Dismissal of the manager of a SARL: procedure and how to challenge it

The manager (gérant) of a SARL (French private limited company), often a minority shareholder, learns at a general meeting that he or she has just been dismissed, sometimes without any detailed explanation, sometimes overnight. The question that follows is immediate: is the decision valid, and does it give rise to compensation? French law does not treat the dismissal of a manager as a mere incident of corporate life: it frames it with a requirement of just cause (juste motif) and penalises abrupt or vexatious dismissals. This guide sets out the dismissal procedure, the distinction between dismissal with and without just cause, the notion of abusive dismissal, and the ways of challenging the dismissal of the manager of a SARL, with a focus on the position of the minority manager.

The legal framework for dismissing the manager of a SARL

The dismissal of the manager of a SARL rests mainly on Article L. 223-25 of the French Commercial Code. That provision provides for three distinct routes which must be carefully kept apart, because they are not subject to the same conditions or the same litigation.

The first route is dismissal by decision of the shareholders. Article L. 223-25 refers to the majority conditions of Article L. 223-29, that is, a decision adopted by one or more shareholders representing more than half of the shares at the first consultation. If that majority is not reached, a second consultation allows, unless the articles of association provide otherwise, a decision by majority of the votes cast, whatever the number of voters. The articles of association may however require a stronger majority, which gives the incumbent manager greater protection.

The second route is judicial dismissal. Article L. 223-25, paragraph 2, provides that the manager may be dismissed by the courts for legitimate cause, at the request of any shareholder. A minority shareholder, who lacks the majority to dismiss at a meeting, may thus apply to the commercial court (tribunal de commerce) if he or she shows legitimate cause, for example a clearly established management fault jeopardising the corporate interest. In the SCI (French property holding company), the procedures and sanctions open to shareholders against an abusive manager are the subject of a separate article on the manager of an SCI.

The third source of termination of office, not to be confused with dismissal, remains the manager's voluntary resignation or the expiry of the term of office. These situations obviously give no right to compensation on the ground of dismissal.

One point deserves to be made at the outset: unlike the officers of a public limited company (société anonyme) some of whose functions are subject to dismissal ad nutum (at any time, without reason or compensation), the manager of a SARL benefits from a requirement of just cause. Dismissal remains possible, but the absence of justification opens the way to damages.

“The manager may be dismissed by decision of the shareholders under the conditions of Article L. 223-29, unless the articles of association require a stronger majority. If the dismissal is decided without just cause, it may give rise to damages.” (Article L. 223-25 of the French Commercial Code)

Dismissal with or without just cause: the central distinction

The whole mechanism of the dismissal of the manager of a SARL turns on the notion of just cause. It determines whether the decision, while remaining valid, exposes the company to a financial award.

What just cause covers

Just cause is not defined by statute. It is the courts that have gradually shaped its contours. In practice it corresponds to an objective fact liable to jeopardise the corporate interest or the proper functioning of the company. Several situations are commonly accepted as just cause for dismissal. What a management fault means in law and how to engage the liability of the officer are analysed in our article on the management fault of the manager of a SARL.

• A clearly established management fault, for example financial commitments entered into without following internal procedures or in excess of the manager's powers.
• A breach of the officer's legal obligations, such as failure to keep the accounts or failure to convene meetings.
• Conduct jeopardising the corporate interest: diversion of customers, setting up a competing business, an undeclared conflict of interest.
• Serious disagreement between the manager and the shareholders where that disagreement paralyses the functioning of the company and threatens its continuity.

Case law holds that just cause is assessed objectively, with regard to the interest of the company, and not merely the personal relations between shareholders. A mere loss of confidence, a strategic disagreement or a wish to change the management team is not enough, on its own, to constitute just cause if no fault or threat to the corporate interest is shown.

The consequences of dismissal without just cause

A fundamental principle must be understood by any manager concerned: the absence of just cause does not undo the dismissal. The decision takes effect and the manager is indeed removed from office, but he or she may obtain damages for the loss suffered. French law therefore does not, in principle, allow reinstatement on the ground that the dismissal was unjustified. The dispute moves to the ground of compensation.

This rule explains the logic of the provision: the company keeps the freedom to part with its manager, but bears the financial cost when it acts without objective reason. The burden of proving just cause lies on the company, which must establish the reality and seriousness of the facts relied on. This is a decisive strategic point: if the minutes of the meeting are silent on the reasons for the dismissal, the company deprives itself of an essential element for justifying its decision after the fact.

Abusive dismissal: beyond just cause

Two notions that are frequently confused must be distinguished: dismissal without just cause and abusive dismissal. They do not penalise the same thing and may be combined.

Dismissal without just cause concerns the substance, that is, the absence of objective reason. Abusive dismissal concerns the circumstances in which the decision was taken and announced. A manager may thus be dismissed for a perfectly established just cause, but in abusive conditions that nonetheless give a right to compensation.

The courts find abuse where the dismissal is accompanied by vexatious or abrupt circumstances, or by circumstances harming the honour and reputation of the officer. Several elements are frequently penalised.

• Failure to respect the adversarial principle (contradictoire), where the manager was not given the opportunity to present observations before the vote on dismissal.
• The abrupt nature of the decision, for example a dismissal decided at a meeting without the question having been properly placed on the agenda.
• Disparaging remarks or accusations made publicly at the meeting or circulated to employees, customers or partners.
• A humiliating staging of the departure, such as immediate exclusion from the premises in front of the teams without consideration.

Case law attaches particular importance to respect for the adversarial principle. Even though no provision formally imposes a disciplinary-type procedure, the courts consider that the manager must have been able to learn of the complaints made and to respond to them. A dismissal decided by surprise, without prior debate, is fertile ground for a finding of abuse.

The manager may therefore rely on two distinct grounds: the absence of just cause on the one hand, and the abusive nature of the circumstances on the other. Each gives rise to its own head of loss, which makes it possible, where appropriate, to combine compensation for the loss of the office with compensation for the moral harm.

The particular case of the dismissed minority manager

The position of the minority manager illustrates on its own the full fragility of the status of an officer of a SARL. Understanding this vulnerability is essential in order to anticipate and, where appropriate, challenge a dismissal.

Why the minority manager is exposed

The minority manager is one who holds, alone or with his or her family group, less than half of the shares. When dismissal is put to the vote at a meeting, he or she does not have enough voting rights to oppose it. The majority shareholders can therefore decide on dismissal without the manager's own vote being able to change the result. Consider a founder-manager of a consultancy SARL holding thirty per cent of the shares, who brought in an investor who became the majority shareholder: that officer may be removed at a meeting where his or her vote does not weigh enough to block the decision.

This exposure is the mirror image of the position of the majority manager. The latter, who takes part in the vote on his or her own dismissal, can in practice block it thanks to the shares held, which case law accepts. The majority manager is therefore virtually irremovable through the meeting, which explains why the minority shareholders often have no choice but to apply to the court for legitimate cause.

The minority manager's means of defence

The minority manager's weakness in the balance of power over capital does not mean that he or she is without recourse. Precisely because he or she cannot oppose the vote, the law offers protection by way of compensation on the ground of just cause and abuse. This is often the only useful route.

The minority manager is therefore well advised to check two things. First, the formal validity of the meeting: inclusion of the dismissal on the agenda, validity of the notice of meeting, compliance with the majority and quorum rules laid down in the articles of association. Second, the substance: did the company set out just cause in the minutes, and was the manager able to defend himself or herself before the vote? In the absence of objective reason and of adversarial debate, the minority manager has solid arguments for claiming damages.

How to challenge the dismissal of the manager of a SARL

Challenging the dismissal of the manager of a SARL requires a method. It is not just a matter of invoking a sense of injustice, but of building a case around the validity of the procedure, the absence of just cause and, where appropriate, the abusive nature of the decision.

Step 1: check the formal validity of the decision

The first analysis concerns form. Several irregularities may affect the validity of the dismissal decision itself.

• The question of dismissal was not included on the agenda of the meeting, which may vitiate the decision.
• The notice of meeting did not comply with the time limits or forms laid down by the articles of association or by law.
• The majority required by Article L. 223-29 or by a more demanding provision of the articles of association was not reached.

A serious formal irregularity may found an action to annul the corporate decision, distinct from the action for compensation. The regime of nullity of resolutions is circumscribed, and the time limit for bringing an action to annul a resolution is in principle three years from the day on which the nullity is incurred, under Article L. 235-9 of the French Commercial Code. The rules on notice of meeting and the conditions of an action for annulment are detailed in our article on the annulment of a general meeting decision for irregularity.

Step 2: challenge the reason and claim damages

On the substance, the challenge focuses on the absence of just cause and on abuse. The dismissed manager must gather the elements showing that the company had no objective reason to remove him or her, or that the circumstances of the dismissal were abrupt or vexatious.

Useful documents include the minutes of the meeting, the notice of meeting and its agenda, the written exchanges preceding the decision, any letters of accusation, and any element establishing the absence of management fault. Conversely, the company will try to show, with supporting documents, the reality of the breaches alleged. The debate on evidence is central, and it is for the company to establish the just cause it relies on.

Step 3: identify the competent court and the time limits

The dispute falls within the jurisdiction of the commercial court, the SARL being a commercial company and the manager a corporate officer. An action for damages for dismissal without just cause or abusive dismissal is in principle subject to the ordinary five-year limitation period provided by Article 2224 of the French Civil Code, running from the day on which the manager knew or should have known the facts enabling him or her to act, that is, in practice, the date of dismissal.

Before any litigation, a phase of negotiation is often useful. Many dismissals are settled by a settlement agreement that fixes an indemnity and organises the terms of departure, which avoids the uncertainty of litigation on both sides. The manager is well advised not to sign anything hastily and to have the scope of any waiver of the right to bring proceedings checked.

Quantifying and proving the recoverable loss

Obtaining recognition that a dismissal was unjustified or abusive is not enough: loss must still be shown and quantified. The court compensates only the damage actually established.

Several heads of loss may be relied on. Material loss first corresponds to the loss of the remuneration that the manager would have received, assessed taking account of the remaining term of the office and the ability to find new work. Moral loss concerns harm to professional reputation, particularly where the dismissal was accompanied by public accusations or humiliating circumstances. A separate loss may also result from the vexatious conditions of the departure, regardless of the question of just cause.

The coherence of the case is decisive. A manager who relies on harm to reputation must produce concrete elements: circulation of disparaging remarks, reactions of partners or customers, difficulty in finding new employment. Conversely, a lump-sum claim for compensation, unsupported, is liable to a significant reduction by the court. The rule is a classic one in civil liability: the loss must be certain, direct and proved.

Conclusion: act quickly, document, do not confuse the grounds

The dismissal of the manager of a SARL is not a discretionary act of the shareholders. Although the decision remains valid even without just cause, it exposes the company to a financial award where objective justification is lacking or the circumstances were abrupt. The minority manager, deprived of the power to block the vote, finds his or her main protection precisely in the requirement of just cause and in the penalty for abuse.

The position to bear in mind is clear: the battle is rarely won on the principle of the dismissal itself, almost always on its conditions. Minutes that are silent on the reasons, an irregular notice of meeting, a decision taken without the manager having been able to explain himself or herself are so many flaws that turn a dismissal into a source of compensation. For a manager who has just been dismissed, the operational recommendation is immediate: gather without delay the minutes of the meeting, the notice of meeting and the agenda, keep every written exchange preceding the decision, and have the case analysed before signing any settlement agreement or letter of waiver.

Frequently asked questions

Can the manager of a SARL be dismissed without cause?

Yes, the dismissal remains valid even without just cause, but it then gives rise to damages under Article L. 223-25 of the French Commercial Code. In other words, the decision takes effect and the manager is removed, but the company bears the financial cost of the lack of justification. The burden of proving just cause lies on the company.

What majority is needed to dismiss the manager of a SARL?

Dismissal is decided by shareholders representing more than half of the shares at the first consultation, under Articles L. 223-25 and L. 223-29 of the French Commercial Code. Failing a majority, a second consultation allows a decision by majority of the votes cast, unless the articles of association provide otherwise. The articles of association may provide for a stronger majority to protect the manager.

How can the dismissal of the manager of a SARL be challenged where it is considered unjustified?

Proceedings must be brought before the commercial court, showing either the absence of just cause, or the abusive nature of the circumstances, or a formal irregularity in the meeting. Recognition of the absence of cause does not lead to reinstatement but to an award of damages. The case must rest on solid documents: minutes, notice of meeting, written exchanges, evidence of loss.

Can a majority manager block his or her own dismissal?

Yes. The majority manager takes part in the vote on his or her dismissal and can, thanks to the shares held, oppose the decision, which case law accepts. This is what makes the majority manager virtually irremovable through the meeting. Shareholders who wish to remove him or her must then apply to the court for legitimate cause, on the basis of Article L. 223-25, paragraph 2.

What is the difference between dismissal without just cause and abusive dismissal?

Dismissal without just cause concerns the substance, that is, the absence of objective reason justifying the decision. Abusive dismissal concerns the circumstances, in particular its abrupt or vexatious nature or harm to the officer's honour, as well as failure to respect the adversarial principle. The two grounds may be combined: a manager dismissed for a valid reason may nonetheless be compensated if the conditions of the departure were abusive.

Within what time limit can the dismissal of the manager of a SARL be challenged?

An action for damages for dismissal without just cause or abusive dismissal is in principle subject to the ordinary five-year limitation period provided by Article 2224 of the French Civil Code, running from the dismissal. An action to annul a resolution for formal irregularity is subject to a specific three-year period under Article L. 235-9 of the French Commercial Code. Given these distinctions, a prompt analysis of the situation is recommended so as not to let a time limit expire.

Can the dismissed manager obtain reinstatement?

In principle, no. French law considers that dismissal, even if unjustified, takes effect and that the dispute is settled on the ground of compensation, not by forced reinstatement. The manager may therefore obtain damages for the loss of the office and, where appropriate, for moral harm, but not restoration to office.