Obligation to consolidate in France for small international groups?

1. Summary of the situation

SWISS AG is a company incorporated under Swiss law that owns 100% of the capital of SOCIETE FRANCE 1 SAS.

SOCIETE FRANCE 1 SAS itself holds 100% of the capital of two French companies: SOCIETE FRANCE 2 SAS and SOCIETE FRANCE 3 SAS.

The three French companies (SOCIETE FRANCE 1 SAS, SOCIETE FRANCE 2 SAS, SOCIETE FRANCE 3 SAS) therefore constitute a French sub-group, wholly and exclusively controlled by SWISS AG via SOCIETE FRANCE 1 SAS .

For each of the last three financial years, the three French companies, taken together, have the following approximate aggregates:

○ Total annual turnover: €10,000,000;

○ Total balance sheet: €5,500,000;

○ Average workforce: 80 employees.

These entities are not credit institutions, insurance companies or listed entities, and do not seek to appeal to the generosity of the public.

SWISS AG prepares consolidated accounts in Switzerland that include the three French companies.

The question is whether, under French law, SOCIETE FRANCE 1 SAS is required to prepare and publish consolidated accounts in France, given this structure and the figures provided.

2. Overview of the legal framework applicable in France

2.1. Principle: obligation to prepare consolidated accounts

The obligation for French commercial companies to prepare and publish consolidated accounts is governed by Articles L 233-16 to L 233-28 and R 233-3 to R 233-15 of the Commercial Code.

Article L 233-16 provides that commercial companies must prepare and publish consolidated accounts and a report on the management of the group when they exclusively or jointly control one or more other companies.

This obligation applies to all commercial companies, regardless of their form (including SAS), provided that they exercise control within the meaning of II and III of Article L 233-16 (sole or joint control).

In this case, SOCIETE FRANCE 1 SAS has exclusive control over two French subsidiaries (100% ownership) and therefore, in principle, falls within the scope of companies that may be required to prepare consolidated accounts.

2.2. The main cases of exemption

Several exemptions from this obligation are provided for in the Commercial Code, in particular:

○ The exemption known as ‘unlisted subgroup’, where the company is itself controlled by an undertaking that includes it in its own consolidated and published accounts;

○ The exemption linked to the size of the group (known as the ‘small groups’ exemption), which refers to the concept of a large group within the meaning of Articles L 230-2 and D 230-2;

○ More marginally, the exemption for negligible interest in subsidiaries (Article L 233-17-1 combined with Article L 233-19). 1 9

The first two exemption regimes are central to your situation.

3. Exemption linked to the size of the group (‘small groups’)

3.1. Concept of ‘large group’ and raising of thresholds

Since the reform introduced by Order No. 2023-1142 of 6 December 2023, Article L 233-17, 2° of the Commercial Code provides that the companies referred to in Article L 233-16 are exempt from preparing and publishing consolidated accounts when:

○ the entity comprising a company and the undertakings it controls does not constitute a large group within the meaning of Article L 230-2; and 1

○ none of these companies or enterprises belongs to one of the categories listed in Article L 123-16-2 (credit institutions, insurance companies, listed entities, entities appealing to the generosity of the public, etc.).

Article L 230-2 defines a large group as a group consisting of a company and the enterprises it controls which, at the end of the financial year, exceeds the thresholds set by decree for at least two of the following three criteria: total balance sheet, net turnover, average number of employees.

These thresholds are specified in Article D 230-2 of the Commercial Code:

○ total balance sheet: €30,000,000;

○ net turnover: £60,000,000;

○ average workforce: 250 employees.

The thresholds are deemed to have been exceeded on the closing date of two consecutive financial years.

Accounting and auditing doctrine has emphasised that these new thresholds (30/60/250) replace the old thresholds (24/48/250) and now constitute the benchmark for assessing the ‘small group’ exemption.

3.2. Application to the data of the SOCIETE FRANCE 1 SAS subgroup

In order to assess whether or not the subgroup formed by SOCIETE FRANCE 1 SAS and its two subsidiaries constitutes a ‘large group’, the following consolidated aggregates (per financial year) should be used:

○ total balance sheet: €5.5 million;

○ net turnover: €10 million;

○ average workforce: 80 employees.

Comparison with the thresholds in D 230-2:

Criterion

Sub-group in France

Large group threshold (D 230-2)

Total balance sheet

€5.5 million

€30 million

Net turnover

€10 million

€60 million

Average workforce

80

250

The French sub-group does not exceed any of the three thresholds.

Furthermore, your information shows that none of the companies in the sub-group: 5

○ is a credit or finance institution;

○ is an insurance or reinsurance company;

○ is listed on a regulated market;

○ appeals to the public for funds.

The two cumulative conditions of Article L 233-17, 2° are therefore met:

○ the SOCIETE FRANCE 1 SAS subgroup does not constitute a large group;

○ no entity in the group belongs to the excluded categories.

Conclusion on this point:

SOCIETE FRANCE 1 SAS is automatically entitled to the ‘small groups’ exemption provided for in Article L 233-17, 2°. It is therefore exempt from preparing and publishing consolidated accounts in France, given the current size of the French subgroup.

This conclusion applies to financial years beginning on or after 1 January 2025 with the new thresholds, and, in practice, it would also have been valid under the previous thresholds (24/48/250), as the group is well below these levels.

4. ‘Unlisted subgroup’ exemption – Integration into a larger group

Regardless of the size of the group, the Commercial Code allows, in certain cases, a French company controlled by another company to be exempt from preparing consolidated accounts when that other company consolidates the group and publishes its accounts.

4.1. Legal conditions (Article L 233-17, 1°)

Article L 233-17, 1° provides that a company that is in principle required to prepare consolidated financial statements may be exempted if: 1

○ it is controlled by a company that includes it in its own consolidated accounts;

○ its securities are not admitted to trading on a regulated market and it does not issue negotiable debt securities;

○ no partner or shareholder objects, provided that they hold at least one tenth of the capital.

These conditions are supplemented by the regulatory provisions detailed in Article R 233-15.

4.2. Regulatory conditions (Article R 233-15)

Article R 233-15 specifies that, in order to benefit from this exemption, the French company must justify in the notes to its annual accounts that:

○ The consolidated accounts of the ‘larger entity’ (in this case, those of SWISS AG):

■ are prepared in accordance with Articles L 233-16 to L 233-28 of the Commercial Code, or

■ are prepared, for companies based in another country, in accordance with the provisions adopted for the application of Directive 2013/34/EU, or

■ in the case of a third country not required to apply this Directive, are prepared in accordance with principles and rules offering a level of requirement equivalent to these provisions (concept of ‘equivalence’).

○ These consolidated accounts of the larger entity are:

■ certified by independent professionals responsible for auditing the accounts;

■ published in accordance with the legislation applicable to SWISS AG and made available to the shareholders of SOCIETE FRANCE 1 SAS .

○ If they are prepared in a language other than French, they shall be accompanied by a translation into French made available to the shareholders.

○ When the consolidating company has its registered office outside the European Union or the EEA (which is the case for Switzerland), the consolidated accounts must be supplemented by significant information concerning the financial position and results of the group consisting of the exempt company, its subsidiaries and holdings (the French sub-group).

This additional information may be presented:

■ either in the notes to the consolidated financial statements of SWISS AG;

■ or in the notes to the annual financial statements of SOCIETE FRANCE 1 SAS, applying the principles and methods set out in Articles L 233-16 to L 233-25.

Professional doctrine (Mémento Audit, Feuillet Rapide Comptable) emphasises the strictly cumulative nature of these conditions: the ‘unlisted subgroup’ exemption can only be invoked if all the requirements of L 233-17, 1° and R 233-15 are met and duly documented in the notes.

4.3. Concept of ‘equivalence’ of accounting standards

The Audit Memorandum points out that IFRS standards are considered by French law to be equivalent to the rules relating to consolidated accounts and the provisions of Directive 2013/34/EU. 3

Certain foreign standards (e.g. US GAAP or certain non-European standards) are also recognised as equivalent to IFRS for consolidated financial statements, according to the decisions of the European Commission.

In practice, for SWISS AG, it will be necessary to verify:

○ the accounting standards used for its consolidated accounts (IFRS, Swiss GAAP FER, other) and their level of ‘equivalence’ within the meaning of Article R 233-15;

○ the existence of certification by independent auditors;

○ the terms and conditions for publishing and making these accounts available to the shareholders of SOCIETE FRANCE 1 SAS, as well as the provision of a French translation where applicable;

○ the presence of the required significant information concerning the financial position and results of the French sub-group.

4.4. Application to the case of SOCIETE FRANCE 1 SAS

In view of the information you have provided:

○ SOCIETE FRANCE 1 SAS is 100% controlled by SWISS AG, which prepares consolidated accounts including the French companies: the first condition is therefore fulfilled in principle.

○ The French companies are unlisted and do not issue negotiable debt securities: condition fulfilled.

○ The absence of opposition from shareholders representing at least 10% of the capital of SOCIETE FRANCE 1 SAS must be verified and, where applicable, formalised (minutes of the meeting, mention in the appendix).

○ All the requirements of Article R 233-15 (equivalent reference framework, certification, publication, translation, additional information on the French sub-group) will still need to be documented.

Conclusion on this point:

Subject to verification and documentation of the above elements, SOCIETE FRANCE 1 SAS is also able to claim the ‘unlisted subgroup’ exemption on the grounds that the French subgroup is already included in the consolidated accounts of SWISS AG.

This exemption complements the ‘small groups’ exemption, but is not necessary at this stage to justify the absence of consolidated accounts in France, as it is based on a greater number of conditions that must be verified at the Swiss group level.

5. Exemptions for ‘negligible interest’ of subsidiaries

Article L 233-17-1 of the Commercial Code allows a company to be exempted from preparing consolidated accounts when all the companies it controls exclusively or jointly are, individually or collectively, of negligible interest in relation to the objective of consolidated information,

or may be excluded from the scope pursuant to Article L 233-19.

Article L 233-19 authorises the exclusion of a subsidiary from consolidation, in particular when it represents only a negligible interest, when it is held for sale, or when the necessary information cannot be obtained without excessive cost or within an unreasonable time frame.

However, legal doctrine emphasises that this regime requires precise justification in the notes to the financial statements, as well as regular assessment of the insignificant nature of these subsidiaries. 9

Given the volume of activity of the French sub-group (€10 million in turnover, 80 employees) and the clearly operational nature of the subsidiaries, it would be difficult to argue that they represent an ‘negligible interest’.

In practice, this exemption route is not suitable for the case of SOCIETE FRANCE 1 SAS, as the other two regimes (group size and unlisted sub-group) offer a more solid legal basis and are better suited to the economic reality of the group.

6. Conclusion and recommendations

6.1. Summary of legal position

○ Principle of obligation

As a commercial company controlling two wholly-owned French subsidiaries, SOCIETE FRANCE 1 SAS is, in principle, a company falling within the scope of Article L 233-16 of the Commercial Code, which requires the preparation and publication of consolidated accounts.

○ Exemption based on group size (‘small groups’)

In view of the figures provided (€5.5 million total assets,

€10 million in turnover, 80 employees), SOCIETE FRANCE 1 SAS and its French subsidiaries do not constitute a large group within the meaning of Articles L 230-2 and D 230-2 (30/60/250 thresholds).

As none of the companies concerned fall within the excluded categories (credit institutions, insurance companies, listed entities, entities relying on public generosity), the conditions of Article L 233-17, 2° are met.

Conclusion: SOCIETE FRANCE 1 SAS benefits from the ‘small groups’ exemption and is not required to prepare or publish consolidated accounts in France in the current situation.

○ Additional ‘unlisted subgroup’ exemption

Furthermore, subject to verification of the legal and regulatory conditions (in particular those specified in Article R 233-15), SOCIETE FRANCE 1 SAS could also claim the ‘unlisted subgroup’ exemption due to its inclusion in the consolidated financial statements of SWISS AG.

This option offers additional security, but requires documentation of: SWISS AG’s accounting standards and their equivalence, the certification and publication of the consolidated financial statements, their availability to shareholders with French translation if necessary, and the provision of meaningful information on the French subgroup.

○ Exemptions for ‘negligible interest’

Given the operational importance of the French subsidiaries, the exemption based on ‘negligible interest’ does not seem appropriate and does not constitute the preferred basis in your case.

6.2. Operational recommendations

○ Explicit mention of the exemption in the notes to the annual accounts of SOCIETE FRANCE 1 SAS

■ Indicate that the company does not prepare consolidated accounts for the financial year, based on Article L 233-17, 2° (group not constituting a ‘large group’ within the meaning of L 230-2 and D 230-2 and not falling within the categories of Article L 123-16-2).

○ Possible security through the ‘sub-group’ exemption

■ If you wish to combine the grounds for exemption, check with SWISS AG and the statutory auditors: the reporting framework used, certification, publication and availability of consolidated accounts, translation into French and information relating to the French sub-group.

■ If the conditions of L 233-17, 1° and R 233-15 are fully met, also mention in the notes to the financial statements that SOCIETE FRANCE 1 SAS is included in the consolidated accounts of SWISS AG and that it therefore benefits from the ‘unlisted subgroup’ exemption.

○ Monitoring changes in the size of the group

■ Set up annual monitoring of the three aggregates (balance sheet, turnover, average workforce) in order to verify that the subgroup does not exceed the thresholds of €30 million / €60 million / 250 in two consecutive financial years.

■ In the event of significant growth (external growth, development of new activities in France, sharp increase in turnover or balance sheet), reassess the situation in light of Article L 233-16 and the exemptions in L 233-17.

In conclusion, under current French law on consolidated accounts, we are of the opinion that SOCIETE FRANCE 1 SAS is not required, in its current configuration, to prepare and publish consolidated accounts in France.