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MAIN CHARACTERISTICS OF SA AND SARL

There are essentially two types of companies with limited liability namely, the société anonymesociété à responsabilité limitée

1.         Share capital

The minimum share capital required for an SARL is FF 50,000 whereas the minimum share capital required for an SA is normally FF 250,000 except in the case of companies publicly offering their securities in which case the minimum required is FF 1,500,000.

Capital for either an SA or an SARL can be formed by contributions in cash or in kind.

In the case where contributions are made in cash for an SA, only 50% of the capital must be initially paid up, the balance being payable within five years at the call of the board of directors.  For an SARL, the capital must be fully paid up immediately.

2.         Minimum number of shareholders / partners

Whereas the SARL needs only one partner (in which case it is called an EURL), an SA must be formed by seven shareholders and should maintain that number throughout its whole duration.  One shareholder may own all the stock except six shares (i.e., one for each of the other six shareholders).

An SARL cannot have more than fifty partners, beyond which it should be transformed into an SA or wound up unless that number is brought back to fifty.

3.         Liability

However, de facto or de jure managers of these two forms of companies can be declared liable in case of violation of the law or of the articles of association or even for bad management.  De jure managers are the members of the board of directors and management committee for an SA, and the g√©rant(s) for an SARL. The parent company can sometimes be viewed as a de facto manager particularly when, as is often the case, its officers give direct instructions to the subsidiary.

4.         Corporate income tax

Société en Nom Collectif

Double economic taxation (i.e., taxation of the heads of the company and of its shareholders) is almost eliminated in case of holding companies and seriously reduced in all cases through a complex tax credit called avoir fiscal.

5.         Transfer of shares

5.1       Tax

There is a significant difference between an SARL and an SA in case of transfer of shares.

Transfer of shares of an SA triggers a 1 percent transfer tax limited to FF 20,000 per transfer.  On the contrary, transfer of interest in an SARL triggers a 4.8 percent transfer tax assessed on the higher of the selling price or intrinsic value of such interest, without any ceiling.

5.2       Freedom of transfer

In an SARL, transfer to a non-partner requires approval of the majority of the partners representing three-fourths of the share capital.

In an SA, transfers do not require shareholder approval but a provision may be introduced in the articles of association calling for approval by the board of directors or the General Assembly of Shareholders of any transfer to non-shareholders.

6.         Decisions of shareholders / partners

In both SA and SARL, the meetings are called ordinary general meetings when the agenda does not contemplate a change in the By-laws and extraordinary general meetings when it does.

6.1       SARL

In an SARL, decisions do not necessarily require a formal meeting of the partners but can be made by mail, except for the annual meeting called to pass on the accounts.

In an SARL, decisions are passed for decisions that do not change the By-laws by a simple majority of one-half of the share capital at the first meeting and, if not attained, simple majority of the shareholders present or represented at the second meeting.

For decisions that change the By-laws, the majority required is of three-fourths at the first meeting

6.2       SA

Decisions require formal meetings of shareholders.

Shareholders may avoid physical presence by casting their votes by mail.

For ordinary general meetings, the quorum is one-fourth. If not attained at the first meeting, a second meeting may be summoned where no quorum is required.  Majority is one-half plus one of the shareholders present or represented.

For extraordinary general meetings, the quorum is one-third. If not obtained at the first meeting, a second meeting must be held for which the quorum is one-fourth.  Majority is two-thirds of shareholders present or represented.

Those rules set out minimum mandatory requirements.

7.                  Management

In both SA and SARL, the legal powers of the managers (the members of the board of directors and management committee for an SA, and the gérant(s) for an SARL), which comprise any action within the corporate purpose of the company cannot, as far as third parties are concerned, be limited by the By-laws.

7.1       SA

There are two types of management forms for an SA.  The company can be run by a board of directors () which Chairman must be an individual (Pr√©sident Directeur G√©n√©ral).  The Chairman is also the Chief Executive Officer of the company and can be assisted by a Directeur G√©n√©ralDirecteur G√©n√©ral

The board of directors must have a minimum of 3 members and a maximum of 24 (art. L 89 al. modified by.law n¬ļ 94-126 of February 11, 1994).

If the Chairman or Directeur Généralcarte de commerçant étranger

DirectoireConseil de Surveillance

The dual form of management is not used very frequently except in joint venture companies or companies resulting from a merger of several entities in which it is deemed preferable not to concentrate all the authority in the hands of one individual (i.e., the Président Directeur Général) but rather have three or five members forming a management committee.

7.2       SARL

An SARL has no board of directors but one or several managers (gérants) who are not required to be partners of the company.

The manager is liable towards the Company and sometimes even to third parties for his infringements and mistakes.  In an SARL, the manager may be dismissed for cause by partners representing one-half of the capital.

As for managers of SAs, non-EC managers of SARLs are required to obtain a foreign business permit.

8.         Statutory auditors

Commissaire aux Comptes

- the sum of the net value of its assets is in excess of FF 10,000,000 ;

- its pre-tax turnover is in excess of FF 20,000,000 ;

- it employs more than 50 employees (on average) during the fiscal year.

An SA must appoint at least one titular auditor and one substitute auditor.

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<typohead type="4">ANNEX 2</typohead>

INFORMATION TO BE PROVIDED FOR INCORPORATION OF A "SOCIETE ANONYME" WITH CONTRIBUTION IN CASH

                                           (with a Board of directors and a President)

A)        As to the Company:

            -           Corporate name; if desired also trade name

            -           Registered office address (free domiciliation or paid domiciliation (lease))

            -           Corporate purpose (it is customary to have a very broad purpose)

            -           Amount of registered share capital (minimum 250,000 French francs)

            -           Payment of registered share capital at the time of incorporation: in full or a minimum of 50% thereof

            -           Nominal value of shares

            -           Address of the bank where the funds are deposited

            -           Opening and closing dates of the financial year

            -           Should actions be accomplished before signature of the articles of incorporation: brief description of the said actions and indication of the amount resulting for each of them

            -           Should actions have to be accomplished between signature of the articles of incorporation and registration of the company in the Trade register : brief description of the said actions and indication of the amount resulting for each of them.

B)        As to shareholders of the company:

-                      Number of shareholders (at least seven, either individuals or legal entities);

            -           Information:

                        * if shareholder is a legal entity: corporate name, registered office, registered share capital, form of company ("soci√©t√© anonyme", limited-liability company, (SARL) etc...) name of legal representative authorized to sign,

                        * if shareholder is an individual: name, first name, nationality, address, date and place of birth.

            -           Number of shares subscribed by each shareholder.

C)        As to the management:

            Board of Directors:

            -           Number of Directors : must be between three and twenty-four on account of quorum requirements i.e. one half of the Directors must be physically present at meeting; it is advisable to have an even number of Directors with at least one half able to attend meetings in France. Excepting special cases, four Directors proves to be a good number.

            -           Information:

                        * if Director is an individual: name, first name, nationality, address, date and place of birth,

                        * age limit: unless otherwise provided in the articles, Directors over 70 cannot be more than 1/3 of the Board. This provision applies to permanent representative of legal entities.

                        * if Director is a legal entity: corporate name, registered office, registered capital, form of company, address for the individual appointed as permanent representative of the company on the Board of Directors

                        NB:      each Director must be a shareholder. One Director at least must be an individual (the one to be appointed President)

            Documents to be provided by Directors:

                        * Individuals:

                                    - copy of birth certificate

                                    - copy of identity card or passport

                                    - if not French but resident in <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />France, copy of residence permit

                                    - certificate indicating that director has not been previously convicted

                        * Legal entities:

                                    - evidence of the legal entity's existence and registration such as (i) certificate of incorporation issued within less than three months or (ii) certified copy of the legal entity's charter or articles of association (if not in French, translation is required, therefore it is advisable to use the shortest of these documents available)

                                    - same documents required for permanent representative as for individual directors

                        Director's term of office (from 1 year to 6 years; should articles remain silent thereon, legal duration 6 years will apply)

            Documents to be provided for Pr√©sident Directeur G√©n√©ral (PDG):

                        * Internal limitation of PDG's powers: no or yes. If yes, which ?

                        NB:      if PDG to be is a non EU national and intends to reside in France, residence permit is required (filing takes approximately 2 months)

                                    if PDG is a foreigner and not an EU national, copy of business permit (carte de commer√ßant √©tranger) is required (filing takes approximately 4 months) except if the PDG to be holds a residence permit which is not temporary.  However, a simplified procedure is available under certain conditions.

            Documents to be provided for Auditors:

                        * identity of titular auditor

                        * identity of substitute auditor

                        * name, first name, etc..

                        * letter of acceptance of office

                                  * evidence that such auditor is duly registered under the list of authorized statutory auditor

                      * if auditor is a legal entity: address of registered office and Trade register registration number as well as the identity of the auditor who audits the company

                        * if auditor is an individual entity: address, date and place of birth.

D)        Documents required:

            Documents we need for purposes of registering the company in the Trade register:

                        * any documentation (such as a copy of the lease) evidencing the existence of the registered office,

                        * two original copies of the certificate of deposit of funds issued by the bank,

                        * copies of birth certificates issued within the last three months and a copy of the identity card of each individual entity Director and each permanent representative of a legal entity member of the board,

                        * Kbis extract (or equivalent abroad) issued within three months if a legal entity is Director.

            Documents which may be drawn up by us and presented for signature:

                        * incorporation documents comprising: the articles of incorporation, the identity of Directors, the auditors, the list of actions accomplished on behalf of the company being incorporated (e.g. opening of bank account, signing of service contracts inherent in starting the company's business, etc...)

                        * the minutes of decisions of the first Board Meeting which appoints its PDG,

                        * the list of shareholders and details of payments made by each of them,

                        * certificates indicating that individual directors have not been previously convicted

                        * an authorization from the PDG enabling us to register the company.

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ANNEX 3

INFORMATION TO BE PROVIDED FOR INCORPORATION OF A SARL WITH CONTRIBUTION IN CASH

N.B.:   This list also applies to the incorporation of an EURL (Entreprise Unipersonnelle √† Responsabilit√© Limit√©e) which requires only one partner.

A)        As to the Company:

-            Company name (NB: it is preferable to check if the name is free for use in France)

-            Registered office address : free domiciliation or paid domiciliation (lease))

-            Corporate purpose (it is customary to have a very broad purpose)

-            Amount of registered share capital : minimum : 50,000 French francs

-            Payment of registered share capital in full at the time of incorporation

-            Nominal value of shares

-            Address of the bank where the funds are deposited

-            Opening and closing dates of the financial year in the case where actions are accomplished before signature of the articles of incorporation: brief description of the said actions and indication of the amount resulting for each of them.

-            where actions have to be accomplished between signature of the articles of incorporation and registration of the company in the Trade register: brief description of the said actions and indication of the amount resulting for each of them.

B)        As to shareholders of the company:

-      At least one shareholder and a maximum of 50

                        .        if shareholder is a legal entity: company name, registered office, registered capital, form of the company (public company, limited liability company, etc..), name of legal representative authorized to sign,

                        .        if shareholder is an individual entity: first name, family name, nationality, address, date and place of birth.

            -           Number of shares subscribed by each shareholder.

C)        As to the management:

-      Manager(s) (g√©rant(s)) of the company: first name, family name, nationality, address, date and place of birth

                   NB: Manager is not necessarily a shareholder

            Documents to be provided by manager(s):

.    copy of birth certificate and copy of identity card or Kbis extract issued within the last three months ;

                   .    if manager is a non EEC national, residence permit is required (filing takes approximately 2 months),

                   .    if manager is a non EU national, copy of business permit (carte de commer√ßant √©tranger) is required (filing takes approximately 4 months) except if the manager to be holds a residence permit which is not temporary.

-         Internal limitation of manager's powers: no or yes. If yes, which?

-         Manager's term of office (1 year is preferable)

-         Auditors: It is not mandatory under French Corporate Law except if at the closing date of a financial year, the SARL passes beyond two of the three following limits:

         .              total of balance sheet: 10,000,000 French francs

                        .        turnover (ex. VAT): 20,000,000 French francs,

                        .        average number of 50 employees,

                        Information required concerning the Auditors :

                        .        identity of titular auditor and identity of substitute auditor.

                           .        evidence that such auditor is duly registered under the list of authorized statutory auditor

.        if auditor is a legal entity: address or registered office and Trade register registration number as well the identity of the auditor who audits the company

.        if auditor is an individual entity : address, date and place of birth

D)        Documents required :

-      Documents required for purposes of registering the company in the Trade register:

                   .     any documentation (such as a copy of the lease) evidencing the existence of the registered office,

                   .    two original copies of the certificate of deposit of funds issued by the bank,

                   .    copies of birth certificates issues within the last three months and a copy of the identity card of the director(s).

-      Documents which may be drawn up by us and presented for signature:

                   .    incorporation documents comprising: the articles of incorporation, auditors (if needed), the list of actions accomplished on behalf of the company being incorporated (e.g. opening of bank account, signing of service contracts inherent in starting the company's business, etc....),

                   .    the minutes of decisions of the first General Meeting which appoints the manager and, if necessary, the auditors,

                   .    certificates indicating that manager(s) have not been previously convicted,

                   .    an authorization from the manager(s) enabling us to register the company.

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