As a general principle, foreign investments on French territory are unrestricted (Article L. 151-1 of the French Monetary and Financial Code, the (MFC)). However, in order to ensure the protection of national interests, the French Government is entitled to control foreign investments (Article L. 151-2 of the MFC) that relate to “sensitive” activities, even if they do so only on an occasional basis.
Sensitive activities include those that affect “the exercise of public authority” or are “likely to jeopardise public order, public safety or national defense interests” or involve “the research in, or the manufacture or marketing of weapons, ammunition, or explosive powders or substances”. Pursuant to Article L. 151-3 of the MFC, foreign investors must obtain prior authorisation from the Ministry of Economy before they can invest in any activity considered as sensitive.
A decree dated 7 May 72012 modifies the scope of the regulatory framework (codified at Articles R. 153-1 to R. 153-10 of the MFC) in order to comply with the freedom of movement and establishment of capital required by the treaty on the functioning of the European Union.
Under the former regulatory framework, the direct or indirect acquisition of the business of a company, and the direct or indirect acquisition of more than one third of the shares or voting rights of a company, when the registered office of these companies were located in France, were considered as foreign investments.
The new decree removes all reference to indirect acquisitions. Indirect acquisitions are therefore generally no longer subject to prior-authorisation requirements, even if they involve sensitive activities. There is, however, one exception to the new rule. Under the new Article R. 153-5-2 of the MFC, authorisation is still required for the acquisition by French companies directly or indirectly controlled by EU or non-EU investors of a business with sensitive operations that is owned by a company with a registered office located in France.
Failure to comply with this obligation may lead to the application of civil fines and/or criminal penalties and the transaction being declared invalid.