Comparative study between the joint stock company SA and simplified joint stock company SAS

The SA and SAS are both capital commercial companies or joint stock companies, i.e. they are companies created in consideration of the capital provided, in which the units of ownership interest are called "shares."

Five important similarities between SA and SAS companies should be pointed out:

1) Shareholders' and associates’ responsibility and representation of rights:

In an SA, as well as in an SAS shareholders and associates "are liable for the company's liabilities only in an amount equal to their contributions" and their rights are represented by "shares."

2) Capital and shares:

The share capital in the two forms of companies is divided into shares whose nominal amount is fixed by the articles of Association. Each share entitles to one vote at least at the general meetings of shareholders.

Rules concerning change in the share capital, including terms and conditions of the increase in capital and the preferential right are the same both in an SA and an SAS.

3) Control of the company:

In an SA, control is mandatorily exercised by one or more auditors.

In an SAS, the appointment of an auditor is mandatory only when the company meets two of the three following conditions: (i) a balance sheet higher than the equivalent of USD 20,000, (ii) an annual turnover exceeding the equivalent of USD 500,000 and (iii) the permanent staff exceeding fifty (50) people. When the company does not meet two out of the three conditions, the appointment of an auditor is optional. Whatever the case may be, the auditors of an SA or an SAS shall have the same responsibilities and rights.

4) Responsibilities of the company's directors and officers:

The rules governing the responsibilities of members of the board of directors of SA companies are applicable to the Chairman and managers of SAS.

5) Issuance of financial securities:

SA and SAS companies are authorized to issue financial securities i.e. shares and debt securities other than money market paper (for example bonds).

6) Transfer of shares:

The R-AUSCGIE makes it clear that in the case of both SA and SAS, share transfer made in breach of the provisions in the relevant company’s articles of association are to be treated as void.

7) Key management incentivized through allocation of free shares:

Both SA and SAS are now permitted to allocate free shares to employees and directors under a similar regime. The total number of free shares which may be allocated cannot exceed ten percent of the share capital of the company. Employees must retain the shares for at least two years or such greater period as determined in the shareholders ‘decision, while directors must retain all, or in some cases a specific part of the shares until termination of their duties.

Differences between the SA and SAS:

Five important differences between SA and SAS should be pointed out:

1) Designation of persons who contribute to the capital of the company:

In an SA, a holder of registered shares is called a "shareholder" while in an SAS a holder of shares is called an "associate."

2) Holding of general meetings:

For the SA, the R- AUSCGIE strictly regulates the collective decision-making, with specific rules on notices to attend general meetings, their holding and their responsibilities (those of ordinary general meetings and those of extraordinary general meetings).

However, for the SAS companies, the R- AUSCGIE gives considerable latitude to articles of association. Thus, article 853-11 paragraphs 1 and 2 states: "Articles of association shall determine decisions which must be taken collectively by the associates in the stipulated forms and conditions. Decisions taken in violation of the articles of association are void."

"However, the powers vested in the ordinary and extraordinary general meetings of SA companies regarding the increase, repayment or reduction of capital, mergers, demerger, partial transfer of assets, dissolution, and conversion into a company of another form, appointment of auditors, annual accounts, and profit are, under the conditions provided by the articles of association, exercised collectively by the associates. The decisions taken in violation of the provisions of this paragraph are null. They shall also be null when taken collectively but in violation of the conditions stipulated in the articles of association."

This provision means that, irrespective of the provided capital, the rules to convene the meetings, quorum, and majority at general meetings are provided for by the articles of association.

Regarding the SA, ordinary general meetings are held, first convened based on a quorum of at least one quarter of the shares present or represented and on second convocation, no quorum is required and that the vote take place by simple majority and as for extraordinary general meetings, quorum on first convening of at least half of the shares present or represented and second and third convocations at least one quarter of shares present or represented, the votes are usually held by a majority of 2/3 of votes cast and unanimously in the case of the transfer of the company's office in the territory of another State.

The voting rights attached to the capital shares are proportional to the amount of capital they represent and each entitles to one vote.

In the SAS, all the rules for convening, quorum, and majority are provided for by the articles of association; associates are free to provide for the terms that suit them best. For this purpose, it is not uncommon to find a minority associate try to ensure its mandatory participation to any decision or provide a large majority to allow its shares to participate in the decision-making process thereby making void any decision of a meeting at which this minority associate did not participate or vote.

3) Share Capital and Shares:

In the SA, there is a minimum share capital amounting to the equivalent of USD 10,000. While, in the SAS, the amount of share capital is set by the associates in the articles of association. There is no minimum capital and there is no minimum par value for shares.

In an SA, the shares may not represent "industry contribution" while in an SAS the company may issue shares for contributions in industry. Those shares are, however, inalienable.

4) Public offering:

The R- AUSCGIE includes specific provisions applicable to SA companies that are publicly traded. On the contrary, it is forbidden to SAS companies to be listed or launch public calls for capital. But this has limited short term significance due to the current development of capital markets within the OHADA region.

5) Organization and operation:

The organization and operation of SA companies is strictly provided in the AUSCGIE. Thus, under articles 414, 415, 416 and 420, the mode of administration of each SA is determined in a non-equivocal manner, by articles of association that must choose between: the SA with board of directors and the SA with a managing director. The SA with a board of directors is managed either by a Chairman and Chief Executive Officer, or by a chairman of the board of directors and a General Manager. The SA can be administered by a Board of Directors comprising a minimum of three (3) members and at most twelve (12) members, who may or may not be shareholders, the term of office of directors is set freely by the articles of association without exceeding six (6) years in cases of appointment during the life of the company and two (2) years, in case of designation by the articles of association or by the constituent general meeting.

On the other hand, in an SAS, the articles of association freely provide the organization and functioning of the company, subject to the mandatory of the AUSCGIE. As an example of mandatory rules on the organization and operation of SAS companies, the company is represented in relation to third parties by a chairman (‘’ President’’) appointed pursuant to the articles of association. The Chairman is vested with the broadest powers to act on behalf of the company; he exercises these powers within the limits of the company’s purpose. The articles of association may also include conditions in which one or more persons other than the Chairman with the title of General Director or Deputy General Director may exercise powers granted to the Chairman. There is a possibility for the shareholders to have a board of directors.

In conclusion, SAS companies offer far more flexibility to shareholders who may freely decide, among other things, the organization and management of the company, while SA companies tend to be more rigid with, for example, strict rules regarding the organization of shareholders’ and board of directors’ meetings. Its mode of governance is flexible and can be tailored to the shareholder’s needs. SAS companies are generally preferred by minority shareholders as this corporate form gives them the opportunity to negotiate and obtain more rights than in SA companies. An SAS can be registered with no minimum share capital requirement and have both legal and natural persons as shareholders. Its mode of governance is flexible and can be tailored to the shareholders’ needs.

When a SA must be administrated by a Board of Directors - if its share capital is held by more than three shareholders - the Uniform Act Relating to Companies provides that, subject to compliance with mandatory rules (i.e. representation of the company by a Chairman, who is vested with broad powers to act on behalf of the company with third parties and is the only mandatory corporate organ; exclusive power of the shareholders’ general meeting for some corporate decisions such as those relating to (i) annual accounts and profits, (ii) the share capital or (iii) the transformation of the company), the articles of association of the SAS can freely provide for the organization, the management and the functioning of the company. This includes the possibility to appoint general managers, deputy general managers, an executive committee, a supervisory board, and etc.

Such flexibility will allow for the setting-up of governance modalities adapted to the different profiles of the investors in private equity operations, but also within the framework of joint-ventures between a local partner (for example, a national company) and a foreign partner.

SARL is the equivalent of limited company in other countries such as UK, SA. The only difference is that with this form of the company there is no board of directors.

Based on the business proposed to be undertaken by the DRC entity and the arrangement between the two shareholders, the recommendation is the SAS. The tax regime of the DRC (namely brief overview of such regime) will apply to all companies regardless their legal form.