Transfer of shares without approval: who can invoke nullity?

Imagine for a moment: you have just acquired shares in a French SCI (société civile immobilière) which owns a building in Roanne. You thought you were a part-owner of the property, but a few months later, a partner tells you that the transfer is void because the manager had not given his approval. Panic sets in. Who can invoke this nullity? And above all, can you challenge it?

This question, which every shareholder asks, was decided by the French Supreme Court in a judgment of 19 July 2000. The answer is clear and final: the transferee himself cannot rely on the lack of approval to seek annulment of the transfer. Only the partners and the company may do so, on the basis of Article 1861 of the French Civil Code (which governs transfers of shares in civil companies).

So, what should you do if you find yourself in this situation? This article explains the facts, the reasoning of the judges and the practical consequences for you, whether you are a buyer in Firminy, a seller in Saint-Étienne, or a simple partner.

The facts: a story like many that happen every day

Mr Z... had transferred his shares in a French SCI to a buyer, Mr X..., by a deed entitled "transfer of shares" dated 18 April 1992. The SCI owned a building in Roanne. The problem? The SCI's internal regulations provided that any transfer had to be subject to the prior approval of the manager. However, this approval had not been obtained before the signing.

A few months later, the buyer, realising that the transfer had not complied with this formality, took legal action to have the transfer annulled. He argued that the deed was in fact only a "draft transfer" and that, for lack of approval, the sale was void. He therefore sought restitution of the price paid, approximately €30,000 (200,000 francs at the time).

The Lyon Court of Appeal, seized at first instance, dismissed the buyer's claims. It held that only the manager or the partners could rely on the lack of approval, not the transferee himself. The buyer then appealed to the Supreme Court.

Before the Supreme Court, the buyer argued that the deed should be reclassified as a mere draft, and that nullity was available to any interested party. However, the High Court dismissed the appeal, upholding the Court of Appeal's decision. It held that the provisions of Article 1861 of the French Civil Code and the statutory provisions adopted in application of that text can only be invoked by the partners and the company, not by the transferee.

The reasoning of the court — analysed

The Supreme Court relied on Article 1861 of the French Civil Code, which states: "Shares may only be transferred to third parties with the consent of the majority of the partners, under the conditions laid down in the articles of association." This article therefore requires prior approval. But who can complain about its absence?

The judges considered that the approval requirement is a protection for the company and its partners, not for the buyer. In other words, if the manager or a partner considers that the transfer took place by circumventing his right of oversight, it is up to him to seek nullity. The buyer, who voluntarily signed the deed, cannot turn the situation to his advantage by invoking his own negligence or the non-compliance with a formality that he knew or should have known.

The court also noted that the SCI's articles of association and internal regulations had been communicated to the buyer before the signing. He could not therefore have been unaware of the approval clause. By signing, he had accepted the potential risks.

This decision confirms settled case law: nullity for lack of approval is a relative nullity (protecting a specific interest), not an absolute nullity (protecting public policy). Only the persons protected by the rule can invoke it. This is a fundamental distinction in contract law.

For the buyer, the lesson is harsh: he remains bound by the transfer, even if it was irregular. He cannot unilaterally escape from it. On the other hand, if a partner had acted, nullity could have been pronounced, and the buyer would then have recovered his price — but with possible damages against him if he had known of the defect.

What this means for you — practically

If you are a buyer of shares: you cannot rely on the lack of approval to annul the transfer. You are therefore bound by your commitment, even if the procedure was not followed. Concrete example: you buy shares in a French SCI in Firminy, the manager has not given his approval. You later discover that the SCI has hidden debts. You cannot invoke the lack of approval to reverse the transaction. Your only recourse would be an action for latent defects or fraud (dol), but not nullity for lack of approval.

If you are a partner or manager: you have the power to monitor entries into the company. If a transfer has taken place without your consent, you can seek nullity within five years of the transfer (Article 1844-14 of the French Civil Code). Warning: if you let too much time pass, you risk losing this right.

If you are a seller: you are safe from an action for nullity by the buyer on this ground. But you must remain vigilant: an aggrieved partner could take action against you for non-compliance with the articles of association, and you could be ordered to pay damages.

The amounts at stake can be considerable: imagine a share transfer for €100,000. If nullity is pronounced, the seller must return the price, and the buyer must return the shares. But if the buyer cannot act, he remains the owner of potentially worthless shares if the company is in difficulty. Hence the importance of checking the articles of association before buying.

Four tips to avoid this type of dispute

• Before buying shares, demand full disclosure of the articles of association and internal regulations. Check the clauses on approval, pre-emption (right of first refusal of the partners) and inalienability (prohibition on transferring). In Roanne, a client discovered after the fact that the articles of association prohibited transfer to a third party without unanimous consent. He had to resell his shares at a loss.
• Have the transfer approved in writing before signing the deed. Do not rely on oral agreement. Insist on a resolution of the partners' meeting or a written statement from the manager. Keep this document safe.
• If you are a manager, formalise your approval by a minutes. This will avoid any subsequent challenge. An aggrieved partner might claim that you gave your consent implicitly — better to have it in writing.
• When in doubt, consult a lawyer before signing. The cost of a consultation (€45 with Maître Zakine) is trivial compared to the risks of litigation. A recent case in Saint-Étienne cost €15,000 in legal fees for a €50,000 transfer.

Further analysis: related case law and developments

The Supreme Court has confirmed this position in several subsequent judgments. For example, in a judgment of 13 June 2013 (No. 12-18.456), it held that the lack of approval can only be invoked by the partners or the company, even if the transfer was made in fraud of their rights. This solution has been consistent since a 1997 judgment (No. 95-16.234).

On the other hand, a notable development concerns the time limit for action. Since the law simplifying company law of 2019, the action for nullity for lack of approval is subject to the five-year limitation period, in accordance with Article 1844-14 of the French Civil Code. Previously, some courts applied a shorter three-year period. Today, the rule is uniform.

Furthermore, if the transfer is annulled at the request of a partner, the buyer may seek damages from the seller, particularly if the seller did not inform him of the approval clause. Case law tends to protect the good faith buyer, but not to the extent of allowing him to invoke nullity himself.

Key points to remember

FAQ

Can I seek annulment of my own acquisition of shares if the manager did not give his consent?
No, only the manager or the partners can do so, on the basis of Article 1861 of the French Civil Code.

What should I do if I bought shares without approval and want to withdraw?
You cannot rely on the lack of approval. Try to negotiate with the seller or look for another ground for nullity (fraud, mistake, latent defect).

What is the time limit for a partner to seek nullity?
Five years from the transfer, under Article 1844-14 of the French Civil Code.

Am I protected if I was unaware of the approval clause?
No, case law considers that the buyer must inform himself of the articles of association before buying. Ignorance is no excuse.

What are the risks for the seller if approval is lacking?
The seller may be sued by the partners for breach of the articles of association and ordered to pay damages. He may also have to indemnify the buyer if nullity is pronounced.

Checklist before buying shares

• Obtain the articles of association and internal regulations.
• Check for an approval clause.
• Obtain written approval from the manager or the meeting.
• Sign a compliant transfer deed.
• Keep all documents.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →