A Civil Law System

France has a system of civil law primarily based on legal codes and statutes, with case law also playing an important role. French laws must comply with the French national Constitution and the European Union (EU) law.

A System Divided into Private and Public Law

French law is split into:

• private law, governing the relations between private individuals (natural and legal persons) and applied by judicial courts; and
• public law, governing matters involving the State and administrative bodies, either depending on the State or independent local authorities and applied by public law courts.

Pursuant to the French Constitution, the Prime Minister has regulatory power, which can be delegated to the ministers. Local authorities have the regulatory power to exercise their competencies.

Independent administrative authorities (Autorité Administrative Indépendantes) are entities in charge of regulating specific sectors. They are notably entitled to create regulations and impose sanctions. As regards foreign direct investments (FDI), the most often involved are the French market regulating authority (Autorité des Marchés Financiers or AMF), which regulates the market for listed companies, and the competition authority (Autorité de la concurrence), which controls antitrust matters. However, depending on the respective business sector, many other independent administrative authorities may be involved (see 3.2 Regulation of Domestic M&A Transaction for more details).

Case Law

Although case law in France is not considered an official source of law, in practice, French judges derive rules from precedents in their decisions. Some branches of French law, which were not statute-based initially (such as administrative and private international law), have been largely developed upon court judgements.

The legal framework applicable to FDI in France is based on the general principle that financial dealings between France and foreign countries are unrestricted. However, for investments in the field of certain activities by foreign nationals, the prior approval from the Minister in charge of Economy (Ministre de l'Économie, des Finances et de la Souveraineté industrielle et numérique), represented by the Treasury Department of the French Ministry in charge of Economy, may be required.

The application of these regulations depends on the identity of the investor and the type of investment as well as on the target's activities (ie, activities specifically listed and likely to jeopardise public order, public security, or national defence interest) (see 7. Foreign Investment/National Security for more details).

In addition, other approval or regulatory requirements not specifically related to FDI may be applicable (see 3.2 Regulation of Domestic M&A Transactions for more details).

Recent Developments and Market Trends       

General context of the French market

Despite the surge in inflation and interest rates, the French M&A market remained dynamic in 2022. However, it has slowed down significantly compared to 2021 (also explained by the occurrence of presidential and parliamentary elections in early 2022 and the outbreak of war in Ukraine and its consequences). The high level of economic uncertainty makes companies and investors more cautious in the acquisition process, as reflected in an increasing demand for protection in purchase agreements. On the sell-side, this context is leading a growing number of companies to refocus on their core business, thus deciding to sell their non-strategic or less profitable assets. Finally, as in many other jurisdictions, the French state is increasingly more involved in limiting the transfer of strategic assets and businesses out of France.

Higher risks related to FDI approval

The scope of sectors subject to its prior approval in case of FDI (see 7. Foreign Investment/National Security for more details) is broadly interpreted by the French Ministry in charge of the Economy. In addition, it takes, in most cases, the maximal duration of the procedure (ie, 30 business days for phase one, as well as 45 additional business days for phase two) for its assessment, requiring in some cases a very active involvement of the investor and the target. If granted, authorisations tend to be subject to stronger conditions (notably with respect to reporting) for several years.

Even though related guidelines (Lignes directrices relatives au contrôle des investissements étrangers en France) have been published by the Ministry in September 2022 to clarify this process, it still triggers many risks for the completion of inbound transactions, notably with respect to confidentiality (as in some cases, third-parties may be informed by the administration).

Impact of uncertainties on the transaction processes and content of the purchase agreements

In many processes, potential buyers have stepped up their due diligence work. They have notably focused their due diligence work on corporate and social responsibility and financial issues, as well as on the question of exposure to the conflict between Russia and Ukraine.

Given the inflation, prices have been more difficult to determine and negotiate. Agreements have increasingly included price revision mechanisms, as well as earn-out clauses.

Buyers have also pushed on stronger and longer guarantees and on the integration of material adverse change clauses allowing them to abstain from the deal in case of a threat to the target's performance or viability by the time of closing. In parallel, the practice of warranty and indemnity insurance policies has further developed in the French market.

Finally, and as a consequence of the above, the negotiation phases were often much longer than expected in 2022, sometimes triggering delays in the completion of transactions.

Main Transaction Structures

As regards private companies/businesses, the most common structure used for transactions in France is the share deal (ie, the sale of all or part of the shares of a target). However, in particular, for smaller deals, parties may sometimes opt for asset deals (ie, sale of assets of the target); in case this is considered a transfer of a business as a whole (fonds de commerce), a specific regime applies. In addition, in view of the implementation of the European Cross-Border Merger Directive under French law, mergers may be considered for transactions with EU member state companies.

Additional Structuring

Additional structuring requirements accompany the general decision between share and asset deals. In some cases, the share deal structure includes an exchange of shares.

Furthermore, if only a part of the businesses operated by the potential seller is of interest, the parties may foresee a prior carve-out of the relevant business to a newco. The latter is generally realised in the form of a contribution from the relevant business (apport partiel d'actif), consisting of the transfer to the newco of the business, in consideration of shares in the newco, which are then sold to the buyer.

Put-Option Structure

In case the transaction is subject to the completion of the information-consultation of the works council and/or the Hamon law procedure (see 10 for more details), no binding agreement on the transfer of assets/shares can be signed by the seller before completion of such procedure(s).

However, the parties may sign a so-called put-option agreement, under which the purchaser commits to purchase the business/shares after finalisation of the required procedure(s) and in accordance with the terms of the draft purchase agreement annexed to the put-option. To also obtain some commitment from the seller (in the absence of any obligation to sell), the put-option may also provide for the publication of a press release on the signing of said option and/or break-up fees (ie, fees due to the purchaser in case the latter cannot present its sale offer).

Key-Aspects for Structuring

For the definition of the transaction structure, many aspects are to be assessed, including:

• tax impacts, and in particular registration duties, which are generally lower in a share deal (0.1% in most cases) than in asset deals (3 to 5%), or specific tax regimes applicable to certain assets (eg, IP);
• real target for the purchaser, ie, defining whether the whole company or only one of its businesses or its assets is of interest, which may entail prior carve-out operations and/or employment issues; and
• potential or existing liabilities (eg, environmental risks relating to a specific site, litigation or employment issues for a specific activity) - with the liabilities transferred in a share deal, but in principle, not in an asset deal.

Listed Companies

Tender offers (paid in cash, by way of exchange of shares or a combination of both) are the main way to acquire listed companies in France.

Investors usually opt for a voluntary tender offer.

However, investors can also first acquire a block of (existing) shares or subscribe to a controlling stake in the share capital of the target through a reserved capital increase (issuance of new shares) which then triggers a mandatory tender offer for the remainder of the share capital and voting rights.

More precisely, a mandatory tender offer has to be launched when:

• the threshold of 30% of the share capital or voting rights of a company listed on the regulated market is exceeded;
• when an investor holding between 30% and 50% of a company listed on the regulated market increases its shareholding by more than 1% over a period of twelve months; or
• when the threshold of 50% of the share capital or voting rights of a company listed on Euronext Growth is exceeded.

Any shareholder obtaining over 90% of the share capital and voting rights in a listed company is entitled to launch a mandatory squeeze-out procedure to acquire the remaining shares held by minority shareholders (with subsequent delisting of all the shares). 

In practice, acquisitions of listed companies through mergers are rare in France.

In addition to the regulatory regime specifically governing FDI, France-related M&A transactions may be subject to certain other approval or regulatory requirements.

Independent Administrative Authorities

Certain sectors are regulated by specific independent administrative authorities (AAI), such as the Commission de regulation de l'énergie (CRE), for the energy sector; the Conseil supérieur de l'audiovisuel (CSA), for the media sector; the Autorité de régulation des communications électroniques, des postes et de la distribution de la presse (ARCEP), for the media audiovisual sector.

As such, and depending on the situation, the acquisition or divestment of a stake in companies from these sectors and various other activities (including finance, insurance, pharmaceutics, and health) may be subject to prior authorisation or information from independent administrative authorities.

Antitrust

More generally, the French Competition Authority (Autorité de la Concurrence) is responsible for merger control and prevention of illegal economic practices (see section 6. Antitrust/Competition below).

Listed companies

As for public M&A, transactions are regulated by the AMF responsible for approval of the public documentation filed by the purchaser and the target in case of a takeover bid (see 3.1 Transaction Structures and 4.3 Disclosure and Reporting Obligations for more details): the AMF reviews the terms of the offer and declares whether they conform with applicable legal and regulatory provisions. The AMF's declaration of conformity includes the approval of the offer.

Furthermore, if the acquisition of shares in a listed company involves the exceedance of one or several legal thresholds or if the shareholder falls below such thresholds (eg, as a result of a share sale or a dilution following a share capital increase of the issuer), the shareholder has to notify this to the target and the AMF (see 4.3 Disclosure and Reporting Obligations for more details).

More generally, the AMF also reviews related documentation prepared by listed companies in connection with certain transactions such as initial public offerings, capital increases and rights issues, mergers or demergers. Suppose a merger, demerger or contribution of assets is completed with a request for admission of the securities to trading on a regulated market. In that case, the issuer of the securities must file a prospectus approved by the AMF if such merger, demerger or contribution of assets involves the admission to trading on a regulated market of securities representing more than 20% of the securities already admitted.

The most common French legal forms are:

• joint-stock companies (société anonyme or SA),
• simplified joint-stock companies (société par actions simplifiée or SAS) and
• limited liability companies (société à responsabilité limitée or SARL).

The most commonly used company form for private companies is the SAS. It is managed and represented by one president and, optionally, one or more general managers. Generally, governance, rights attached to the shares and share transfers can be determined by the articles of association. No minimum share capital is required.

The SA is the only company form - with limited partnerships (société en commandite) and the European company (société européenne) - that may be listed. It is the most sophisticated type of French company and is suitable for larger businesses and/or listed companies. The SA is required to have a minimum of two shareholders and a share capital of EUR 37,000. SA is managed either by a CEO (a French native) with a board of directors or an executive committee with a supervisory board. The functioning and governance of the SA are heavily regulated by law.

The SARL is used for small structures or "family" businesses. No minimum share capital is required. It is run by one or several managers.

Private Companies

In private companies, shareholders have the right to be informed of the companies' financial accounts and important corporate documents. French company law also allows a minority shareholder, representing at least 5% of the share capital (in SA and SAS) or 10% in SARL, to request management expertise if they suspect that one or more transactions are contrary to the company's interests.

Concerning joint-stock companies, shareholders representing at least 5% of the share capital have the right to request the inclusion of items or draft resolutions in the agenda of general meetings.

Minority shareholders also influence important decisions, such as modifying the articles of association or the increase of the shareholders' undertakings, which generally require a stronger majority or even unanimity.

Finally, French case law opens an action to a minority shareholder in cases of abuse of the majority in the adoption of a collective decision contrary to the company's interest and with the sole aim of obtaining an advantage for the majority shareholder(s), of which the minority shareholders are deprived.

Listed Companies

Minority shareholders in listed companies have similar rights as minority shareholders in private companies described above:

• minority shareholders holding at least 5% of the share capital (or less than 5% if the share capital is higher than EUR 750,000) have the right to request certain items be added to a general meeting's agenda; and
• minority shareholders holding at least 5% of the share capital have the right to request in court the appointment of a representative to convene a general meeting.

Additionally, listed companies are subject to significant disclosure requirements. They must comply with reporting obligations on a regular (annual and half-yearly financial information) or permanent basis regarding the disclosure of any information that could have an impact on the share price.

At the end of any takeover bid and within three months from the closing, the majority shareholder may implement a squeeze-out on shares not tendered if such shares represent less than 10% of the share capital and voting rights. In such case, the target must appoint an independent expert to issue a fair opinion on the squeeze-out price. At the end of the squeeze-out:

• the minority shareholders of the target are compensated;
• the bidder holds 100% of the target's capital; and
• the shares are delisted.

Furthermore, minority shareholders of a listed company also have the right to ask the AMF to require the majority shareholder to submit a buy-out offer when a person or group of persons acting in concert holds at least 90% of the share capital or voting rights in the listed company, requiring the majority shareholder(s) to make them a cash-out offer.

French law imposes certain disclosure and reporting obligations regarding French companies.

Ultimate Beneficial Owner

French law obliges all companies to register a beneficial owner with the competent commercial court's beneficial owners' registry and update such entry in the event of any changes. A beneficial owner is a natural person who owns at least 25% of share capital or voting rights or who controls the company directly or indirectly. If none of these criteria is met, it is presumed to be the company's legal representative.

Crossing of Thresholds

Any investor who (directly or indirectly and/or alone or in concert) exceeds or falls below the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 33.33%, 50%, 66.66%, 90% or 95% of the share capital or voting rights of a company whose registered office is located in France and whose shares are admitted to trading on a regulated market, must notify the AMF as well as the company of the exact amount of shares and voting rights it possesses (the thresholds are 50% and 90% of the share capital for French companies listed on Euronext Growth).

Declaration to the Banque de France

Any direct investment transaction reaching the threshold of EUR 15 million must be reported within 20 days to the Banque de France.

FDI Approved by the Ministry in Charge of the Economy

For any previously approved transaction, the Ministry in charge of the Economy shall be notified of its completion within two months.

In addition, its authorisation may be subject to longer-lasting conditions (ie, years after completion of the transaction) and often include reporting obligations towards the Ministry in charge of Economy and, as the case may be, to other French administrations.

Overview of the Main Capital Markets

In France, the main markets are:

• The regulated market of Euronext Paris - intended for large-cap issuers with substantial financing depth to meet the requirements of larger investors.
• Euronext Growth (previously Alternext) - a multilateral trading facility offering market access with fewer obligations to small and mid-sized companies (SMEs) intending to raise funds to finance their growth.
• Euronext Access - a multilateral trading facility mainly serving startups and SMEs and provides easier access to listing and a framework adapted to their specific needs.

The regulatory requirements (and therefore the overall costs of listing) for companies listed on Euronext Growth Paris and Euronext Access Paris are lighter than for companies listed on the regulated market of Euronext Paris.

Companies listed on Euronext Growth Paris:

• are not subject to the "say on pay" regulations regarding executives' compensation;
• may present their financial accounts according to French accounting standards (and not European IFRS accounting standards); and
• are not subject to the obligation to draw up a prospectus in the event of admission to trading of fungible securities with securities already admitted to trading on the market if they represent, over a period of twelve months, more than 20% of the number of securities already admitted to trading on the same market (applicable to listings on the regulated market only).

These capital markets are supervised by the AMF and Euronext, which set the rules governing the requirements for the issuance of shares and transactions with potential investors.

Sources of funding

In France, issuers can use bank financing and/or market financing through the issuance of bonds and convertible bonds.

In France, the securities commonly issued are defined by article L. 211-1 of the French monetary and financial code as "financial instruments". These are:

• equity securities issued by companies (eg, shares, listed or not on a regulated market)
• debt securities (bonds, which represent a fraction of a loan, constituting a claim on the company that issued it over a certain period);
• units or shares in collective investment schemes (SICAV, FCP): these organisations acquire and manage a global portfolio of financial instruments (mainly stocks and/or bonds). The value of FCP units or SICAV varies according to the evolution of the assets stored by the fund;
• financial instruments with a term (eg, options): these are financial instruments whose value varies according to the evolution of an underlying asset (shares, currencies, commodities, etc). With these securities, the assets are settled at a future date.

Issuers may be required to prepare a prospectus for an initial public offering, an issuance of new shares or equity-linked securities.

Under French law and the EU Prospectus Regulation, the filing of a prospectus approved by the AMF is required:

• if the securities to be issued are to be admitted to trading on a European-regulated market; or
• in case of an offering of securities to the public.

However, in case of a public offering, a prospectus is only required when the amount raised is higher than EUR 8 million (if the amount raised is lower than EUR 8 million, the issuer will only have to draft an information document reviewed by Euronext).

The obligation to publish a prospectus does not apply to certain types of offerings of securities to the public, including:

• an offering of securities addressed solely to qualified investors;
• an offering of securities addressed to fewer than 150 individuals or legal persons per EU Member States other than qualified investors;
• an offering of securities whose denomination per unit amounts to at least EUR 100,000; or
• an offering of securities addressed to investors who acquire securities for a total consideration of at least EUR 100,000 per investor for each separate offering.

Companies listed on the regulated market are exempt from drawing up a prospectus in case of admission to trading on the regulated market of fungible securities with securities already admitted to trading on the same regulated market, provided that they represent, over a period of twelve months, less than 20% of the number of transferable securities already admitted to trading on the same regulated market.

Foreign investors have thus to consider that their transactions may give rise to the launch of a mandatory tender offer (see 3.1 Transaction Structures for more details) and/or the obligation to notify the crossing of thresholds (see 4.3 Disclosure and Reporting Obligations for more details); it being specified that any tender offer which does not result in the investor holding at least 50% of the share capital or voting rights of the target becomes null and void (the same principle applies to any shareholder who holds between 30% and 50%, and which, over twelve months, increases its shareholding more than 1%).

In France, foreign investors structured as investment funds are, in principle, not submitted to any additional specific regulatory review. However, if an investment fund invests in a French company, it shall provide particular information in:

• the declaration of beneficial owners of the target company (see 4.3 Disclosure and Reporting Obligations for more details); and
• as the case may be, the request for authorisation by the French Ministry in charge of the Economy (see 7. Foreign Investment/National Security for more details) (notably, the identity of the fund managers and the persons or entities controlling it).

France has a merger control regime governing all mergers above a certain size. The responsible French Competition Authority (FCA) is the Autorité de la concurrence. Any investment will be regarded as a merger if it results in a permanent change of control in the targeted company. Control arises from the acquisition of rights, contracts or other means which confer the possibility of exercising decisive influence on the activity of a company.

Thresholds

The FCA only reviews transactions if the three following thresholds are met:

• The total global pre-tax turnover of all the companies or groups of legal persons or individuals who are parties to a merger is greater than EUR150 million (EUR75 million in the retail distribution sector).
• The total pre-tax turnover generated in France by at least two companies or groups of legal persons or individuals concerned exceeds EUR50 million (EUR15 million in the retail distribution sector).
• The transaction is not within the European Union's jurisdiction.

Services of an intangible or intellectual nature (such as banking, insurance, or travel agencies), services or equipment of rental establishments (such as laundromats, video stores, or gyms), and restaurants are excluded from the scope of retail trade. Also excluded from the concept of retail trade are companies that conduct all of their sales online, by mail order, or via direct delivery to consumers. There are specific thresholds for mergers operating in certain overseas territories.

Timeframe

Clearance must be obtained before closing the transaction.

If the transaction does not raise any particular competition concerns, the decision can be rendered in phase one (ie, within 25 working days from the date of receipt of a complete notification file). If, at the end of phase one, there are serious doubts as to whether competition would be harmed, the FCA opens phase two (ie, a period of in-depth analysis of the transaction) and must render its decision within 65 working days from the opening of this phase two.

FDI that does not trigger the notification thresholds

The FCA may refer to the European Commission as a merger that does not trigger the French thresholds but affects trade between Member States and threatens to affect competition in the French territory significantly. This mechanism aims to catch mergers involving parties whose turnover would not reflect its competitive role on the market (as it could be the case in innovative sectors (digital economy, health or biotech in particular) where startups have a high potential or major R&D projects).

Possible outcomes

The FCA may:

• clear the transaction unconditionally (96% of cases);
• clear the transaction subject to conditions (commitments or measures ordered); or
• block the transaction.

Firstly, the FCA defines the relevant market in order to be able to identify the perimeter within which competition between companies takes place and assesses, in a second step, their market power and the potential impact of the envisaged transaction on the competitive dynamics of the relevant market. The purpose of this control is to prevent the creation of strong positions or monopolies.

As in most other countries, the FCA's analysis focuses on the effects that mergers may have on the structure and competitive situation of the market. This "economic approach" examines the possible evolution of the market power of the merging companies and the impact that this evolution may have on competition. It is necessary to look at the competitive risks and the potential impacts of such a merger on consumers. The FCA Guidelines on Merger Control (Lignes directrices de l'Autorité de la concurrence relatives au contrôle des concentrations) dated 2020 provide a more precise overview of how this analytical framework is applied to the different types of mergers that the FCA may have to examine (horizontal, vertical and conglomerate mergers).

In some cases, the FCA requests their approval to complete certain remedies. Remedies to be taken in the context of the FCA's decision can be:

• structural, ie, relating to the structure of the market, such as the sale of assets (brands, companies, plants); and/or
• behavioural, ie, concerning the actions of the new entity, such as its commercial policy.

In the event of disagreement with the companies on remedies submitted that do not address the competition concerns, the FCA may impose remedies by issuing injunctions.

The FCA may withdraw the decision authorising the transaction, impose a financial penalty, or - in case remedies or injunctions are not complied with - order the parties to carry out the corrective measures under a penalty.

When the transaction harms competition, and the proposed remedies are insufficient, or when it is impossible to issue injunctions, the FCA may prohibit the transaction.

The parties and interested third parties may appeal within two months against a decision of the FCA before the Council of State (Conseil d'Etat).

If a merger has been carried out without being notified despite meeting the relevant thresholds, the FCA will order the parties to notify the merger (unless they re-establish the situation before the merger).

In addition, the authority may impose on the persons responsible for the notification a financial penalty of up to 5% of their pre-tax turnover in France during the last fiscal year plus, if applicable, the sales of the acquired party in France during the same period, and, for natural persons, up to EUR1.5 million.

Conditions for an Investment Subject to Prior Approval

To assess whether a foreign direct investment in France is subject to screening, the Ministry in charge of the Economy considers factors relating to the involvement of foreign investors and the degree of sensitivity of the target's activities. Specifically, three cumulative conditions must be met:

• The investor is a foreign entity and/or a foreign entity is present in its chain of control.
• The nature of the transaction is such that an investor (i) acquires control (as defined in Article L. 233-3 of the French Commercial Code) of a French legal entity, (ii) acquires all or part of a business line from a French legal entity, or (iii) acquires, directly or indirectly, alone or in concert with other, more than 25% of voting rights of a French legal entity (for French companies whose shares are listed on a regulated market, a threshold of 10% is temporarily applicable until 31 December 2023; in 2023, such threshold might become applicable for a definitive duration). This third criterion does not apply to investors within the European Union or the European Economic Area.
• The French target company carries out sensitive activities, but only investments (i) made in one of the sectors specifically listed by the regulation and (ii) likely to jeopardise public order, public security, or national defence interest are subject to screening.

There are three categories of sectors:

• inherently sensitive activities (eg, defence, and security sectors);
• activities relating to infrastructures, goods and services that are essential to safeguard public order and public security (eg, security and continuity of energy and water supplies, public health, or food security);
• research and development activities related to dual-use goods and technologies or critical technologies in the aforementioned sectors.

Procedure

Optional request for opinion

The foreign investor and the French target can seek an opinion from the administration before initiating a transaction to confirm whether prior authorisation is required. The purpose of such a request is to provide more certainty and predictability for the transaction and its stakeholders and to help anticipate any conditions precedent to the transaction. The file that must be submitted is more succinct than an application for authorisation: the government only needs to review information concerning the target's activities. The Ministry in charge of the Economy shall decide if the target's business activities require screening within two calendar months.

Request for authorisation

The foreign investor must file an application for authorisation with the Treasury Department. The application must be submitted in French and include information on the investor, the target and the proposed investment.

Screening process

The procedure takes place in two phases, throughout which the Treasury Department cooperates closely with the investor and/or its legal counsel. During the review, emphasis is given to the impact on public order, public security and national defence interests. The Treasury Department may approach the investor to solicit additional information that was not provided in the application. It may also contact the target to obtain specific information relating to its activities.

The government must decide within 75 business days. The review period consists of a first phase of 30 business days from the date a complete application has been filed, followed by a second phase of 45 business days. If no response is given within the prescribed regulatory deadline of 75 days, this is deemed a rejection.

The Ministry, when deciding to authorise an investment or to submit it to conditions precedent, considers the following criteria, it being specified that the conditions imposed on the investor must be proportionate to the need to protect the public order, public security, and national defence interests. Conditions are primarily designed to:

• ensure the long-term survival and continuity of sensitive activities on French territory and protect any information related to such activities;
• preserve and protect the skills and know-how of the target;
• adjust the target's internal organisational and governance arrangements, as well as how the investor's rights in the target are exercised; and
• define procedures to share information between the various investment stakeholders and the government.

The Ministry may also make the authorisation conditional on transferring (i) a percentage of the acquired capital or (ii) all or part of a business line operated by the target to an entity separate from the investor and approved by the Ministry.

Before the Ministry's decision is notified, conditions are discussed and agreed upon with the investor. The investor must comply with the conditions for as long as they exercise control over the target (or for a specified time). In some instances, conditions may be modified at the investor's request or Ministry's initiative (in accordance with the provisions of the French Monetary and Financial Code).

The grounds on which authorisation may be refused are strictly limited by regulations, namely if there are doubts about the investor's character or if it is not possible to prescribe sufficiently strong conditions to protect French national interests.

At the end of the first phase of the screening procedure, the investor will receive one of the three following answers:

• Prior approval by the Ministry is not required under foreign direct investment regulation as not all conditions for screening have been met.
• The Ministry requires prior approval under foreign direct investment regulations, and the transaction is authorised without conditions.
• Prior approval by the Ministry is required under foreign direct investment screening regulations, and further investigation is needed to determine if conditions are required to safeguard national interests.

In this third case, the Ministry in charge of the Economy gives notice to the investor that a second phase of the investigation will begin. It has three possible outcomes:

• the investment is authorised without conditions;
• the investment is authorised subject to conditions; or
• the investment is not authorised by the Ministry.

Within two months from the date the investment is completed, the investor must file a notification of completion of the investment with the Ministry. The relevant ministerial departments will monitor any conditions tied to the Ministry's authorisation throughout their entire duration.

Any decision taken by the Ministry can be appealed before the Administrative Court of Paris within two months.

Any undertaking, agreement or contractual clause which directly or indirectly gives rise to foreign direct investment without the prior authorisation required by foreign direct investment screening regulations is deemed null and void according to the French Monetary and Financial Code.

Sanctions of the Default of Authorisation

If a foreign direct investment was made without prior required authorisation and following an adversarial procedure initiated by notice to the investor, the Ministry in charge of Economy may order the investor to implement one or more of the following measures:

• apply for authorisation to put the transaction in order (screening is then performed following the same procedures that apply to investors who seek authorisation prior to making an investment);
• amend the transaction;
• return to the status quo ante at the investor's expense.

Enforcement orders may be cumulatively accompanied by a daily penalty payment and/or precautionary measures to protect public order, public security and national defence (eg, suspending the investor's voting rights tied to the transaction requiring authorisation, prohibiting or restricting the investor from receiving dividends, suspending, restricting or temporarily prohibiting the investor from disposing of assets tied to the sensitive activities).

The Ministry may also impose a fine up to the greater of (i) twice the amount of the unauthorised investment or (ii) 10% of the target's annual turnover, or EUR 1 million for an individual or EUR 5 million for an entity.

Sanctions for Breach of the Conditions

If an investor fails to comply with one or more conditions tied to the authorisation and following an adversarial procedure initiated by notice to the investor from the Ministry in charge of Economy, the latter may:

• withdraw the authorisation;
• order the investor to comply with the initial conditions within a specified period of time; or
• enforce compliance with new conditions, such as requiring the investor to divest certain activities or return to the status quo ante.

Lastly, criminal measures may be imposed upon complaint by the Ministry in charge of Economy, which is also the case if the investor fraudulently obtained the authorisation or if conditions tied to the authorisation have been violated.

In various sectors, the operator of a facility shall hold a license or several authorisations to operate (eg, environmental or energy law-related authorisations). These authorisations are granted intuitu personae and shall be transferred by decision of the administrative authority in the event of a change of operator (in asset deals), or at least notified to the responsible administrative authority in case of change-of-control (in share deals).

Under French law, non-resident companies are subject to corporate income tax (CIT) in France on:

• profits derived by enterprises carried out in France;
• income or capital gains derived from immovable property located in France; and
• profits, the taxation of which is attributed to France by double tax treaties.

In addition to CIT, branches of foreign companies are also subject to a branch remittance tax on profits net of CIT, regardless of an actual remittance of the profits to the foreign head office.

Companies must collect VAT on their sales and services except for activities exempt from VAT. Such companies are able to recover input VAT charged on goods and services supplied to them and use them for VAT-able activities. If companies have paid more VAT than they have collected on sales and services, the VAT credit can be refunded upon conditions. France's standard VAT rate on sales of goods and services is 20% (reduced rates amount to 10%, 5.5% and 2.1% for limited services and goods). The acquisitions of goods and services by taxable persons from EU and non-EU member states could be subject to VAT under the reverse-charge mechanism.

In principle, employers who are not liable for VAT - or are not liable for VAT on at least 90% of their turnover - are liable for wage tax. It is determined annually by applying a progressive rate, ranging from 4.25% to 13,6% of the gross wages paid to employees.

Under French law, dividends paid by a French subsidiary to a foreign company are subject to a 25% withholding tax in France. Exemptions apply to dividends paid to a qualifying EU parent company. Such withholding tax may also be reduced to 15% or 5% pursuant to double tax treaties under conditions (eg, minimum level of stock ownership for most). As regards interests, no withholding tax is levied in France. Subject to exceptions, a 75% domestic withholding tax is imposed on interest or dividends paid in a non-cooperative state or territory unless it is demonstrated that the corresponding operations do not aim to localise revenues in the uncooperative states.

Companies subject to CIT tax in France may elect to form a tax consolidation group provided notably that:

• the parent company owns at least 95% of the share capital of the subsidiaries, directly or indirectly,
• the head of the group is a French company which is not 95% or more owned by another French company subject to CIT in France,
• all members of the group are subject to French CIT, and
• all members of the consolidated tax group have the same fiscal year-end.

Furthermore, two or more resident sister companies owned by a European Economic Area resident company may also form a "horizontal" tax group.

French companies receiving dividends from their French subsidiaries subject to CIT may elect for the French participation exemption regime (if they hold at least 5% of the share capital of the distributing company for at least two years), under which only 5% of the dividend would be taxable (as a result, the effective tax rate on such gains is 1.25% in 2022). Moreover, and subject to similar conditions as dividends, the gain resulting from the sale of qualifying participation is subject to CIT only on a portion of said gain equal to 12%.

In addition, the French tax consolidation regime allows benefiting from a 99% exemption on dividends paid:

• among the members of the tax consolidation group; and
• by foreign EU companies which comply with all conditions for members of the tax consolidation group (except having an establishment in France).

Losses incurred by a French company may be carried forward indefinitely but may be offset against a taxable profit of a given year only up to an amount equal to EUR1 million, plus 50% of the taxable result exceeding the threshold of EUR1 million. Losses may also be carried back to the previous year but only up to an amount of EUR1 million. These limitations are applicable in the same way at the level of the tax consolidation group.

In the absence of a permanent French establishment to which the assets are attributable, non-resident companies are subject to tax, subject to limited exceptions, only on:

• capital gains deriving from the sale of immovable property located in France; and
• capital gains deriving from the sale of shares in a company whereby the non-resident company holds (or has held at any time in the five preceding years) more than 25%.

Following the French tax treaty policy, many tax treaties concluded by France contain a clause allowing the taxation of capital gains from the sale of shares representing a substantial participation in the state of residence of the subsidiary. France expressed a reservation to that effect in the commentary on the OECD Model Convention.

Under French transfer pricing rules, tax authorities are entitled to add back profits indirectly transferred to related foreign companies to the taxable income of French companies. The provision covers any transfer within a related group of companies.

Controlled Foreign Companies rules apply to French resident companies that directly or indirectly hold more than 50% in a foreign entity established in a country, with effective taxation at least 60% lower than in France.

The French authorities can disregard any tax arrangement that either is "fictitious" or is motivated by the sole (or principal) purpose of avoiding tax.

The deduction of interests paid within the framework of relations between related entities is subject to various limitations. Moreover, in line with the EU directive ATAD 2, the net financial charges borne by a company are deductible for CIT purposes within certain limits (which are reduced in case of low capitalisation of the company). Within a tax consolidation group, such rules are applied at the group level.

The French Labour Code regulates employment and labour matters. Additionally, Collective Bargaining Agreements (CBA) may be applicable depending on each company's main activity. A CBA is a sector-wide agreement (negotiated between employers' and employees' unions in the relevant sector of activity at the national level) which includes a comprehensive set of rules in addition to the French labour code. Case law completes the legal framework by providing details on how to apply the relevant rules. Finally, company-wide agreements may be negotiated within each company to complete the set of applicable rules.

Works councils must be implemented within each company having at least eleven employees:

• Companies with less than 50 employees (and at least eleven) have a works council with limited responsibilities (presenting the employer with individual and collective claims, promoting the improvement of health, safety and working conditions, carrying out investigations regarding occupational accidents or diseases).
• Companies with at least 50 employees have a works council with broader responsibilities.

In principle, in companies with at least 50 employees, the works council must be informed and consulted in advance (without having any veto right) on any transaction impacting the company's share ownership or activities significantly.

In addition, the Hamon law (dated 31 July 2014) requires that in any company with less than 250 employees, the latter must be informed of the intention to sell the business or more than 50% of the company's shares and of the possibility for them to make a purchaser offer at least two months before the sale (unless waivers granted by each French employees). Non-compliance with the information obligation risks a civil fine of up to 2% of the value of the sale, subject to liability.

Under French Law, employees benefit from a remuneration paid at the end of each month agreed in the employment agreement. It has to comply with the mandatory minimum remuneration at the national level (SMIC) (amounting to EUR1645.48 gross per month in 2022) and the minimum salary provided by applicable CBA for each category of employees.

Remuneration can consist of fixed and variable parts, usually calculated based on specific objectives. To be valid, such variable remuneration must be:

• based on realistic objectives drafted in French;
• beyond the employer's control; and
• communicated to the employee at the beginning of the reference period.

Other bonuses can be provided for in applicable CBA or according to internal custom practices.

Moreover, the remuneration can be completed by profit-sharing schemes set up by company-wide agreements or company share plans granted to employees.

In principle, M&A transactions do not directly affect employee remuneration (which forms an essential element of the employment contract that cannot be modified unilaterally by the employer).

When the transaction implies a transfer of the company's shares, it does not affect the employees who remain in the same company.

When the transaction concerns a transfer of an autonomous economic entity, TUPE regulation (article L. 1224-1 of the French Labour Code) provides for the automatic transfer of all the employment contracts from the seller to the buyer without any change in the contracts. In such a case, concerned employees and the purchaser cannot be opposed to transferring the employment agreements. In addition, the new employer also has to maintain the collective agreements of the transferred employees during a maximum twelve-month period (plus the notice period of three months) from the completion of the sale (with the exception of the optional and mandatory profit-sharing schemes, which shall no longer be applicable to the transferred employees if the transaction makes their application impossible). Custom practices are also transferred but may be terminated with sufficient prior notice.

After the takeover or the transfer of the company's shares:

• modifications of the employment agreement can be proposed to employees; or
• dismissals can be contemplated if they are grounded on a real and serious cause (in such a case, employees can pretend to have a termination indemnity if they have more than eight month-length of service and a notice period indemnity, unless in case of dismissal for gross misconduct).

As the protection afforded by intellectual property is a major economic and strategic asset for companies but also for public entities in a highly competitive globalised environment, it can also be an important aspect in screening FDI.

As regards copyright, it is necessary:

• to determine whether the protected works belong to the company, an employee, an intern or a freelancer;
• to recommend the actions to be taken so that the copyright is returned to the company; and
• to ensure that the protected works do not infringe on any rights of third parties.

In terms of trademarks, patents and designs, the audit must notably highlight:

• whether the filings have been made in the name of the company or a third party;
• whether licenses have been regularly registered with the French National Institute of Industrial Property (Institut national de la propriété industrielle or INPI) and are effective;
• whether the trademark has been regularly renewed and operated; and
• whether the annual fees for patents have been regularly paid.

France is considered a jurisdiction with strong intellectual property protections. Its intellectual property legal framework is the result of national statutory and regulatory provisions, statutory provisions implementing international and multilateral agreements and European Union regulations.

Some matters are excluded from protection. For instance, the human body, scientific theories and mathematical methods, aesthetic creations, plans, principles and methods applied to intellectual activities, games or business, as well as computer programs as such, and presentations of information are excluded from patentability by the French Intellectual Property Code.

The commercial exploitation of an intellectual property right in some areas may require additional procedures such as obtaining authorisation or notification from a public authority (eg, for a patent application intended for military or mixed civil–military purposes, the applicant must notify the Ministry of Defense within eight days of filing).

In France, data protection and data privacy are governed by:

• the French Data Protection Act (Loi relative à l'informatique, aux fichiers et aux libertés) of 6 January 1978 as modified by the protection of personal data law (Loi relative à la protection des données personnelles) of 20 June 2018 and the order of 12 December 2018; and
• the EU General Data Protection Regulation (GDPR) of 27 April 2016, which has an extraterritorial scope that, under certain conditions, may cover a foreign investor already in its own jurisdiction.

Failure to comply with data protection and/or data privacy laws or regulations may lead to:

• administrative sanctions, including fines (up to EUR20,000,000 or 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher) and/or
• criminal sanctions, including imprisonment (for natural persons of up to five years) and fines (for natural persons of up to EUR300,000 and for legal persons of up to EUR1,500,000).

In practice, before imposing sanctions, the French data protection authority (Commission nationale de l'informatique et des libertés or CNIL) usually gives formal notice to entities non-compliant with data protection and/or data privacy provisions. However, the CNIL is not legally obliged to issue such formal notices, and it can also decide to sanction the entity directly. Overall, the CNIL is one of the most stringent data protection authorities in the European Union, as shown by its latest convictions for non-compliance with the GDPR's requirements: Amazon (EUR35 million), Google (EUR100 million) and Facebook (EUR60 million).

The amount of the fine is freely determined by the CNIL, subject to the rules provided for in the GDPR, which notably requires that the fine shall be effective, proportionate and dissuasive in each case. In this regard, several elements shall be taken into account for the calculation of the fine, including:

• the nature of the offence,
• the seriousness of the offence; and
• the turnover of the organisation.

Therefore, the fine's amount may significantly exceed the provable economic losses.

There are no significant issues not covered elsewhere in this chapter.