1 Overview
1.1 What are the most common types of private equity transactions in your jurisdiction? What is the current state of the market for these transactions?
Private equity (PE) transactions refer to investments achieved by PE investors at different stages of a company's life, from venture capital (VC) investments (pre-seed or seed stage), growth or expansion capital investments (early or late stage), to buyout investments (leveraged buyout (LBO), leveraged management buyout, buy-in management buyout, family buyout, etc.) and exit transactions. The French PE landscape, which has always encouraged PE transactions, comprises PE funds focusing on LBO transactions involving mature companies and a multiplicity of VC funds interested in venture and growth capital transactions.
The 2024/2025 M&A landscape was impacted by high interest rates fixed by central banks, global geopolitical events, and political uncertainties. More specifically, the electoral climate in France and Europe combined with the announcement of new US tariff policies created anxiety among market players, resulting in a low level of buyout activity and a standstill in VC investments, as well as a postponement of VC exits.
1.2 What are the most significant factors currently encouraging or inhibiting private equity transactions in your jurisdiction?
The French economy has been able to show signs of resilience and maintain its appeal for PE transactions, notwithstanding the current uncertain global economic environment (i.e., inflation, invasion of Ukraine, energy crisis, supply chain issues, increased market interest rates, political uncertainties). While the major trends from 2024 are still relevant (political will to swiftly relocate strategic industries, the urgency of global warming, the rise of Web3, AI and deep tech companies, the advancement of environmental, social and governance (ESG) goals, and the French government's recent and promising initiatives (French Tech, France 2030, Choose France, etc.)), French political instability has impacted the global PE sector by delaying the issuance of new initiative policies and reviving former reluctance on certain key topics usually accelerating PE (e.g., tax restrictions regarding management packages included in the February 2025 French Finance Law).
1.3 Are you seeing any types of investors other than traditional private equity firms executing private equity-style transactions in your jurisdiction? If so, please explain which investors, and briefly identify any significant points of difference between the deal terms offered, or approach taken, by this type of investor and that of traditional private equity firms.
Industrial companies use the completion of build-up/PE- or VC-like transactions to adapt their activity to the market's new expectations (e.g., relocation of production activities, reduction of carbon footprints, or diversification of activities) by acquiring other companies or taking stakes in start-up companies. Particularly this year, we have seen industrial companies using build-up/PE- or VC-like transactions to accelerate their growth. These transactions may combine M&A transaction rationale and deal terms with PE or VC transactions financing and structure.
2 Structuring Matters
2.1 What are the most common acquisition structures adopted for private equity transactions in your jurisdiction?
Usually, acquisition vehicles (used to complete a transaction) are incorporated under the form of traditional companies such as "société anonyme" (SA) or "société par actions simplifiée" (SAS) or specific companies such as VC companies (société de capital-risque (SCR)), enjoying legal personality but still delegating the management of their funds to a management company.
Under French law, investment funds can be incorporated under the form of specific legal structures governed by the French Monetary and Financial code and the French Financial Market Authority (Autorité des Marchés Financiers (AMF)), known as "alternative investment funds" (FIA). FIAs raise capital from investors for investment in accordance with a predefined investment policy. The most commonly known structures are PE mutual funds, including VC mutual funds ( fonds commun de placement à risque (FCPR)), innovation capital mutual funds ( fonds commun de placement dans l'innovation (FCPI)) and other professional funds, such as professional PE funds (FPCI). These funds do not have a legal personality and are managed by a management company (société de gestion).
2.2 What are the main drivers for these acquisition structures?
The acquisition vehicles' structure may differ based on legal and tax considerations and depending on whether the transaction is organised as an assets deal, a share deal, a merger, etc., but are mainly incorporated under the corporate form of SAS (see questions 2.3 and 3.1 below).
The structure of investment funds is mainly driven by: (i) the nature of their ultimate funders (i.e., structures open to nonprofessional funders, including FCPR, FCPI and fonds d'investissement de proximité, can be distinguished from those opened to professional funders, including FPCI and société de libre partenariat); (ii) the tax regime attached to the subscription of the securities issued, the capital gains achieved by said structures and the tax liability inherent to cash circulation incurred by those structures; and (iii) the sector, area of industry and type of assets into which the investments are to be made, as specific types of funds must comply with certain investment ratios.
2.3 How is the equity commonly structured in private equity transactions in your jurisdiction (including institutional, management and carried interests)?
Regarding LBO transactions, PE investors usually acquire the entire issued share capital of the target company to fund its growth through, for instance, completion of build-up transactions. The acquisition is completed through a dedicated holding company (HoldCo), usually incorporated under the form of an SAS (see question 3.1 below), funded by the PE investor and other financial partners (such as banks) to acquire the target company.
PE investors often require the key managers to significantly invest or reinvest in HoldCo on a pari passu basis. PE investors may also invest in quasi-equity/debt-like securities, such as convertible or redeemable bonds, to allow the managers to benefit from a wider portion of the share capital of HoldCo with the same investment amount (sweet equity mechanism).
Both first-tier managers and second-tier managers usually also benefit from an equity incentive that is often structured by the grant of free shares directly by HoldCo to such managers or indirectly by a dedicated company (ManCo) gathering all or part of the managers. Carried interest securities may benefit the PE investors' managers, allowing them to have a share of the capital gain achieved by the funds upon exit. However new tax regulations introduced by the 2025 French Finance Law have implemented strict conditions that limit the appeal of such securities by increasing the risk of reclassification into regular compensation.
2.4 If a private equity investor is taking a minority position, are there different structuring considerations?
Under VC transactions, PE investors usually take a minority shareholding in the target company (start-up company) to fund the development of its business and activities, which are not yet mature, alongside other types of investors (business angels or family offices, for instance). Such investment is riskier than a buyout transaction involving an already mature company.
Therefore, PE investors usually subscribe to complex securities, such as (i) shares with ratchet warrants protecting the investor in the case of a down-round, (ii) "BSA Air", which are warrants convertible by PE investors into shares at the next liquidity event (mainly fundraising round) under preferential conditions (discount and cap valuation), often combined with (iii) interest-bearing convertible bonds securing a portion of the investment.
Another focus of the PE investors is the negotiation of specific rights in the shareholders' agreement (e.g., enhanced voting rights, reinforced financial information, tag-along rights, anti-dilution, pari passu clauses, liquidation preference).
In particular, PE investors can be granted veto or supervisory rights, either provided in the shareholders' agreement and/or the company's articles of association or attached to preferred shares.
In such situations, the management/founders remain the majority shareholders and may benefit from free shares or founders' options (so-called "BSPCE").
2.5 In relation to management equity, what is the typical range of equity allocated to the management, and what are the typical vesting and compulsory acquisition provisions?
In LBO transactions, the package offered to managers aims at aligning their interests with those of the financing parties. Management is often requested to invest (either directly or through ManCo) in HoldCo on a pari passu basis with the PE investor regarding securities, capital gain perspective, and exit horizon. Market practice is for managers to usually hold between 5% and 15% of the equity.
If it is intended to grant free shares (actions gratuites) to key employees/managers, these shares cannot represent more than 15% of the issued share capital (vs 10% prior to 1 December 2023), and no individual may hold more than 10% of the issued share capital (based on securities held for less than seven years since 1 December 2023). Such allocation becomes definitive upon the expiry of a compulsory vesting period (which cannot be less than one year), and – if the shareholders so decide – a holding period. The combined vesting and holding periods may not be less than two years. Some exceptions may, however, apply to the 15% threshold and the vesting/holding period (e.g., the percentage can be increased up to 40% if the allocation of free shares is made to all salaried employees).
In VC transactions, BSPCE allocations are generally preferred as they require a cash investment from the beneficiaries, both at subscription and exercise of the BSPCEs. They must comply with certain conditions laid down in the French tax code. The BSPCEs have no mandatory vesting and holding conditions or allocation cap, but market practice generally considers a four-year vesting period (with a one-year cliff) to be appropriate.
2.6 For what reasons is a management equity holder usually treated as a good leaver or a bad leaver in your jurisdiction?
Usually, resignation or termination – for any reason – before the end of the initial period agreed with the financial investor, or termination of the manager's functions for gross or wilful misconduct or the violation of provisions of the articles of association or shareholders' agreement, are considered a bad leaver departure. When the departure results from an unintended event (death, invalidity, termination without cause) or when the resignation takes place after the expiry of the initial time-period, it is usually treated as a good leaver departure.
Good and bad leaver provisions are less prevalent following the recent decisions of the French Tax Court on management incentive plans (see question 10.4 below) and the 2025 French Finance Law.
3 Governance Matters
3.1 What are the typical governance arrangements for private equity portfolio companies? Are such arrangements required to be made publicly available in your jurisdiction?
Portfolio companies are commonly structured as an SAS, benefitting from the limited liability of shareholders and great freedom in corporate governance. The main drawback is that the shares of an SAS cannot be listed on stock exchanges – but the SAS can be converted into an SA just before an initial public offering (IPO).
A board with supervisory powers and/or prior approval rights is usually established to supervise the management, comprising members appointed by the investors (PE investors are generally reluctant for their nominees to have management powers). Subject to limited exceptions, the functioning rules of the board and the identity of its members can remain fully confidential by exclusively being dealt with in a shareholders' agreement. The board can also be fully regulated in the articles of association of the company, which are publicly available; however, in such cases, the clerk's office of the Commercial Court may request the board members to be publicly disclosed in the company's commercial extract.
3.2 Do private equity investors and/or their director nominees typically enjoy veto rights over major corporate actions (such as acquisitions and disposals, business plans, related party transactions, etc.)? If a private equity investor takes a minority position, what veto rights would they typically enjoy?
Board veto rights on major corporate actions are typically granted to director nominees of PE investors with significant shareholdings. PE investors holding only a few percentage points of share capital do not systematically enjoy veto rights, except for in certain instances such as securities issuance, restructuring and change of business.
3.3 Are there any limitations on the effectiveness of veto arrangements: (i) at the shareholder level; and (ii) at the director nominee level? If so, how are these typically addressed?
Veto arrangements are rather uncommon at the shareholder level because they are usually exercised at the board level through the nominees of the PE investors. Violations of veto arrangements are strongly sanctioned. Managers can be held liable for the breach and/or be dismissed. Should the breaching party be shareholder, the shareholders' agreement usually includes specific penalties, such as bad leaver clauses or financial sentences.
As a matter of principle, limitations of management's powers (such as veto arrangements) are, however, unenforceable against third parties, even when included in the company's articles of association. This means that any transaction entered into by a manager with a third party in breach of a veto is nevertheless valid, even if the third party was aware of the breach. Management decisions made in violation of veto arrangements can only be cancelled if: (i) they do not fall within the corporate purpose of the company, as stipulated in the articles of association; and (ii) the third party was aware – or, in view of the circumstances, could not have been unaware – that the decisions were beyond the corporate purpose of the company.
3.4 Are there any duties owed by a private equity investor to minority shareholders such as management shareholders (or vice versa)? If so, how are these typically addressed?
All shareholders are prohibited from acting in their own interest for a purpose that goes against the company's interest and with the aim of negatively affecting other shareholders (abus de majorité and abus de minorité).
3.5 Are there any limitations or restrictions on the contents or enforceability of shareholder agreements (including (i) governing law and jurisdiction, and (ii) non-compete and non-solicit provisions)?
Shareholders' agreements can deal with a wide range of matters and situations, but they should refrain from conflicting with or derogating from the company's articles of association to avoid legal challenge. Opting for a foreign law is feasible but not advisable, as it would introduce complexity and the shareholders' agreement would in any case remain subject to mandatory provisions of French corporate law and French public order provisions. Shareholders' agreements may include non-competition and non-solicitation clauses, provided such clauses comply with the requirements of French law (i.e., they must notably be carefully tailored to protect the company's interests and remain reasonable in their scope).
3.6 Are there any legal restrictions or other requirements that a private equity investor should be aware of in appointing its nominees to boards of portfolio companies? What are the key potential risks and liabilities for (i) directors nominated by private equity investors to portfolio company boards, and (ii) private equity investors that nominate directors to boards of portfolio companies?
PE investors must always ensure that their nominees have the legal capacity to act as board members, which includes verifying that nominees are not disqualified under French law, such as being prevented from holding directorial positions due to previous (legal or financial) misconduct.
The liability of board members is mostly collective: should a decision made by the board be improper and a source of liability, all the board members are deemed jointly and severally liable unless they can prove that they behaved with proper care and opposed the contested decision. This is the primary reason why PE investors sometimes avoid appointing representatives to the board. If they must appoint, they generally require the portfolio company to subscribe to liability insurance covering the board members' liability (see question 11.6 below for insurance protection mechanism).
As far as PE investors are concerned, they are not exposed to liabilities as such, being shareholders, provided they: do not excessively interfere with the company management; do not exercise undue influence over management decisions; and have not commingled their assets with those of the portfolio companies, otherwise the corporate veil providing limited liability may be pierced and PE investors risk being considered the "de facto" manager, thereby losing the protection of limited liability. PE investors can be held accountable for nominees' decisions if they approve actions that breach legal or contractual obligations.
3.7 How do directors nominated by private equity investors deal with actual and potential conflicts of interest arising from (i) their relationship with the party nominating them, and (ii) positions as directors of other portfolio companies?
Related-party transactions must receive prior authorisation from the board, excluding the conflicted director from voting. Even though French law provides a basic procedure to handle conflicts of interests from the angle of related-party agreements (conventions réglementées), such procedure is insufficient to deal with all conflicts of interest. We therefore advise portfolio companies to set up internal rules regarding conflicts of interest, for example: (i) implement governance and ethics training to stay informed about best practices and legal requirements; or (ii) maintain comprehensive records of all disclosures and decisions related to conflicts of interest. In particular, most shareholders' agreements require that a director (i) discloses any potential conflict of interest at the time of his/her appointment, then (ii) in the course of his/her duties, voluntarily steps down and refrains from participating in related discussion and decisions.
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