In corporate operations, the majority rule is the guiding principle for ensuring effective collective decision-making. However, this rule can sometimes be diverted from its primary purpose, leading to what legal doctrine and case law have long termed "abuse of majority" (Cass. Com., April 18, 1961, No. 59-11.394).
This legal mechanism has become a fundamental element in protecting minority shareholders against the potential excesses of majority power.
This article delves into the heart of this imbalance—between legitimate power and overreach—to help you understand how the law regulates these abuses and how to challenge them.
1. Definition of abuse of majority
Abuse of majority is rooted in the violation of Article 1833 of the Civil Code, which states that a company must be formed in the common interest of the shareholders and managed in its corporate interest.
Thus, as case law consistently reiterates, two cumulative criteria must be met to establish an abuse of majority (Cass. Civ. 3rd, July 8, 2015, No. 13-14.348):
1. A decision contrary to the corporate interest
2. An intention to favor the majority at the expense of the minority
Simply "losing a vote" is not enough to constitute abuse: the decision must cross that often blurry line between legitimate majority strategy and the misappropriation of collective interest.
What about unanimity?
According to the Court of Cassation, a unanimous decision by shareholders cannot constitute an abuse of majority (Cass. Com., November 8, 2023, 22-13.851). This assertion, while categorical in tone but minimalist in its reasoning, raises numerous questions.
2. Examples: the many faces of abuse of majority
Abuse of majority does not have a single look. It disguises itself as a strategic decision, a management choice, or a technical maneuver. But behind these appearances lies a single intention: to favor the majority at the expense of the minority, without any justification related to the corporate interest.
A few examples:
Misappropriation of value: capturing to better deprive
Majority shareholders may use their power to direct the company's wealth toward their exclusive benefit, in disregard of internal balances:
- Unjustified refusal to distribute dividends: even while they compensate themselves through other channels (salaries, various benefits), majority shareholders systematically oppose the distribution of dividends. Minority shareholders, meanwhile, are entitled to nothing.
This only constitutes abuse if the directors' compensation is unjustified or if the systematic allocation to reserves is contrary to the company's interests (Cass. Com., June 6, 1990, No. 88-19.420; Cass. Com., August 30, 2023, No. 22-10.108; Cass. Com., June 10, 2020, No. 18-15.614). - Massive increase in compensation: majority managing partners vote for a 300% increase in their compensation, causing net income to collapse and putting an end to dividend distributions (Cass. Com., January 15, 2020, No. 18-11.580).
- Unequal distribution of profits: the majority decides to break the equality in profit sharing in order to oust a minority shareholder (Cass. Civ. 1st, May 19, 2021, No. 18-18.896).
Dilution of power: weakening without reason
When the objective of a decision is political rather than economic—to weaken a minority shareholder—the law refers to this as abusive dilution.
An abuse of majority power is constituted by an assembly's decision to increase capital just before the sale of a significant asset for the sole purpose of diluting a minority shareholder's stake (Cass. Civ. 3rd, July 8, 2015, No. 13-14.348).
Strategic sabotage: hollowing out to rule
Some abuses are more sophisticated: they aim to modify the company's structure or organization to exclude any minority oversight:
- Transformation of the parent company into an "empty shell": through a capital operation, the majority transfers the subsidiary's shares to a limited partnership with shares that they control alone. The parent company loses all economic substance, the minority shareholders lose all power, and the abuse is established (Cass. Com., January 24, 1995, No. 93-13.273).
- Strategic liquidation: without a serious motive, the majority shareholder decides to dissolve the company to escape contractual obligations toward a minority shareholder: the decision, made for purely personal interest, is annulled (Cass. Com., February 8, 2011, No. 10-11.788).
- Sale at a sacrifice price: The majority shareholders vote to sell an asset below market price to a structure they own exclusively. The abuse is evident: the Court imposes sanctions (Cass. Com., May 24, 2016, No. 14-28.121).
Conflict of interest: the company at the service of one person
Sometimes, the abuse stems from using the company as a personal tool to secure transactions that have no connection to its corporate purpose.
This is the case with mortgage guarantees for a personal loan: a company grants a mortgage guarantee to a bank... not for its own benefit, but to secure a loan granted to the majority shareholder. There is no corporate interest: the Court imposes sanctions (Cass. Civ. 3rd, March 25, 1998, No. 96-17.307).
3. Sanctions
The recognition of an abuse of majority can lead to two types of sanctions:
a. Annulment of the decision
This is the primary sanction. The judge may simply annul the resolution that was abusively adopted during a meeting.
This, of course, requires legal action to be taken within the prescribed time limits: this period is set at 3 years for decisions prior to October 1st, 2025, the date from which it will be reduced to 2 years in accordance with the wording of Article 1844-14 of the Civil Code as amended by Ordinance No. 2025-229 of March 12, 2025.
b. Damages
If annulment is not sufficient to compensate for the loss (loss of dividends, devaluation of shares, etc.), minority shareholders may also seek compensation based on civil liability.
A 5-year limitation period applies to claims for damages (Cass. com., May 30, 2018, No. 16-21.022).
Are you a minority shareholder suspecting abusive conduct?
Every case is unique, but the law provides avenues for action. Contact me to discuss it!
