There is no single regime for removing a company director in France, but four. The directors and the chairman of the board of a société anonyme may be removed at any time, without reason and without compensation. The chief executive and the manager of a SARL may also be removed at any time, but removal without proper cause gives rise to damages. In a société par actions simplifiée, everything turns on the articles. In all four cases, a removal carried out brutally or humiliatingly engages the liability of the company, even where no reason was required.
A chief executive learns of his removal on finding that his computer access has been cut, before the board has even met. The manager of a SARL is removed at a meeting convened on an agenda that mentioned nothing of the kind. The president of a SAS is notified of a removal decided by a body the articles do not empower. These three situations produce very different outcomes, and none of them is resolved by reading the Code alone: it starts with the corporate form, the exact office held, and the text of the articles.
SARL: proper cause governs compensation
Article L. 223-25 of the Commercial Code provides that the manager may be removed by decision of the shareholders on the conditions of article L. 223-29, unless the articles require a higher majority, and that if removal is decided without proper cause it may give rise to damages. The same text adds a route often forgotten: the manager may be removed by the courts for legitimate cause, on the application of any shareholder. A minority shareholder who cannot muster a majority therefore has a judicial remedy of his own.
Removal takes effect even without proper cause: the manager is out, and the only sanction is compensatory. It is an essential distinction, and many directors get it the wrong way round. A removed corporate officer is not reinstated. The question is the amount, and it is classically measured by the remuneration he would have received until the foreseeable end of his term, adjusted for the circumstances.
Société anonyme: three offices, three regimes
Article L. 225-18 of the Commercial Code provides that directors may be removed at any time by the ordinary general meeting. This is removal ad nutum: no reason, no notice, no compensation, and no clause in the articles can stand in its way. Article L. 225-47 applies the same rule to the chairman of the board, stating that the board may remove him at any time and that any provision to the contrary is deemed unwritten.
The regime of the chief executive is different. Article L. 225-55 provides that he may be removed at any time by the board, but that if removal is decided without proper cause it may give rise to damages, except where the chief executive also holds the office of chairman of the board. Combining the two offices therefore forfeits the right to compensation, something rarely anticipated when the board decides to put both hats on one head. The same protection extends to deputy chief executives, removable on the proposal of the chief executive.
SAS: everything is in the articles, and that is where the litigation happens
Article L. 227-5 of the Commercial Code confines itself to stating that the articles fix the conditions on which the company is managed. That freedom is the great advantage of the form, and its main source of litigation. The articles may require proper cause or dispense with it, provide for a fixed compensation or exclude it, designate the competent body, impose an adversarial procedure, a notice period, a qualified majority.
Litigation therefore almost never concerns the existence of the right to remove, but compliance with what the articles provide: competent body, proper convening, quorum, majority, prior procedure. A removal decided by the management committee where the articles entrust it to the shareholders is irregular, and that irregularity is worth arguing. Where a shareholders agreement supplements the articles, both documents have to be examined together, because their sanctions are not the same.
What proper cause means
Proper cause is not necessarily misconduct. It may arise from objective circumstances compromising the corporate interest or the running of the company: disagreement paralysing management, lastingly poor results attributable to management, loss of confidence founded on verifiable evidence, a strategic reorientation incompatible with keeping the incumbent. Conversely, an isolated difference of view, a disagreement over remuneration or a wish to make room for a relative are not proper cause.
In practice a company that removes an officer has every interest in documenting the reason before the decision, in the minutes of the competent body and in the material on which it rests. A reason constructed after the event, during the proceedings, rarely convinces. Symmetrically, the officer who challenges the decision must obtain disclosure of that material, which is prepared from the moment of notification.
Vexatious removal, a sanction common to all four regimes
Even where removal is ad nutum and requires no reason, the circumstances in which it takes place are reviewed. The company incurs liability where removal is accompanied by circumstances that are brutal, humiliating or damaging to the officer honour or reputation: a public announcement before notification, access and communications cut off in the middle of a meeting, disparaging remarks in front of staff or business partners, a press release suggesting misconduct that has not been established.
The second complaint, just as frequent, is failure to respect the right to be heard. The officer must have been put in a position to make his observations before the decision, including where no reason is required. A removal decided without the person concerned being able to speak is wrongful, whatever the merits of the decision. These two heads of liability produce the most judgments against companies, precisely because they are independent of the applicable regime.
Holding an employment contract alongside the office
An officer who also performs distinct technical duties, in a relationship of subordination and for separate remuneration, may hold both a corporate office and an employment contract. In that case, removal from office does not end the employment contract, and dismissal requires its own procedure and its own real and serious cause. It is a decisive point, because it doubles the protection.
But the combination is rarely as solid as the officer believes. Where the employed duties merge with the management duties, or where the person concerned controls the company, the employment contract is held to be fictitious or suspended for the duration of the office. The analysis is done on the documents: job descriptions, organisation chart, payslips, the reality of subordination, the independence of the remuneration. It has to be carried out before the break, not after.
Remuneration, severance and practical consequences
Contractual severance, where provided for, must have been properly authorised by the competent body and, in a société anonyme, comply with the regime of regulated agreements. Severance decided by the sole beneficiary, or set at an amount likely to deter the company from exercising its right of removal, is exposed to nullity or reduction. It is a classic source of litigation in family companies.
Once the decision is taken, the practical consequences remain, and they generate disputes of their own: filings at the registry within the month, transfer of banking powers, return of equipment and data, the fate of personal guarantees given by the officer for the company, and above all continuing liability for the period of management. Removal does not wipe the past: a removed officer remains exposed to liability proceedings for faults committed during his term.
Timetable, cost and how the firm intervenes
A well prepared removal is decided in a few weeks, the time needed to convene the competent body, assemble the file on the reason and organise the hearing. A removal challenged before the commercial court is decided in twelve to eighteen months at first instance. Between the two, settlement is frequent and often preferable, because it deals at once with compensation, guarantees, non competition and communications.
The firm acts on both sides. For the company, the work is to secure the competent body and the procedure, to build and document the reason, to organise the hearing and to draft the settlement agreement. For the officer, it is to analyse the regime applicable to his exact office, to check the regularity of the decision, to identify vexatious circumstances and any failure to hear him, to quantify the loss, and to deal with the personal guarantees that too often outlive the office.
Are you considering removing a director, or have you just been removed? The corporate form and the text of the articles govern everything: the firm characterises the situation before the decision is taken or challenged.
Frequently asked questions
Can a removed director be reinstated?
No. Removal of a corporate officer takes effect even where it is irregular or lacks proper cause. The sanction is compensation, not reinstatement. Only an employment role held alongside the office follows a separate regime, with its own dismissal procedure.
Is proper cause required in order to remove?
It depends on the office. Directors and the chairman of the board of a société anonyme may be removed at any time without reason, under articles L. 225-18 and L. 225-47 of the Commercial Code. The chief executive and the manager of a SARL may also be removed at any time, but the absence of proper cause gives rise to damages under articles L. 225-55 and L. 223-25. In a SAS, the articles decide.
What can a director removed brutally claim?
Even where no reason is required, removal engages the liability of the company if it takes place in brutal or vexatious circumstances, or without the officer being able to make his observations. The loss compensated then covers damage to reputation and the professional consequences, independently of any compensation for the absence of proper cause.
Does holding an employment contract alongside the office give protection?
It does where the employment contract corresponds to distinct technical duties, performed in a relationship of subordination and separately remunerated. Where the employed duties merge with management, or where the officer controls the company, the contract is held fictitious or suspended for the duration of the office. The analysis is done on the documents and must precede the break.
Can a minority shareholder obtain the removal of the manager?
Yes, in a SARL. Article L. 223-25 of the Commercial Code allows any shareholder to apply to the court for removal of the manager for legitimate cause, independently of any majority in a meeting. It is a useful route where the majority manager is also the one blocking the vote.
Article written by Herve Guyader, member of the Paris Bar, doctor of law. This content is general information and does not replace legal advice.