Gift of Shares with Dismemberment: Be Careful Not to Lose Shareholder Status
Frequently used to optimize transfer duties (inheritance tax), dismemberment of ownership allows several individuals to hold different types of rights over the same shares.
It has long raised questions about whether the usufructuary can be granted shareholder status.
Indeed, for many years, the issue arose of who held voting rights at a general meeting in the presence of dismembered shares.
The Position of the French Court of Cassation on Shareholder Status
The Court of Cassation had, on several occasions, recognized shareholder status for the bare owner, but nothing explicitly indicated that such status was therefore denied to the usufructuary.
In an opinion dated December 1, 2021, the Court provided clarification by stating that the usufructuary of company shares cannot be granted shareholder status, which belongs solely to the bare owner.
The Commercial Chamber of the Court of Cassation ruled that “the usufructuary of company shares cannot be granted shareholder status, which belongs solely to the bare owner.”
The opinion does specify, however, that the usufructuary “must be able to initiate a shareholders’ resolution on a matter likely to have a direct impact on their right of enjoyment.” (Cass. com. opinion 01/12/2021 No. 20-15.164)
Practical Implications of This Interpretation
In any case, the recognition of shareholder status for the bare owner alone has several consequences:
- On voting rights for decisions requiring unanimity by law;
- On the ability of the usufructuary to serve as company director if the company’s articles of association require shareholder status for such a role;
- On the approval process for the usufructuary.
A Recommended Precaution Before Any Dismemberment
It is therefore recommended to ensure that the usufructuary holds at least one share in full ownership in order to be considered a shareholder of the company, and to adapt the articles of association before carrying out any dismemberment.
