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Cooperative and Participative Societies: A calm and effective transfer of business

Home > French Business Law | Published 2015-11-06

Cooperative and Participative Societies (SCOP) are the societies in which the major business associates are the employees themselves. While this approach often allows a company to continue to thrive post transfer, it is unfortunately underused despite its many benefits. Employees are ideal buyers as they know the members of the company, the clients, and the field best. Consequently, they hope to protect their fellow employees and to continue on the company’s work. This solution therefore presents undeniable economic benefits. This type of relationship also allows a company to prosper by way of those who already work there.

The Function of an SCOP

This solution should be preferred to all others, notably for smaller companies of less than 200 employees who often have more difficulty finding investors outside of the familiar circle. All the more, the National Institute of Statistics and Economic Studies (l’Insee) estimates that near 10% of petitions for bankruptcy are caused by badly prepared succession.

When employees take over the company no new legal person is created as this method is a sort of continuity of the existing company. Therefore, the status chosen to replace the classic SA or SARL is that of the SCOP. It is a slightly particular form of SA or SARL as it is subject to compliance with certain principals. The employees should be major associates, which is to say they must posses 51% of capital of the business and 65% of the right to vote. Thus have particular power over the use of profits and of risk sharing.  Positive results are destined primarily for employees. Consolidation of the SCOP and reserves are not distributable.

What are the advantages of an SCOP?

The SCOP presents many tax and social advantages. It allows an exemption of corporate income tax for the portion of the profits distributed to employees and reserves in certain cases. It is also exempt from the Territorial Economic Contribution.  

Otherwise, all of the associates depend on the scheme for employees, including management. They benefit thus from all of the advantages of qualifying as a paid employee ranging from labor laws to social aspects.

The employees who become partners also benefit from a diversification and an augmentation of their sources of revenue proportional to the performance of the business. These are further advanced by a reduction in conflicts between employees and patrons.

However, to be a total success, all of the transfer of the business should be rigorously prepared.

To avoid conflict, a part of the evaluation of the company should be carried out by experienced professionals. However, the economic aspects of the company should be carried out jointly. Financing should be carried out, by public or private offering for example, thoroughly by studied arrangements by the appropriate facilities, to assure the good health of the SCOP and to give confidence to the present and future partners. Thus cash flow is an essential point. Lastly, the employee-buyers should find support in the social development of their project and eventually in the signing of a corporate pact.

Regarding SCOP projects, being helped by a lawyer with an understanding of business law is fundamental to making good choices which correspond with your interests. A lawyer will be at your service to use their irreplaceable experience to facilitate the transfer of your company.

This article is available online for public information purposes. It is updated regularly, as needed. Due to the constant evolution of the laws and the legal system, we cannot guarantee that the information in this article is still applicable. We invite you to contact us with any legal questions or concerns you have regarding this topic at +33 1 56 79 11 00. In no way can this firm be held liable for articles that contain inaccuracies or are now out of date.

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