A SARL is a limited liability company in which each partner (from two to one hundred) owns shares in the share capital. Sometimes, one of the partners decides to leave the company and sell his shares. In this case, the value of the shares needs to be assessed so that the other partners, or someone from outside the company, can buy them back. This transfer of shares is not entirely governed by law. In general, it is a matter of free negotiation between buyer and seller, following a well-defined procedure. However, if no agreement is reached, Article 1843-4 of the French Civil Code may apply. Let's take a closer look at how this works.
Notion of share
When the company's articles of association are drawn up, the share capital is divided into shares of equal value. Each partner is allocated a number of shares according to his or her contributions. Contributions may be in cash, but also in kind or in industry. Only cash and in-kind contributions are included in the share capital.
There is no minimum capital required to set up a SARL. You simply need at least one share for a SARL with a single shareholder (EURL) and two shares for a classic SARL.
Valuation of shares
The so-called nominal value of a company share, as set out in the articles of association when the company is launched, is not indicative of its value several years later. In fact, the market value, i.e. the real value of a share at a given time, takes into account the company's sales and profitability. It is therefore essential to revalue shares before selling or buying them back.
Evaluation can be carried out in a number of ways:
- by comparison: with other companies in the sector or with market prices for divestments and acquisitions
- in relation to net worth: assets minus debts
- profitability: the company's ability to generate profits
- mathematically: taking into account the balance sheet and income statement
Amicable negotiation
Initially, the partners are free to set the value of the shares. It may well be 1 euro. In the event of a transfer between associates, it is usual for the valuation to be carried out amicably, unless otherwise stipulated by law or the articles of association. The articles of association may stipulate the terms of valuation.
A chartered accountant may also be asked to carry out the valuation, taking into account sales over the last three years, assets and liabilities, and the company's profitability. The share price is often negotiated between the seller and the buyer.
Then, after agreement between the parties, a deed of transfer is drawn up.
Statutory assessment
In some cases, the articles of association stipulate that the partners and the manager must carry out an annual valuation of the company's shares, in order to avoid any disputes if a partner withdraws during the year.
More often, they simply set the terms for determining the transfer price, without necessarily calculating the price of the share. But this does not rule out possible disagreements.
Designation of a third party
Article 1843-4 stipulates that in the event of a dispute, an expert must be appointed to determine the value of the shares. The expert may be appointed by the parties, if they agree, or by the President of the Tribunal de Grande Instance of the company's registered office. The latter will be seized by summary proceedings, and the appointment of the legal expert will be final, with no possible appeal.
The expert will apply the rules and procedures laid down in the articles of association for determining the value, provided, of course, that the articles of association stipulate this. If no value or valuation method is specified, the expert will determine it. His assessment may be challenged in court.
During the appraisal procedure, which lasts around 4 to 12 months, the appraiser brings the parties together and appraises the value of the shares. He or she will base the valuation on the accounting data as at the date closest to the date of repayment, and not as at the date of the partner's request for withdrawal.
Considering the cost and time involved in taking legal action, it's far preferable to reach an amicable agreement.