At the end of a fast-track procedure culminating in an agreement reached by a joint committee on a compromise text, the law aimed at increasing business financing and France's financial attractiveness has finally been promulgated on 13 June^[1]. Among the new provisions, one flagship measure is attracting particular attention from practitioners: the possible allocation of multiple voting rights to holders of preferred shares in listed companies.

For a long time, such a measure seemed heretical in view of the fundamental principles governing company law and stock market law. The former is traditionally based on the principle of proportionality between voting rights and share capital, while the latter generally promotes equal treatment of investors on the market. As a result, so far in French law, the only possibility of derogating from the one-share-one-vote rule in listed companies was to allocate double voting rights to identified and long-term shareholders.

But as a recent report by the Haut comité juridique de la place financière de Paris (HCJP) had already suggested^[2], times have changed. Concern for the long-term commitment of shareholders now makes it more acceptable to combine the listing of shares with long-term control, in a trend that seems to be converging in Europe. While Dutch law has long adopted such an approach, which has attracted a number of large foreign companies to the Amsterdam stock exchange, a new Italian law dated 5 March 2024 has made it possible to grant at least ten votes per share to shareholders of companies going public, and the European legislator himself intends to open the way more generally to such multiple voting rights by means of a directive on which provisional agreement has already been reached between the Council and the European Parliament^[3].

In this respect, driven by the concern for attractiveness that reflects its very title, the French draft law is particularly liberal, which can be appreciated by examining in turn the companies and beneficiaries concerned, the contours of the planned rights and the decisions that would remain impermeable to their exercise.

The companies and beneficiaries subject to multiple voting rights

With regard to the companies concerned by this innovation, it is important to make a preliminary clarification. While listed companies are indeed covered by the proposed law, there is no question of them being able to issue shares with multiple voting rights at any time. The text clearly states that this possibility would be limited to "the first admission of the company's shares to trading on a regulated market or a multilateral trading facility". In other words, multiple voting rights could only be allocated at the time of listing, and not at a later date. It is easy to see the legislator's desire to facilitate IPOs at a time when they are becoming rarer and competition from foreign markets more pressing.

The beneficiaries of multiple voting rights would receive them in the form of preferred shares, but only on condition that they are "specifically designated". By way of derogation from the traditional characteristics of these shares, the multiple voting rights would not be transferable, and the preferred shares would be converted automatically into ordinary shares in the event of a transfer of ownership. It should also be noted that this conversion would be required in the event of a change of control or dissolution of the company, so that the multiple voting rights would not withstand such a reconfiguration of power within the entity in question.

The contours of the planned rights

First of all, there is the question of the number of multiple voting rights to which the holders of these shares are entitled. On this point, the text limits itself to setting two extremely moderate constraints. According to the first, "the ratio between the voting rights attached to a preferred share and those attached to an ordinary share may not exceed twenty-five to one". Such a limit gives the issuer considerable leeway, especially as this cap was only introduced for companies whose securities are admitted to trading on a multilateral trading facility - essentially Euronext Growth - and will therefore not apply to companies carrying out their IPO on a regulated market - i.e. Euronext Paris. By way of comparison, the recent Italian law mentioned above limits this ratio to ten to one, and this was also the recommendation of the HCJP report on the subject. The second constraint is more formal and relates to the fact that the ratio "must be a whole number".

Then there is the question of the duration of such voting rights, which cannot be unlimited, and this goes beyond the sole case of their extinction as a result of the above-mentioned transfer of the related securities. The text provides that "preferred shares shall be created for a fixed or determinable period which may not exceed ten years". However, a renewal is possible at the end of this initial term, provided that it is a one-off renewal and cannot itself exceed a term of five years, without the holders concerned being able to take part in the vote on the matter at the Extraordinary General Meeting. Once again, the planned term is likely to be particularly long, which could put off some investors.

The decisions not subject to multiple voting rights

Certain meeting resolutions deemed too crucial to escape the classic process of shareholder democracy remain impervious to multiple voting rights. However, a distinction must be drawn here between mandatory rules and by-laws rules.

As far as mandatory rules are concerned, the list of resolutions for which multiple voting would be ruled out has been extended over the course of parliamentary debates. Initially limited to resolutions relating to the appointment of statutory auditors, approval of the annual financial statements and amendments to the articles of association excluding capital increases, it would now also cover resolutions relating to the approval of related-party agreements, as well as ex ante and ex post votes on executive remuneration policy and the remuneration finally awarded, an extension in line with the wishes previously expressed by the HCJP in its above-mentioned report. In the absence of a multiple vote, the persons concerned could nevertheless claim a double vote on these resolutions, provided that they meet the conditions ordinarily required to obtain it.

By-laws rules may be such as to disqualify multiple voting rights in the event of a takeover bid. In other words, the legislator intends a priori to leave it up to shareholders to use this means to prevent any hostile takeover. It will therefore be up to the articles of association to decide whether or not to waive multiple voting rights (i) at the meeting called to decide on the implementation of the defensive measures provided for in the articles of association, and (ii) at the first meeting following the close of the bid if, at the end of the bid, "the bidder holds at least three-quarters of the share capital carrying voting rights". As a result, and if shareholders so chose, a listed company using this system could be protected from any takeover bid, at least for as long as the multiple voting rights remained in place, which could be as long as fifteen years. In addition, the deprivation of multiple voting rights in such cases would entitle holders to fair compensation, under conditions to be defined by decree.