Fundraising lawyer in Paris: opening your SME's capital while negotiating the director's powers and protections.

Preparation starts with the company itself, before the valuation. You need up-to-date articles of association, an accurate capitalisation table, the latest approved accounts and a forecast whose every assumption can be explained. The articles of association must be read carefully: an approval clause may make any share transfer subject to the company's prior consent (Article L. 227-14 of the Commercial Code), and an inalienability clause may lock up the securities for up to ten years (Article L. 227-13 of the Commercial Code). These clauses directly affect the exit rights the investor will ask for. Banking and commercial contracts must also be reviewed, as some provide for early repayment or termination if the split of the capital changes. The firm draws up the list of points to put right before the due diligence opens, so that the answers given to the investor are accurate from the first exchange and the timetable of the transaction does not depend on a late correction.

The SARL is ill-suited to the entry of investors, in particular because preference shares (Article L. 228-11 of the Commercial Code) and securities giving access to the capital (Article L. 228-91 of the Commercial Code) belong to companies limited by shares. Conversion is therefore often requested beforehand. The decision to convert into an SAS is taken unanimously by the shareholders (Article L. 227-3 of the Commercial Code). Conversion into a public limited company follows other conditions, with a statutory auditor's report on the company's situation (Article L. 223-43 of the Commercial Code). Conversion is not mandatory: a SARL may increase its capital by cash subscription of shares (Article L. 223-32 of the Commercial Code). The formalities are not incidental. The Court of Cassation has held that, where the shareholders approve the conversion and the report on the value of assets by a single resolution, "this approval must be express, on pain of nullity of the conversion" (our translation) (Cass. com., 19 June 2024, No. 22-19.624). That decision concerns a conversion of a SARL into an SA decided in 2011. Since 1 October 2025, a conversion carried out without express approval "may be annulled" (our translation) (Article L. 224-3 of the Commercial Code), and nullity of a corporate decision requires harm, an influence of the irregularity on the decision and consequences that are not excessive for the company's interest (Article 1844-12-1 of the French Civil Code). The firm therefore checks the conversion documents before building the fundraising on the new form.

New shares are issued at their par value or at that amount plus an issue premium (Article L. 225-128 of the Commercial Code). The premium reflects the value that the existing shareholders have already created and that the investor is joining. The price is negotiated, but it must be capable of justification. The Paris Court of Appeal held that the premium is the counterpart of the rights acquired over reserves or capital gains and that "the amount must be justified by the real value of the existing shares" (our translation) (CA Paris, pôle 5 ch. 9, 6 April 2023, No. 22/06012). In that case, the company had ceased trading as soon as the subscriber's payment was made, and the court confirmed the nullity of the capital increase for lack of any real consideration. The outcome is harsh for the director who had organised the transaction. Conversely, a valuation that is too low dilutes the existing shareholders. The firm examines the valuation method used, the documents supporting it and the consistency of the price with the special rights granted to the investor.

As a rule, each shareholder has a preferential subscription right, proportionate to the amount of their shares (Article L. 225-132 of the Commercial Code). In a company limited by shares, the investor can therefore subscribe alone only if that right is cancelled or the shareholders waive it individually, although the articles of association may deprive certain preference shares of that right (Article L. 228-11 of the Commercial Code). Cancellation in favour of named persons follows a specific procedure: the beneficiaries do not vote, the price is set on the report of the statutory auditor and the issue must take place within eighteen months (Article L. 225-138 of the Commercial Code). Compliance with the procedure is not always enough. The Court of Cassation overturned a judgment that had not examined whether a contribution made "through the undervaluation of the company and the corresponding grant of numerous new shares" (our translation) (Cass. com., 30 September 2020, No. 18-22.076) had unlawfully diluted a minority shareholder. The court may also dismiss the challenge: it approved a capital increase after noting that the minority shareholders "had had the time needed to prepare for the capital increase in dispute" (our translation) (Cass. com., 12 May 2021, No. 19-17.566), a decision unfavourable to those shareholders.

Where the articles of association require an enhanced majority or unanimity, a minority shareholder can prevent the resolution from being adopted. Their refusal is wrongful only under strict conditions, which relate both to the company's interest and to the reason for the vote. The Court of Cassation requires proof that "the minority shareholder's attitude is contrary to the general interest of the company in that it prevents the completion of a transaction essential to it" (our translation) (Cass. com., 13 March 2024, No. 22-13.764), and that it is aimed only at promoting their own interests. In that case, the appeal judgment was partly overturned: the Court held that amending the corporate purpose was outside the managers' powers, a conclusion the court of appeal should have drawn from its own findings. Abuse of minority rights is not presumed. The firm gathers the cash position, the investor's offer and the exchanges establishing the reasons for the refusal before considering an application for the appointment of an agent to vote in the shareholder's name.

Fraudulent misrepresentation (dol) is obtaining the other party's consent by deceit or lies, and the intentional concealment of decisive information is one form of it (Article 1137 of the Civil Code). A duty to inform also rests on the party who knows decisive information, that is, information directly and necessarily connected with the content of the contract or the capacity of the parties, where the other party is legitimately unaware of it or relies on them, this duty not extending to the estimate of the value of the performance (Article 1112-1 of the Civil Code). The Versailles Court of Appeal found fraudulent misrepresentation by an issuing company whose communications masked a depleted cash position, and recalled that a victim who does not seek annulment "may obtain compensation for the loss corresponding solely to the loss of a chance of having been able to contract on more advantageous terms" (our translation) (CA Versailles, ch. com. 3-2, 3 February 2026, No. 24/06855). The director may also be targeted personally. For the manager of a SARL, liability towards third parties requires a separable fault, established "where the manager intentionally commits a fault of particular seriousness incompatible with the normal exercise of corporate duties" (our translation) (Cass. com., 21 May 2025, No. 23-22.573). The firm reviews the presentation pack and the due diligence answers so that every figure stated rests on a document.

The investor often asks to be paid first out of the sale price or the liquidation surplus. This mechanism must be tested against Article 1844-1 of the Civil Code, which deems unwritten certain stipulations on the sharing of profits and losses. The provision covers a stipulation that gives one partner the whole of the profit, that exempts one from the whole of the losses, that wholly excludes a partner from the profit or that places the whole of the losses on one. It does not, in itself, prohibit every unequal allocation. Preference shares may moreover carry special rights of any kind, defined by the articles of association (Article L. 228-11 of the Commercial Code). The validity of a clause therefore depends on its exact drafting and the situations it covers, in particular a sale at a low price. The firm therefore tests the clause against Article 1844-1 and simulates the exit scenarios, including the least favourable ones, rather than presuming it valid or void.

One fundraising often leads to another, and the new investor sometimes asks for the rights granted to the previous one to be reduced. This change follows particular voting rules. Holders of shares that are to be converted into preference shares of the category to be created may not take part in the vote on that creation, except where all the shares are converted into preference shares (Article L. 228-15 of the Commercial Code). The Court of Cassation gives the notion of conversion a broad scope. It holds that conversion covers "any operation involving a change to the rights attached to the converted shares" (our translation) (Cass. com., 10 July 2024, No. 22-15.836). The reduction of the priority dividend voted by the holders themselves therefore rendered the resolutions null, despite the retention of the name of the shares. The ceiling on non-voting shares is calculated strictly: according to the same chamber, "only shares deprived of all voting rights are counted for the calculation of the ceiling of half the share capital" (our translation) (Cass. com., 13 March 2024, No. 22-12.205). The firm checks these rules before each new round.

An SME may offer the investor securities giving access to the capital, such as convertible bonds or share subscription warrants (Article L. 228-91 of the Commercial Code). This choice defers the final setting of the shareholding. The holder of convertible bonds remains a creditor until conversion, whereas a subscription warrant merely confers the right to subscribe for shares when exercised. The Court of Cassation holds that convertible bonds issued by a company limited by shares "are, until their conversion, bonds having the nature of debt securities" (our translation) (Cass. com., 18 September 2024, No. 22-23.054). In that case, the outcome led to those securities being disregarded when assessing the split of the capital of a company subject to its own ownership rules. For the director, it means that the holder of convertible bonds does not exercise the rights of a shareholder until conversion has taken place. The issue contract must therefore settle precisely the cases of conversion, the conversion ratio, repayment and the information rights granted in the meantime. The firm reviews these terms against the company's cash position and maturities.

Investors often want to be able to replace the director, and the director wants in return compensation or a notice period. In an SAS, the articles of association set the conditions under which the company is managed (Article L. 227-5 of the Commercial Code). The Court of Cassation draws a strict consequence: "While a decision of the shareholders may supplement the articles of association on this point, it cannot derogate from them, even if taken unanimously" (our translation) (Cass. com., 9 July 2025, No. 24-10.428). In that case, the director held office in two companies. For the one whose articles of association provided for removal at will, the shareholders' decision laying down other conditions was not applied and the claim based on the absence of just cause was dismissed, an outcome unfavourable to the director. Protection negotiated in the shareholders' agreement therefore remains fragile if the articles of association say otherwise. The firm checks that the two documents agree and, where that is the objective, proposes amending the articles of association themselves when the investor comes in.

The shareholders' agreement frequently requires the director and the existing shareholders not to compete with the company, while they hold shares and sometimes beyond. This clause limits freedom of enterprise and must be justified. The Court of Cassation holds that such a stipulation "is lawful only if it is proportionate to the legitimate interests to be protected, having regard to the purpose of the contract" (our translation) (Cass. com., 13 November 2025, No. 24-10.747). It overturned the judgment that had not ruled out the disproportionate nature of the clause's duration. The duration, territory, activities covered and intermediaries must therefore be defined precisely. A clause drafted too broadly risks being annulled, and one that is too narrow does not protect the investor. The firm reviews the clause against the director's actual situation: is the director also an employee, do they hold other shareholdings, what activities do they already carry on elsewhere? These elements determine the drafting that is acceptable to each party.

The SAS may not make a public offering of financial securities; the law nevertheless allows it certain offers that are exhaustively listed (Article L. 227-2 of the Commercial Code). The approach must therefore be characterised before the pack is circulated. Permitted offers include in particular an offer addressed exclusively to a restricted circle of investors acting for their own account or to qualified investors, an offer made by a crowdfunding service provider within the limit set by the European regulation, and an offer made only to existing shareholders (Article L. 411-2 of the Monetary and Financial Code). The penalty for an irregular offer is heavy: the contracts concluded and the securities issued are liable to nullity, and an action for nullity of the contracts concluded is time-barred after three years from the day on which nullity is incurred (Article L. 411-1 of the Monetary and Financial Code). The firm checks the channel chosen, the number and quality of the persons approached and the documents circulated, so that the fundraising is not weakened after the event by a claim for the return of subscriptions.

Where equity is heavily negative, the investor may ask for a capital reduction, sometimes down to zero, followed by an increase that the investor subscribes. The reduction absorbs the losses to the corresponding extent; where it brings the capital down to zero and the increase takes effect, shareholders who do not subscribe lose their status, whereas a partial reduction merely dilutes them. The Court of Cassation holds that a reduction to zero "is lawful only if it is decided subject to the condition precedent of an actual increase of its capital" (our translation) (Cass. com., 4 January 2023, No. 21-10.609); without an actual increase, the shareholder kept their status. The operation may also amount to abuse of majority rights. The same chamber approved that characterisation for a reduction followed by a reserved increase, based on an erroneous presentation of the financial situation, "notwithstanding the court's approval of the conciliation protocol" (our translation) (Cass. com., 26 November 2025, No. 24-15.730). The company's interest is assessed in light of Article 1833 of the Civil Code, which requires the company to be managed in its own interest. The firm checks the reality of the losses and the place offered to existing shareholders.

The collective decision sets the amount, the price, the beneficiaries and the terms of subscription. Where the preferential right is cancelled in favour of named persons, the issue must be completed within eighteen months of the decision (Article L. 225-138 of the Commercial Code). On subscription, shares issued for cash are paid up as to at least one quarter of the par value and the whole of the premium; the balance is called within five years of final completion (Article L. 225-144 of the Commercial Code). The funds are deposited and a depositary's certificate records the subscriptions and payments, set-off against a liquid and payable claim being recorded by a certificate from the notary or the statutory auditor (Article L. 225-146 of the Commercial Code). The formalities follow: update of the articles of association and of the share register, and filing with the court registry. The firm prepares a backward-planned timetable that takes account of the notice periods set by the articles of association and the conditions precedent negotiated with the investor.