Usufruct of Company Shares: No Right to Profits Before the General Meeting

Imagine: you own shares in a family company, but you only have the usufruct (the right to use the assets and receive the income, but not to dispose of them freely). Each year, the company makes profits. You expect to receive your share, like rent. Yet the general meeting decides to place these profits in reserve rather than distribute them. You feel cheated: should these profits not come to you? This is exactly the question that arose in Wattrelos, in a case that shook the world of property and companies.

This decision of the Court of Cassation of 10 February 2009 (No. 07-21.806) provides a clear answer: as long as the general meeting has not approved the accounts and decided on the distribution of dividends, the profits have no legal existence for the usufructuary. In other words, you cannot claim what has not yet been attributed. And if you participate in the meeting which votes for the reserve, you are not considered to have made a gift to the bare owner (the one who owns the shares without having the use of them). A decision which has concrete consequences for thousands of owners, from Armentières to Lille.

Whether you are a usufructuary or a bare owner, whether you hold shares in a family SCI or an SARL, this judgment redraws your rights. Let's dive into the details.

The Facts: a Story Like Many Others Every Day

The case begins in Wattrelos, in the Nord. Mr. X is the usufructuary of shares in a property investment company (SCI) which manages a rental property. The SCI makes profits each year, but the general meeting decides to allocate them to a reserve account rather than distribute them as dividends. Mr. X, who hoped to receive these profits as fruits of his shares, sues the company and the bare owner (his son). He argues that the profits constitute fruits and that he is entitled to their immediate attribution. Failing that, he considers that his participation in the vote to put them into reserve amounts to an indirect gift to the bare owner, which should be subject to the rules on gifts.

The first instance court rules in his favour, but the court of appeal reverses the judgment. Mr. X appeals to the Court of Cassation. The Court of Cassation, in a very technical judgment, dismisses his appeal and confirms the position of the court of appeal. For the judges, the profits made by a company only become fruits from the moment the general meeting attributes them as dividends. Before this attribution, they have no separate legal existence. Thus, the usufructuary has no right to undistributed profits, and his vote in favour of putting them into reserve does not constitute a gift.

The Reasoning of the Court — Analysed

The Court of Cassation relies on Article 1844 of the Civil Code, which governs the rights of shareholders. It specifies that the right to dividends arises only after the collective decision of the shareholders. Indeed, the profits are initially the property of the company, and it is only after the approval of the accounts and the determination of distributable sums that the meeting can decide to distribute them. The usufructuary, as holder of a right of enjoyment over the shares, cannot claim sums which have not yet been individualised.

The reasoning is subtle: it distinguishes accounting profit (a mere entry) from the dividend (a sum actually attributed). Before distribution, the profit remains in the company's accounts and may be allocated to reserves or reinvested. The usufructuary cannot demand its distribution, as this would amount to recognising a right of claim against the company before it has decided to part with the funds. Moreover, the Court dismisses the idea of a gift: if the usufructuary votes for the reserve, he is merely exercising his voting right, without any donative intent. The bare owner does not personally enrich himself, because the reserves remain in the company and benefit all the shareholders.

This decision confirms constant case law (Civ. 1ère, 4 March 1986, etc.) and clarifies a frequently debated point. It fits into a logic of protecting the freedom of general meetings to manage profits as they see fit, without interference from usufructuaries.

What This Changes for You — Concretely

For the usufructuary of company shares: you have no right to undistributed profits. If the general meeting decides to put the profits into reserve, you will receive nothing. Nor can you claim compensation. On the other hand, you retain your voting right and can try to influence the distribution policy. In Armentières, a client who is a usufructuary of an SCI told me: 'I thought the profits were automatically mine. Now I know I have to negotiate in advance with the bare owner.'

For the bare owner: you are protected. The usufructuary cannot claim the reserves built up during the usufruct. At the end of the usufruct (death of the usufructuary or expiry of the term), you recover full ownership of the shares, including the accumulated reserves. Example: an SCI in Wattrelos put €50,000 into reserve over 10 years. At the end of the usufruct, the bare owner recovers this €50,000 without having to share it.

For the drafter of deeds (notary, lawyer): when creating a usufruct over company shares, it is crucial to include specific clauses. For example, an adjusted voting right or a minimum distribution obligation. Without this, the usufructuary may end up with no income for years.

If you are in this situation, you must check the company's articles of association and the deed of gift or inheritance that created the usufruct. In the absence of a clause, the general meeting has full power.

Four Tips to Avoid This Type of Dispute

• Negotiate a minimum distribution clause: in the deed creating the usufruct, provide that each year a percentage of the profits (e.g., 50%) must be distributed as dividends. This guarantees an income for the usufructuary and avoids conflicts.
• Draft a usufruct agreement: in addition to the articles of association, sign a document specifying the usufructuary's voting rights on the allocation of profits. For example, the usufructuary will have a right of veto over any reserve beyond a certain amount.
• Anticipate the end of the usufruct: provide in the deed that the reserves built up during the usufruct will be shared between the usufructuary and the bare owner in proportion to their rights. Caution: this clause may be recharacterised as a gift; seek legal advice.
• Consult a lawyer before any general meeting: if you are a usufructuary and the agenda includes an allocation of profits to reserve, ask for advice. Sometimes a simple letter to the bare owner can unlock an amicable solution.

Further Analysis: Related Case Law and Developments

This decision is part of a line of judgments limiting the rights of the usufructuary over undistributed profits. Already in 1986, the Court of Cassation had ruled that the usufructuary cannot claim reserves built up before the creation of his right (Civ. 1ère, 4 March 1986). In 1999, it specified that the usufructuary's voting right on the allocation of profits is a political right, not a right of claim (Com., 9 November 1999).

The trend of the courts is therefore clear: judges protect the freedom of management of companies and refuse to recognise an automatic right of the usufructuary to profits. For the future, it is likely that practitioners will multiply contractual clauses to secure the usufructuary's income. The law has not changed since 2009, but notarial practice is adapting.

Key Points to Remember

• Q: Can I demand payment of profits if I am a usufructuary?
  A: No, as long as the general meeting has not voted for their distribution. You are only entitled to dividends actually attributed.
• Q: What if the general meeting systematically puts profits into reserve?
  A: You can try to negotiate with the bare owner or apply to court for a modification of the articles for abuse of majority, but this is rarely granted.
• Q: Is a vote to put profits into reserve a disguised gift?
  A: No, according to the Court of Cassation. You are merely exercising your voting right without donative intent.
• Q: At the end of the usufruct, who gets the reserves?
  A: The bare owner recovers full ownership of the shares, so the reserves go entirely to him, unless otherwise agreed.
• Q: Can I sell my usufructuary shares if I receive no dividends?
  A: Yes, but their value will be low if the company does not distribute dividends. Have the shares valued by an expert.

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 →