SCI clauses and shareholders' agreements: approval, pre-emption, reciprocity

Quick answer. In an SCI, share transfers are by default subject to the approval of all partners (Civil Code art. 1861), but the articles can soften or tighten this rule. To approval are added pre-emption, reciprocity and inalienability, placed in the articles (enforceable against third parties) or in a confidential agreement, to control who enters, who exits and at what price.

An SCI often brings together partners linked by family or by a common project, and the question of exit becomes explosive if nothing has been planned. The death of a partner, a divorce, a falling-out or simply one partner's wish to get their stake back raises a simple, dangerous question: who buys back, at what price, and can the others be forced to accept a newcomer? Statutory clauses and the shareholders' agreement exist precisely to answer that before conflict breaks out. The Civil Code sets a floor (articles 1861 to 1864 organise the transfer of civil-company shares), which partners have every reason to tailor. Let us review the tools, their legal scope and where to place them.

The foundation of partner control is the approval clause, provided by default in any civil company. Article 1861 of the Civil Code states that shares can only be transferred with the approval of all partners. It is a maximum-lock rule: without adjustment, a single partner is enough to refuse a third party's entry.

The articles can soften this lock. They can provide for approval by a set majority (for example two thirds of the shares), entrust it to the manager, or exempt certain transfers from approval, notably between partners or to the spouse. The text adds an exception that family SCIs should note: unless the articles provide otherwise, transfers to the transferor's ascendants or descendants are not subject to approval. In practice, in a family SCI that has stipulated nothing, a partner can bring in their children without asking the others. Sometimes that is intended, sometimes endured: it all depends on what the articles say.

The procedure matters as much as the rule. The planned transfer must be notified to the company and to each partner, who then decide. And if approval is refused, the selling partner is not trapped: articles 1862 and 1863 organise a buyback mechanism. The partners can acquire the shares (in proportion to those they hold, unless otherwise agreed), have a third party designated, or the company can buy them back for cancellation. Above all, if no purchase offer is made to the transferor within six months of the last notification, approval is deemed acquired and the transfer can proceed, unless the partners decide on the company's early dissolution within that period (art. 1863). That period can be adjusted by the articles, without exceeding one year or being under one month (art. 1864). In other words, an over-tight approval clause with no buyback solution turns against the existing partners.

Where approval controls a third party's entry, the pre-emption clause organises a priority of purchase for the existing partners. When a partner wants to transfer their shares, the others have a right to acquire them in priority, before any third party, generally at the price offered by the prospective buyer or under a valuation method agreed in advance.

Pre-emption answers a weakness of approval alone. Approval lets you say no to a third party, but it forces no one to buy and sets no price. Pre-emption gives partners a positive right to buy, on known terms. It avoids dilution, keeps out the unchosen newcomer and offers a clean exit to the transferor. For it to work, two points must be settled in advance: the trigger (every transfer? are gifts covered? a contribution to a holding company?) and the price. On this last point, several methods exist: take the third party's offer price, set a numerical formula in the clause, or refer to an independent valuation, for example the adjusted net book value (ANCC), particularly suited to an SCI whose value lies mostly in the property, or to the determination of a chartered accountant in case of disagreement. A pre-emption clause with no price method leaves the door open to litigation the day it applies.

Other clauses frame the freedom to transfer more strongly, to stabilise ownership over time. The inalienability clause temporarily prohibits the transfer of shares. Its validity rests on two cumulative conditions drawn from case law and from article 900-1 of the Civil Code: it must be limited in time and justified by a serious and legitimate interest (the Court of Cassation confirmed this for deeds for value on 31 October 2007, first civil chamber, appeal no. 05-14.238). A perpetual inalienability, or one without serious cause, is void. In practice it serves to freeze ownership for the time of a project: repaying a loan, the duration of a development operation, stabilising a family arrangement. Its duration must stay reasonable in light of that cause, and in any case cannot exceed the duration of the company, capped at ninety-nine years (art. 1838).

So-called reciprocity clauses organise cross commitments between partners. Several mechanisms coexist. The mutual undertaking to offer one's shares to the others before any third party (reciprocal pre-emption) is the most common. More sophisticated, forced-exit clauses settle deadlocks: a reciprocal buy-and-sell clause (often called a Russian roulette or buy-or-sell clause) lets one partner, in case of disagreement, offer a price to the other, who then chooses either to sell or to buy back at the same price. This kind of mechanism avoids stalemate, but requires careful drafting and a real financial balance between the partners. These fine clauses often belong in an agreement rather than in the articles.

The choice between the articles and the agreement is not neutral, because their scope differs radically. The articles are a filed document enforceable against third parties: a breached statutory clause can entail the nullity of the transfer. It is the most solid weapon, but also the most public: anyone consulting the company's file has access to it, and every change requires a meeting and a publicity formality.

The shareholders' agreement is a confidential contract between partners, more flexible and discreet, signed alongside the articles. Its force rests on the general law of contracts: it binds those who signed it. But its breach is mainly resolved in damages, without necessarily cancelling an operation concluded with a good-faith third party. So you place in the articles what must be enforceable and hard to circumvent, such as approval, and in the agreement what relates to finer arrangements or that partners prefer to keep confidential: exit price, reciprocity clauses, financing commitments, governance rules. Many well-run SCIs combine the two. The right balance depends on the overall wealth configuration, a subject we link to our comparison SCI or direct ownership of professional premises and to the tax-regime choice, developed in our analysis SCI under corporate or income tax.

Our view#

The partner clauses of an SCI are not a legal luxury: they prevent the conflicts that, for lack of anticipation, often end in deadlock or court, sometimes in a dissolution claim. In the files we handle, approval and pre-emption form the minimal foundation of any SCI bringing together several partners. We stress a point too often overlooked: a very tight approval clause with no buyback mechanism and no agreed price is not protection, it is a time bomb. The day a partner wants out, the absence of an agreed price turns a formality into litigation.

We advise calibrating these clauses at the time of creation, when relations are good and no one has a position to defend. The articles-and-agreement pair lets enforceability and confidentiality be balanced. For a family SCI geared towards transmission, these clauses combine naturally with split ownership of the shares, as we explain in our article on the split ownership of SCI shares to pass on to children, and with the structure trade-off we cover in our comparison family SARL or SCI. The stake is not only legal: it touches the wealth of the owner and their family, which we address in our private wealth advisory for company directors.

An SCI brought together three equal partners, with no clause framing transfers beyond the legal approval of article 1861. As long as everyone got along, the issue did not exist. When one of the three wanted to sell his one-third stake to an outside investor, the other two found themselves with no organised purchase priority and no agreed valuation method. Approval let them refuse the third party, but not impose a buyback price; and the six-month period of article 1863 was running. With no buyback offer within that window, approval risked being deemed acquired and the third party entering despite them.

The analysis led to introducing, through an amendment of the articles backed by an agreement, a pre-emption clause with a price formula (a value based on the SCI's revalued net assets, expert determination in case of disagreement) and a reciprocal, staggered buyback commitment in case of falling-out. The seller obtained a certain, quantified exit, the other two kept control, and the SCI regained clear governance. The lesson is simple: clauses are drafted when you do not need them, never in the heat of a conflict.

In practice#

To secure the entry and exit of an SCI's partners, here are the operational reflexes:

• Check what your current articles actually say: many SCIs have standard articles that repeat the legal approval rule without tailoring it, and let family transfers through.
• Decide on the degree of openness: approval by unanimity, by a majority, or by the manager, depending on whether the SCI is a closed family vehicle or brings together business partners.
• Systematically couple approval with a pre-emption clause and a written price method: it is the absence of a price that creates litigation.
• Reserve for the articles what must be enforceable against third parties (approval), and for the agreement what must stay confidential and fine (exit price, reciprocity, financing).
• Cap any inalienability clause in time and tie it to a serious cause (the duration of a loan or a project) to ensure its validity.
• Connect these clauses to your wealth and tax objective: transmission, split ownership, corporate or income tax choice, and have the whole reviewed before signing.

• A very tight approval clause with no buyback mechanism and no agreed price turns against the partners: the six-month period of article 1863 can make approval deemed acquired, and the third party enters despite the refusal.
• Unless the articles provide otherwise, transfers to ascendants and descendants escape approval: a family SCI that wants to keep control must stipulate it expressly.
• A perpetual inalienability clause, or one without serious cause, is void: it must be limited in time and justified by a serious and legitimate interest.
• A pre-emption clause with no price method is a guaranteed source of dispute the day it applies: set the valuation method in advance.
• The shareholders' agreement is not enforceable against third parties like the articles: its breach is mainly settled in damages, rarely by cancelling the transfer.
• Amending the articles requires a meeting and a formality: do not postpone updating clauses until the conflict, when unanimity becomes impossible to reach.