandatory consultation before completion, with information on rationale, timeline, and foreseeable social consequences.
• Collective agreements: the absorbed entity may be covered by a different collective agreement. If incompatible, alignment is required. The absorbed entity's collective agreement may be denounced, opening a negotiation period.
• Company agreements: generally integrated or renegotiated. A pre-merger social audit identifies risks.

Case 1: Holding M Absorbs Subsidiary F1 (100% — TUP)#

A Paris-based group with a holding company M and a wholly-owned subsidiary F1 that has had no operating activity for two years and generates unnecessary administrative costs.

Solution: TUP. No merger auditor, no shareholders' meeting at F1 level (M is the sole shareholder). TUP treaty signed, BODACC publication, F1 deregistered. CGI art. 210 A regime elected. Actual procedure duration: 6 to 8 weeks. Watch points: any provisions accumulated by F1; commercial leases in F1's name (universal transfer does not override landlord approval clauses in some leases).

Case 2: Two Paris SAS Companies Merge (60/40 Ratio)#

Two consulting firms, SAS A and SAS B, wish to merge to pool their teams and client portfolios. A is valued at approximately EUR 600,000 and B at approximately EUR 400,000.

Classic merger-absorption: A absorbs B. Exchange ratio established by an independent valuation firm. Both AGEs approve. B's shareholders receive shares of A proportionally to the ratio. Merger auditor's report waived by unanimous shareholder agreement (SAS). Art. 210 A regime elected. Watch points: art. 210 A commitments regarding intangible assets (goodwill, client lists) and treatment of the mali de fusion if B's book value is significantly below its economic value.

Case 3: Listed Group — Merger-Absorption with Apport-Fusion#

A listed group with an operating subsidiary held at 75% seeks to absorb it. The structure involves minority shareholders. Merger auditor's report mandatory (SA listed entity). Strict multicriteria valuation documentation. Independent fairness opinion on the ratio. Watch points: potential AMF disclosure obligations, financial communication requirements, and minority shareholder consultation.

Omission of art. 210 A commitments from the treaty. This is the most frequent cause of the favourable regime being challenged. If the treaty does not explicitly state the absorbing entity's commitments, the standard regime applies. The tax on unrealised gains can then be very significant.

Contested exchange ratio. A ratio not established on documented, multicriteria bases can be challenged by minority shareholders or the tax administration. The valuation must be robust, independent, and retained on file.

Lost carry-forward losses. Unless approved under art. 209 II CGI, carry-forward losses of the absorbed entity are not automatically transferred to the absorbing entity. Where the absorbed entity has accumulated significant losses, the approval must be anticipated well in advance.

Leases and contracts. Universal transfer does not override contract provisions. Some contracts (finance leases, property leases, distribution agreements) contain change of control or approval clauses triggered by a merger. Failing to identify them before completion can create post-closing blockages.

Poorly documented retroactive effect. The intercalary period between the retroactive date and legal completion must be accounted for with care. Missing entries or poorly traced intercompany flows can complicate the preparation of the absorbing entity's opening balance sheet.

Key points identified in recent files:

• Valuation of intangibles. Goodwill and trademarks transferred in SME mergers are often under-recorded in book value. The resulting mali de fusion can trigger discussions with auditors regarding its nature (true or technical).
• E-invoicing (applicable to SMEs in 2026): verify that the absorbing entity's system configurations integrate the absorbed entity's invoicing parameters after completion, to avoid disruptions in electronic billing flows.
• Investment income: if dividends were paid by the absorbed entity in the months preceding the merger, check articulation with the retroactive period.

A merger-absorption is not an operation to be managed mid-year without preparation. Files that proceed smoothly share one characteristic: the decision was made early enough for the legal, tax, and employment dimensions to be framed before the merger treaty was signed.

Sources: Legifrance.gouv.fr (Commercial Code L236-1 to L236-32, CGI art. 210 A, 210 C, 38-1, Labour Code L1224-1), CNC Opinion No. 2004-01, IFRS 3 (IASB). Rates, thresholds, and conditions to be verified against texts in force at the time of the operation.

This article is current as of 15 May 2026. It is intended to inform, not to replace an individualised engagement taking into account your situation, accounting documents, and the law applicable at the time of your decision.