Overview of French Business Law

James Crowson

The Purpose of this Presentation

• To advise the Board about legal aspects of conducting business in France.

– Legal risk avoidance

• Definition: legal risk arising from failure to comply with statutory or regulatory obligations.

• We are liable and must anticipate new and other laws when exploring the possibility of expanding internationally.

Government and Political System

• France is a semi-presidential representative democratic republic. Constitution of 5th Republic, 1958.

• Executive power is exercised by President Sarkozy and P.M. Fillon, May 2007

• It is a multi-party system (more than 20).

• Legislative power is vested in a bi-cameral legislature, 346 senators and 577 deputies.

Source: Germain

The Origins of the French Legal System

• The basis of the French legal is the 1804 Code Napoléon

• Rights and obligations of citizens, and the laws of property, contract, inheritance, etc.

• Adapted from Roman and customary law.

• The Code Civil remains the cornerstone of French law to this day, though it has been updated and extended many times to take account of changing society.

Source: Fischer

The Nature of the French Legal System

• France has a system of "Civil law” not "Common Law.“ Civil law systems are largely based on a Code of Law.

• Worldwide, common law forms the basis of the law in most English-speaking countries, whereas Civil law systems prevail in most of the rest of the world.

• Oral proceedings are far less important in France than in common-law jurisdictions.

• Written submissions prior to the trial per se are much more important.

• Cross-examination of witnesses does not exist and furthermore there are no juries in Civil matters.

Source: Germain

Common Courts in France

• The principal courts which non-French plaintiffs or defendants are likely to encounter: – Tribunal d’Instance or Lower District Courts, court of

first instance.

– Tribunal de Grande Instance or Higher District Courts, requires litigants to be represented by a French Attorney.

– Tribunal de Commerce or Commercial Courts, only deals with trade and commerce disputes.

– Cour d’Appel or Court of Appeals, appellate courts

– Cour de Cassation or Supreme Judicial Court

Source: Triplet & Associés

Operation of the Courts

• France’s legal system is known as inquisitorial, as opposed to the adversarial system used in Common Law legal systems.

• In court, the judge or judges arbitrate between the prosecution and the defense, both of which are generally represented by their lawyers, or avocats.

• The French judicial system does not have recourse to juries except in criminal courts.

• If the case goes to appeal, the arguments of the prosecution and the defense are taken over by appeals specialists known as Avoués.

Source: Triplet & Associés

Litigation in France

• Procedure in French courts is carried out by parties filing written submissions.

• Oral advocacy plays a relatively minor role in civil litigation AND oral cross-examination of witnesses does not exist.

• There are no juries whatsoever before the civil courts and large scale damages are virtually unheard of.

• French Lawyers have a monopoly on appearing before the latter and claimants may not usually appear in person before the TGI.

Source: French Law Publications Ltd.

Attorney Fees

• The losing party rarely has to pay a substantial amount to the other side in regard to costs.

• Any early suggestion of settlement by non-French attorneys or those from outside of France tend to be perceived that opposing counsel has a weak case.

• Contingency fee arrangements are strictly forbidden by Statute. – Disbarment in the event that solely on contingency fee agreement with a

client. – A written fee agreement with the client set out in advance is permitted,

however.

• Few law practices bill according to time spent and the identity of the fee earner. Litigators tend to bill according to the worth of the matter at suit, the reputation of the Attorney dealing with the matter, the result obtained, etc.

• The national hourly rate is between 220 Euros (255 $US) and 450 Euros (521 $US).

Source: Triplet & Associés

Paralegal or Non-lawyer Functions

• Interfaces between staff based in France and the Legal Department based in the United States for all contracts and/or agreements.

• Responsible for overall contract management. • Receives, consolidates and writes in both French and

English contracts or contract extensions, including confidentiality agreements, consultant contracts, material transfer agreement, equipment lease, and contract development.

• Facilitates the negotiation process between customers, suppliers and the legal department of the company.

• Negotiates contracts with suppliers. • Trains new firm employees to contracts process in English.

Source: EXPECTRA France

Alternative Dispute Resolution

• French law has a strong policy favoring international arbitration. This is reflected in a number of ways: – If despite an arbitration agreement a party brings an

action before a French court in relation to a dispute arising out of the underlying contract, the court will dismiss the action and invite the parties to refer their dispute to arbitration.

– French courts will not interfere with the conduct of arbitral proceedings. For instance, they will not issue injunctions against the arbitrators or the parties.

Source: Bertrand and Ryde

ADR (Con’t)

– French courts have developed over the years an abundant body of arbitration-friendly case law which is regarded to be at the cutting edge of legal thinking.

– If we have contracts with French parties or with parties having assets in France, providing for disputes with such parties to be referred to arbitration is a valid choice.

– If we enter into an arbitration agreement, provided that France is the seat of the arbitration is a safe course of action.

Source: Bertrand and Ryde

French Corporate Law

• French business deals are traditionally influenced by accounting and tax concerns, rather than legal issues.

• French legal authorities argue that their law relies on principles and that a French contract will almost always be much simpler than its equivalent common law jurisdiction.

• In France, obtaining warranties from a seller of a company or a business is an uphill struggle.

• Warranties are perceived to be Anglo-Saxon imports, another onslaught of cultural hegemony from across the water.

Source: Triplet & Associés

Opening a Branch Office in France

• A foreign company can do business in France directly under its own name.

• The branch does not have its own legal status.

• The branch must be registered with the Clerk of the Commercial Court.

• It must file its accounts with the Clerk of the Commercial Court on an annual basis.

• Taxation of profits generated in France are at the corporate income tax rate.

Source: (PriceWaterhouseCoopers)

Creating a French Company or Entity

• The formation of companies in France is generally considerably more complicated and time consuming than in many Common Law jurisdictions (Triplet).

• There is no such thing (currently) as an off the shelf (or “shell corp.”) company in French Law, or “Business-in-a-Box.”

• All types of companies require a minimum fixed amount of share capital to be deposited and temporarily frozen prior to formation.

Source: (PriceWaterhouseCoopers)

French Legal Entities

• Société Anonyme (SA)

• Société à responsabilité limitée (SARL)

• Société par actions simplifiée (SAS)

• Société en nom collectif (SNC)

• Société Civile (SC)

• Other entities

– “Société en commandite simple” (limited partnership)

– “Société en participation” (undisclosed partnership)

Source: (PriceWaterhouseCoopers)

French Tax System

• Types of French tax issues discussed

– Corporate income tax

– Tax exemptions

Source: (PriceWaterhouseCoopers)

French Tax System (con’t)

• Corporate income tax

– Corporate income tax

• Payable by joint stock companies (SA, SAS, SARL, etc) and partnerships.

– Corporate income tax rate

• Standard rate: 33.3% of the taxable income.

• Reduced rate of 15% for small and medium-sized companies.

• Plus a 3.3% social security contribution assessed on the amount of corporate income tax.

Source: (PriceWaterhouseCoopers)

French Tax System (con’t)

• Tax Exemptions – Young innovative firms get full exemption from

corporate income tax for 3 years and then a 50% reduction for 2 years AND exemption from business tax for 7 years for firms already existing as of or created on January 1, 2004 through December 31, 2013.

– New firms get full, then partial exemption from corporate income tax for 5 years for companies set up in certain development areas AND exemption from business tax for a period of 2 to 5 years.

Source: (PriceWaterhouseCoopers)

Employment Law

• General Information – French Cultural Differences

• Ignorance of cultural codes can cause blunders which can rapidly be regarded as rudeness

• They arrive at work between 9 am and 9.30 am • They leave work as late as 7 pm

• Major disadvantage: France’s Rigid Labor Laws • Hiring employees

– The legal duration of the work week is 35 hours. – It is necessary in France to provide a written contract

of employment to all staff of whatever grade or level.

Source: République Française

Employment Law (con’t)

• Hiring employees (con’t) – Contracts of employment are virtually always for an indefinite

term and specific agreements for short limited term employment are tightly regulated.

– Limited term agreements may not be renewed more than once otherwise they will be held to become Indefinite term agreements.

• Dismissing employees – In France it is not possible to hire employees "at will.“ Once you

have hired an employee, you may only dismiss them for a specific reason.

• Employee Benefits – At least 2.08 days per month, i.e. 25 week days per year – Up to 2.5 days per month, or 30 working days per year

Source: French Law Publications Ltd.

References

• Bertrand, E., & Ryde, R. (2008, November 15). Dispute resolution in France: An overview for foreign lawyers. Retrieved December 10, 2010, from Campbell, Philippart, Laigo & Associés: http://www.parislaw.tm.fr/uploads/docs/Dispute%20resolution%20in%20France%20an%20overview%20for%20foreign%20lawyers.pdf.

• Central Intelligence Agency (CIA). (2010, December 7). Europe: France. Retrieved December 10, 2010, from CIA World Factbook: https://www.cia.gov/library/publications/the-world-factbook/geos/fr.html.

• EXPECTRA France: Group "w" Ranstad. (2010, December 10). PARAJURISTE (H/F) publié par EXPECTRA France Lieu : Grenoble. Retrieved December 10, 2010, from Admincompta.fr ASA: http://www.admincompta.fr/emploi--PARAJURISTE-H-F-Grenoble-EXPECTRA-France--218723-inline.html?cid=MSearchE_trovit.

• Fischer, S. (2006). Comparative Law: History of French law. Columbus School of Law. Washington, DC: The Catholic University of America.

• French Law Publications Ltd. (2002). Litigation in France. Retrieved December 10, 2010, from French Law: The French Law Resource: http://www.frenchlaw.com/french_litigation.htm.

• French Ministry of Foreign and European Affairs. (2008). The French Political System. Retrieved December 10, 2010, from France Diplomatie: http://www.diplomatie.gouv.fr/en/france_159/institutions-and-politics_6814/the-french-political-system_6827/index.html

• Germain, C. M. (2004). Cornell Legal Research Encyclopedia: French Law Guide. Retrieved 12 09, 2010, from Cornell Law Library: http://library2.lawschool.cornell.edu/encyclopedia/countries/france.

• PriceWaterhouseCoopers. (2006, June 30). How to set up a subsidiary in France. Retrieved December 10, 2010, from http://www.bordeaux-region.com/fr/: http://www.bordeaux-region.com/en/IMG/pdf/doing_business_in_france.pdf.

• République Française, Ministère du Travail, des Relations Sociale, de la Famille, de la Solidarité, et de la Ville. (2008, August 20). Mode d'emploi: Le temps de travail. Retrieved December 10, 2010, from Ministère du Travail, de l'Emploi et de la Santé: http://www.travail-solidarite.gouv.fr/espaces,770/travail,771/dossiers,156/temps-de-travail,414/le-temps-de-travail-mode-d-emploi,9179.html.

• Triplet & Associés. (n.d.). Retrieved December 10, 2010, from Triplet & Associés: French Attorneys and Counselors at Law: http://www.triplet.com.