Commercial companies and ESUS approval: the clauses to write into your articles

A French commercial company can perfectly well obtain ESUS approval as a socially useful solidarity enterprise. Many mission-driven SAS have done so. But the route is longer than for an association, because it has an extra step: you must first enter the social and solidarity economy, and that is settled entirely in the articles of association. Here are the clauses involved and the order in which to handle them.

Two steps, not one

The starting point is often misunderstood. ESUS approval is not a way of becoming a social-economy enterprise: it presupposes that you already are one.

First step — belonging to the ESS. Article 1 of Act no. 2014-856 of 31 July 2014 sets three principles: a purpose beyond the mere sharing of profits; democratic governance defined and organised by the articles of association, providing for the information and participation of shareholders, employees and stakeholders; and management in which profits are mainly devoted to maintaining and developing the business. Associations, cooperatives, mutual societies and foundations satisfy this by their legal form. A commercial company must write it into its articles, and the registry then adds the mention « entreprise de l’économie sociale et solidaire » to its registration extract.

Second step — meeting the approval conditions. Social utility as the main objective, a significant impact of the induced cost on the income statement or on financial profitability, the pay ceilings, and no equity securities admitted to trading on a market in financial instruments. Those conditions are set out in our article on the four conditions of article L. 3332-17-1.

An application filed without clearing the first step is pointless — and it is a frequent cause of rejection among young impact companies.

The clauses of the first step: belonging to the ESS

Four families of clauses have to be written or rewritten.

The corporate purpose. It must show a purpose beyond the mere sharing of profits. In practice that means describing the end pursued before describing the commercial means used to reach it.

Democratic governance. The articles must organise the information and participation of shareholders, employees and stakeholders in the company’s achievements. The forms vary — an employee college, a stakeholder committee, enhanced information rights — but the commitment must be statutory, not merely practised.

Allocation of results. A majority share of profit must go to retained earnings and mandatory reserves, including an indivisible statutory reserve funded each year. This is the clause with the greatest real economic effect: it durably limits distribution.

Protection of capital. The articles must prohibit the amortisation of capital and any reduction not justified by losses, save in the cases the texts provide for.

These clauses are not cosmetic. They change shareholders’ rights, which is why their adoption should be prepared with existing investors before the general meeting rather than announced in the room.

The clauses of the second step: the approval

Article L. 3332-17-1 requires two conditions to appear in the articles of association. Not in a charter, not in a shareholders’ agreement, not in internal rules.

The social-utility objective. Drafted by reference to the branches of article 2 of the 2014 Act: support for people in a fragile situation, the fight against exclusion and inequality, education for citizenship and the preservation of social ties, or a contribution to sustainable development, the energy transition, cultural promotion or international solidarity — this last branch counting only where the activity also produces an impact under the earlier ones. Reuse the wording of the Act and apply it to your activity: a vague clause about « the general interest » characterises nothing.

The pay cap. Both ceilings must be written down: the average of the sums paid, bonuses included, to the five best-paid employees or executives does not exceed seven times the annual pay of a full-time employee on the SMIC — or on the industry minimum if higher — and the highest single package does not exceed ten times that reference.

This clause has a consequence founders rarely weigh at signature: it then binds the company’s entire trajectory, including through rapid growth or the recruitment of an executive from the mainstream corporate sector.

The order of operations

The critical path is statutory, not administrative.

1. Settle it internally. An indivisible reserve, broadened governance and pay ceilings are lasting commitments. They are discussed with shareholders before they are drafted.
2. Draft the clauses with an adviser used to French social-economy companies, making sure each statutory requirement maps to a numbered, identifiable article.
3. Convene the extraordinary general meeting within the notice periods your current articles impose.
4. File with the trade registry and check that the registration extract carries the ESS mention.
5. Assemble the approval file and lodge it with the prefect of the department of the registered office, the assessment falling to the DDETS. The procedure and the two-month deadline are covered in our article on filing the application.

Allow several months between the first discussion and the filing, mostly because of notice periods and registry delays.

What these clauses change for your investors

One objection comes up at every general meeting: won’t these clauses close the door on investors?

The sector’s experience suggests the opposite, provided you approach the right providers of capital. Alex Nicholls, in a 2010 article in the Journal of Social Entrepreneurship, shows that social investment institutionalises around distinct investor rationalities that do not reduce to maximising returns (see the study). For those investors, enforceable statutory clauses are a guarantee against the risk they fear most: seeing the social purpose abandoned once they are in the capital.

The tension they create should nonetheless be acknowledged. Julie Battilana and Matthew Lee, in a review published in 2014 in The Academy of Management Annals, describe the social enterprise as a hybrid organisation that must continuously articulate several organisational forms and logics (see the study). The articles of association of a social-economy commercial company are exactly where that articulation becomes legal — and therefore durable.

Take action

Open your articles of association and identify, clause by clause, what is missing: a purpose expressing an end, participatory governance, majority allocation of profits, a ban on amortising capital, the social-utility objective, the pay ceilings. Turn that into a single list of amendments to carry at one extraordinary general meeting rather than two. The ESUS approval page sets out the conditions, the steps and the terms of validity.