Company transformation: adapting the corporate form to changes in business activity

Company transformation: adapting the corporate form to changes in business activity

The life of a company is never static. Business growth, the arrival of new investors, changes in governance or adaptations to the business model are all factors that can render the corporate form initially chosen unsuitable.

Transformation then becomes a strategic tool for changing the company's legal structure without creating a new entity. However, it is important to understand the conditions under which it can be implemented, as well as the consequences for the partners, the capital and the organisation of the company.

What is a company transformation?

When a company is formed, the founding partners choose the corporate form under which the business will be conducted. Conversion involves change this legal form without causing the disappearance of legal personality of the company, unlike dissolution followed by liquidation.

Conversion may also be required by law if the company no longer complies with certain essential criteria attached to its corporate form. This is particularly the case for limited liability companies where the number of shareholders exceeds the legal threshold of 100.

How do I convert my company?

The transformation of the company necessarily implies a collective decision taken in extraordinary general meeting. The partners or shareholders must be brought together to decide on the appropriateness of the operation and its legal, financial and organisational consequences.

Where the proposed new corporate form is a joint stock company, the appointment of a transformation commissioner is mandatory. The latter is responsible for drawing up a report in accordance with the provisions of article L.224-3 of the French Commercial Code.

It is also important to check upstream that all of the conditions specific to the new corporate form are met, with certain structures being subject to specific requirements.

For example, a public limited company requires a minimum share capital of 37,000 euros, The general partnership (société en nom collectif) requires the partners to be business people, while the private limited company (société d'exercice libéral à responsabilité limitée - SELARL) is reserved for professionals practising a regulated profession.

Once the transformation has been completed, the company's Articles of Association must be amended and a notice of conversion must be published in a legal gazette.

What impact will the transformation have on society?

The transformation of a company has a number of consequences affecting different aspects of its legal and economic life.

• The impact of the transformation on associates

The conversion may result in a change in the nature of the securities held, lhares that can be converted into shares or vice versa.

It can also have an impact on the partners' liability, as well as applicable majority rules, These vary according to the form of company adopted.

• The impact of transformation on managers

On completion of the transformation, the disappearance of corporate bodies specific to the old corporate form, which implies the termination of current mandates, The directors have no right to object, unless it can be shown that the transformation was made for fraudulent purposes.

Le social regime applicable to executives is also subject to change because of the new corporate form, which requires particular vigilance when reorganising governance.

• The impact of the transformation on third parties

With regard to third parties, the conversion can only be enforced once the publication formalities have been completed. In the event of adoption of a corporate form with unlimited liability, previous creditors can take advantage of this new liability.

Conversely, when the company adopts a limited liability form, creditors whose claims arose earlier, at a time when the liability of the partners was unlimited, retain the benefit of this guarantee.

• The impact of the transformation on taxation

From a tax point of view, the transformation qualifies as a inter-company transactions, In principle, it does not give rise to any immediate taxation.

However, where the company was initially subject to income tax and opts, at the time of conversion, for a corporate form subject to corporation tax, taxation of unrealised profits and capital gains becomes due immediately, subject to the exceptions provided for by law.

It is therefore essential to anticipate this tax impact before embarking on a transformation operation.