Preference shares are securities likely to be issued by joint stock companies (SAS, SA, Commandite par Actions) which are distinguished from ordinary shares by the prerogatives attached to them.

They are governed by article L 228-11 of the Commercial Code, which now provides:

When the company is incorporated or during its existence, preference shares may be created, with or without the right to vote, with special rights of all kinds, temporarily or permanently. These rights are defined by the articles of association and, for companies who are listed on the stock exchange, in compliance with Articles L. 225-122 to L. 225-125.

The right to vote can be adjusted for a fixed or determinable period. It can be suspended for a fixed or determinable period or canceled.

Preference shares without voting rights may not represent more than half of the share capital, and in companies whose shares are admitted to trading on a regulated market, more than a quarter of the share capital.

Any issue which has the effect of raising the proportion beyond this limit may be canceled.

By way of derogation from Articles L. 225-132 and L. 228-91, preference shares to which is attached a limited right to participate in dividends are deprived of preferential subscription rights for any capital increase in cash, subject to contrary stipulations of the statutes.

These shares can be used for both financial and non-financial benefits.

It is thus possible to create preference shares to which a modified voting right is attributed. These can be shares:

• without voting rights, provided that these securities do not represent more than half of the share capital for unlisted companies,
• or with a voting right greater than that attached to ordinary shares, such as double voting rights.

These shares can also allow:

• a reinforced right to information,
• a right to transfer the shares outside any approval or preemption procedure,
• a right of representation in certain organs of the company.

It is also possible to use preference shares to confer privileged financial rights.

Preferred shares saw their regime recently adapted by the law n ° 2019-486 of May 22, 2019.

Five main changes have been made:

1.Legalisation of preferred shares with plural voting rights

The first reform results from the fact that, in article L. 228-11, in the first paragraph, the words

"In compliance with the provisions of articles L. 225-10" are replaced by the words:

"And, for companies whose shares are admitted to trading on a regulated market or on a multilateral trading system, in compliance with the articles" L. 225-122 to L. 225-125.

This reform removes, for unlisted companies, the reference to the principle of proportionality of the right to vote.

Unlisted companies (SAS / SA, SCA) can now issue plural voting shares.

2. Legalization of redeemable shares on the joint initiative of the company and the shareholder and on the sole initiative of the holder

Until now, article L. 228-12, III, 4 ° of the French Commercial Code provided: The repurchase is at the sole initiative of the company.

From now on, the same provision provides: In listed companies, the repurchase is on the exclusive initiative of the company or on the joint initiative of the company and the holder of the preferred share. In non listed companies, the articles of association determine, prior to subscription, whether the repurchase can take place on the exclusive initiative of the company, on the joint initiative of the company and of the holder or on the exclusive initiative of the holder, according to the conditions and deadlines which they specify.

• Repurchase on joint initiative of the company and the shareholder. - The first innovation is the ability to agree, in any company, to a repurchase on the joint initiative of the company and the shareholder.

It will nevertheless be necessary to respect certain limits laid down by law (V.C. Com., Art. L. 228-12, III: condition relating in particular to the financing of the buyback operation), as well as by:

• the principle of equality of the shareholders, obliging in the present case to treat identically all the holders of the same category of redeemable shares (C. com., art. L. 228-12, III: “ these transactions may not affect the equality of shareholders in the same situation ”);
• the prohibition of leonine clauses, prohibiting redemptions at a guaranteed minimum price such as to exempt the shareholder from any contribution to losses.

• Redemption on the sole initiative of the shareholder. - It is now possible to stipulate, for unlisted companies only, the shares redeemable at the sole hand of the shareholder.

Here also, redeemable shares on the sole initiative of the shareholder must, like the others, comply with the various constraints drawn from the prohibition of leonine clauses as well as from article L. 228-12, III (principle and terms of redemption inserted in the articles of association prior to the issue of the shares; respect for the equality of the shareholders, obliging in particular to buy back at the same price or at least according to identical methods of determining the price if the redemptions take place on different dates ...).

3.Extension to preferred shares with voting rights in the field of deprivation of preferential subscription rights

The third reform is that the deprivation of preferential subscription rights for any capital increase in cash, subject to contrary stipulations in the articles of association, is extended to all preference shares with limited financial rights, whether or not these shares therefore carry voting rights (C. com., art. L. 228-11 latest al. mod., by deleting the words: "without voting rights at issue").

4.Precision regarding the area of intervention of the « Commissaire aux avantages particuliers” (auditor for Special Benefits)

Article L. 228-15 provided in its first paragraph that the creation of preference shares gives rise to the application of the procedure of special advantages (C. com., A rt. L. 225-8, L. 225 -14, L. 225-247 and L. 225-148) when the shares are issued for the benefit of one or more named shareholders.

The reform replaces in Article L. 228-15, paragraph 1, the words of one or more named shareholders with the words of one or more named people.

The “Commissaire aux avantages particuliers” therefore intervenes when a third party subscribes for such shares.

5.System for issuing securities giving access to capital in the presence of preference shares

Article L. 228-98 of the French Commercial Code, which governs the issuance of securities giving access to shares, provides in its second paragraph that the issuing company cannot, from the date of issuance of such securities, nor modify the rules distribution of its profits, neither amortize its capital, nor to create actions preferably involving such a modification or such an amortization (...) . A third paragraph specifies that subject to these same reservations, it may however create preference shares. This third paragraph is deleted.

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