Business leaders face a multitude of complex issues: market determination, product or service development, financing, legal structuring, and more.

As part of presentations organized by Rouen Normandie Création of the Rouen Métropole, LBV Avocats had the opportunity to share insights with a group of entrepreneurs on the key legal pitfalls to avoid. Here’s a brief overview of the best practices to adopt.

Commercial Leases

The commercial lease is a critical contract governing relationships between landlords and tenants in the commercial sector. It is subject to specific rules designed to balance the interests of both parties while maintaining flexibility.

  • Tenant Obligations: Article 1728 of the Civil Code requires tenants to use the leased property responsibly and pay rent as agreed. Article 1752 further mandates tenants to furnish the premises with sufficient items to secure rent payment.
  • Non-Competition Clauses: These clauses may be included to protect tenants from competition from the landlord or other tenants.
  • VAT Exemptions: Leasing unfurnished premises is generally VAT-exempt, with exceptions outlined in Article 261, D, 2° of the General Tax Code (CGI).
  • Special Leases: Short-term leases that deviate from standard commercial leases are governed by Article L. 145-5 of the Commercial Code and are subject to contractual freedom.
  • Lease Renewal: Rent adjustments during lease renewals follow a formal process involving exchanges of statements and potentially an expert assessment.
  • Termination: A commercial lease can only be terminated based on the contractual provisions. If no termination clause is included, cancellation is not permitted.

Corporate Articles of Association (Statutes)

Corporate statutes are governed by numerous legal and regulatory provisions. These statutes can include:

  • Legally Prescribed Provisions: Obligations mandated by law.
  • Delegated Provisions: Options explicitly authorized by law.
  • Optional Provisions: Voluntary inclusions based on the company’s requirements.

Key legal references include:

  • Articles L. 227-6 and L. 227-8 of the Commercial Code for representation and liability of directors.
  • Articles L. 227-13 and following, which allow provisions for restrictions on share transferability.

Formation and Registration Formalities:

  • Signing, registering, and publishing the statutes.
  • Filing them with the commercial court registry.
  • Publishing a notice in a legal announcements journal.

Amendments to Statutes:

  • Typically require unanimous consent from associates unless otherwise specified.
  • Articles 1193 and 1836 of the Civil Code and Article L. 223-30 of the Commercial Code apply.
  • Jurisprudence confirms that obligations of associates cannot be increased without their consent.

The elimination of mandatory tax registration for statutes in 2015 simplified these formalities, except for specific cases. Proper compliance is overseen by the commercial court clerk.

Choice of Tax Option

When establishing a company, one must choose between corporate tax (IS) and personal income tax (IR). Each option has distinct advantages and disadvantages.

  1. Income Tax (IR):
    • Fiscal Transparency: Profits are taxed directly at the level of the associates, based on their shares. This is beneficial for those in lower tax brackets.
    • Flexibility: Partnerships (e.g., SNC or SCP) can opt for IR, allowing profits to be taxed at the associate level.
    • No Double Taxation: Unlike IS, there is no additional taxation on distributed profits.
  2. Corporate Tax (IS):
    • Fixed Rate: IS applies a fixed rate to corporate profits, which can be advantageous for high-earning businesses, as IS rates may be lower than higher IR brackets.
    • Reinvestment Opportunities: Post-tax profits can be reinvested without further taxation, fostering growth.
    • Optional Transition: Companies may initially choose IR and switch to IS later, leveraging both regimes at different stages of growth.

Conclusion: The choice between IR and IS depends on factors such as company structure, profit forecasts, and associate goals. A thorough analysis of fiscal implications and long-term objectives is crucial for making an informed decision.

Labor Law

Employment Contracts

Employment contracts are governed by general contract law and can take any form agreed upon by the contracting parties. However, fixed-term contracts (CDD) must be in writing and include mandatory clauses such as:

  • The specific reason for its use,
  • The contract’s end date,
  • Job description,
  • Probationary period duration,
  • The agreed salary.

Failure to include these clauses may result in the contract being deemed an open-ended contract (CDI).

Fixed-term contracts (CDD) are strictly regulated and typically used to meet a temporary need for labor. They are limited in duration and purpose, with restrictions to avoid misuse:

  • A CDD can only be renewed twice,
  • The total duration cannot exceed 18 months (with exceptions).

Conversely, the open-ended contract (CDI) is the standard and preferred form of employment, offering stability and security to employees.

Work-Study Contracts

Apprenticeship and professional training contracts allow young individuals to combine theoretical education with practical experience in a company. These contracts provide financial benefits to employers, such as subsidies and social security exemptions. However, they impose specific obligations, such as appointing a mentor and respecting training schedules.

Work-study arrangements are governed by collective bargaining agreements that may include provisions on remuneration and working conditions. Employers must check these agreements before signing contracts. Additionally, work-study participation is tracked in the company’s social report, which records indicators like the number of employees in alternating or night shifts.

Contract Reclassification

Reclassification occurs when a service or internship agreement is deemed to conceal a true employment relationship. The key criteria for reclassification include:

  • Subordination: Whether the worker is under the direction and control of the employer.
  • Tools and Equipment: Provided by the employer for work tasks.
  • Nature of the Work: Consistent with an employment relationship.

Reclassification can lead to significant financial consequences for employers, including back payment of wages and social contributions. Regardless of the label used, if factual circumstances indicate an employment relationship, reclassification is possible.

Occupational Risk Prevention

Employers have a duty to prevent workplace risks by:

  • Assessing risks,
  • Implementing preventive measures,
  • Providing employee training.

In matters of occupational health, the employer is held to an obligation of means, meaning they must take all reasonable steps to ensure employee safety.

In teleworking, employers must verify that home workspaces meet legal safety and ergonomic standards. Teleworkers are entitled to the same health and safety protections as on-site employees. A clear framework for teleworking is essential, often formalized through a collective agreement or company policy that defines:

  • Implementation procedures,
  • Equipment provided,
  • Conditions for returning to on-site work.

Additionally, the right to disconnect is critical to safeguarding employees’ personal lives.

Mandatory Documentation

Employers are required to maintain several key documents, including:

  • Payslips, which must be kept for five years,
  • A single personnel register,
  • Employment contracts,
  • Documents related to health and safety compliance.

These records must be regularly updated to ensure legal compliance.

Termination of Employment Contracts

Employment contract termination is governed by Article 1226 of the Civil Code and relevant case law from the Court of Cassation. Termination can occur through various means:

  • Resignation,
  • Dismissal,
  • Mutual agreement termination,
  • Constructive dismissal.

Each method has specific procedures and consequences. For instance:

  • A dismissal for personal reasons must be based on a legitimate and serious cause, following a strict process.
  • Constructive dismissal allows employees to terminate their contracts due to serious misconduct by the employer. However, this must be validated by a court.

Understanding the legal framework and correctly handling contract termination is essential to avoid disputes and ensure compliance.

Intellectual Property Law

Intellectual property law is a broad and intricate legal domain that encompasses several distinct branches, each governed by specific rules and principles. Below is an overview of its key components:

1. Copyright (Droit d’auteur)

Under French law, copyright is governed by the Code de la propriété intellectuelle (CPI). Article L.111-1 states that an author automatically holds exclusive intellectual and moral rights over their work upon its creation, provided it is original. Originality requires the work to reflect the author’s personality, creativity, and unique choices, as established by jurisprudence (Cass. com., 1er juillet 2008, pourvoi n°07-13.952). Protected works include literary, artistic, and graphic creations (Article L.112-2 CPI).

Types of Copyright:

  1. Economic rights: Allow authors to monetize their work through reproduction, representation, distribution, and resale rights. These are transferable and last for 70 years posthumously, after which the work enters the public domain (subject to moral rights).
  2. Moral rights: Protect the author’s personal connection to their work and include:
    • The right of disclosure,
    • The right of attribution,
    • The right to integrity (preventing unauthorized alterations),
    • The right of withdrawal or modification.
      These rights are perpetual, inalienable, and non-expiring, transferable only through inheritance.

2. Designs and Models (Dessins et modèles)

The protection of designs and models in France is governed by the CPI and the Community Designs Regulation (CDR). Protection is contingent on visibility and excludes designs dictated purely by technical function or public morality concerns (Articles 8 and 9 CDR).

Exclusive Rights:
Design rights allow the owner to prohibit others from producing, selling, or importing products featuring the design without authorization. Exceptions include private, non-commercial uses, experimentation, and educational purposes.

Duration:
Registered designs are protected for 25 years, renewable every five years. In some jurisdictions (e.g., China), design protections overlap with copyright and patents.

3. Trademarks (Marques)

Trademark law in France is regulated by the CPI and EU legislation (Regulation 2017/1001). Trademarks grant exclusive rights to prevent others from using identical or similar signs for related goods or services.

Key Aspects:

  • Validity: Trademarks must be distinctive and non-deceptive.
  • Infringement: Unauthorized use of a trademark, as defined under Article L.713-2 CPI, constitutes infringement.
  • Famous Trademarks: Additional protection is granted to well-known trademarks, preventing use even for dissimilar goods (Article 8(5) Regulation 2017/1001).

Procedures:
Trademark owners must actively monitor and defend their marks. Transfers and licenses must be registered with the national trademark office (Article R.714-2 CPI).

4. Patents (Brevets)

Patents provide inventors with exclusive, temporary rights to their inventions. In France, patents are governed by the CPI, while tax implications are covered under the General Tax Code (CGI).

Exclusive Rights:
A patent holder can prevent unauthorized manufacturing, use, sale, or distribution of the patented invention (Article L.613-3 CPI). These rights typically last 20 years from the filing date.

Limitations:
Patent rights do not extend to:

  • Acts conducted privately or for non-commercial purposes (Article L.613-6 CPI),
  • Products lawfully placed on the market by the patent holder.

Licensing:
Patent holders can authorize third-party use through contractual agreements, including unitary patent systems allowing Europe-wide licensing.

5. Taxation of Intellectual Property

The taxation of intellectual property revenues is governed by the Code général des impôts. Inventors and rights holders are taxed based on income derived from royalties or sales. Jurisprudence clarifies that revenue is attributed to the year of receipt, especially for patent transfers (CE, 3 mai 1995, n°158812, Vulliez).

The Application of Law to Artificial Intelligence

The impact of artificial intelligence (AI) on intellectual property law raises numerous complex questions, particularly concerning ownership, protection, and the use of works generated by AI systems. Below is an overview of the key issues:

1. Ownership of AI-Generated Works

  • Originality Requirement:
    According to Article L.112-2 of the French Intellectual Property Code, only the user of an AI system who demonstrates genuine originality in their work by providing the necessary creative input can be considered the author. This approach is comparable to that adopted for photography, where the originality of the photograph is attributed to the photographer who has made a distinct intellectual and personalized effort.
  • Ongoing Debate:
    There is significant debate regarding the legal status of AI-generated content. Some argue that such creations should fall into the public domain, while others contend that individuals who make creative choices—whether designers or users—should be entitled to exclusive rights over these works.

2. Text and Data Mining Exception

  • Directive 2019/790:
    The exception for automated text and data analysis, as outlined in Directive 2019/790, permits the use of protected data to train AI systems under certain conditions. This exception is contingent upon the lawful acquisition of the data and the absence of objection from the rights holder. This provision is crucial for AI development as it enables access to essential training datasets.

3. Definition of AI Systems

  • European Regulation:
    AI systems are broadly defined under European regulations as systems designed to operate with varying levels of autonomy and generate outcomes that impact physical or virtual environments. This definition is sufficiently inclusive to encompass self-learning systems, logic-based systems, and statistical models.

4. Patentability of AI-Generated Inventions

  • Current Legal Framework:
    The European Patent Office (EPO) has rejected patent applications for inventions created by AI systems, such as the “DABUS” system, on the grounds that AI lacks legal personality. However, the EPO has identified three categories of AI-related inventions, reflecting the complexity of addressing these issues.

The intersection of AI and intellectual property law is evolving rapidly, requiring careful consideration to balance innovation, legal rights, and public access.

The Application of Law to Artificial Intelligence

The question of ownership of works generated by AI systems is complex. According to Article L. 112-2 of the French Intellectual Property Code, only the user of an AI system who can genuinely demonstrate the originality of their work, by having provided the necessary directions, could be considered the author. This approach is similar to that applied to photographs, where the originality of the photograph is attributed to the photographer who has made a personal intellectual effort.

However, there is an ongoing debate regarding the nature of the rights applicable to AI-generated content. Some argue that these creations should fall into the public domain, while others believe that individuals who made creative decisions—whether designers or users—should be entitled to exclusive rights over such content.

The exception for automated analysis of texts and data, as provided by Directive 2019/790, allows the use of protected data to train AI systems, under certain conditions. This exception is contingent upon the lawful acquisition of the data and the absence of opposition from the rights holder. This provision is crucial for the development of AI systems, as it enables access to essential data for training algorithms.

The definition of AI systems according to the European regulation includes systems designed to operate with different levels of autonomy and generate results that influence physical or virtual environments. This definition is broad enough to encompass self-learning systems, logical systems, and statistical systems.

Finally, the question of the patentability of inventions created by AI is also relevant. The European Patent Office (EPO) rejected the patent application for a system called “DABUS,” on the grounds that artificial intelligences do not possess legal personality. However, the EPO distinguishes three categories of invention related to AI, which highlights the complexity of this issue.

Collective Procedures: Judicial Reorganization and Liquidation

The procedures for judicial reorganization and liquidation are governed by the French Commercial Code. Article L. 640-1 of the Commercial Code defines the conditions for opening liquidation proceedings, which can be initiated immediately when the debtor’s reorganization is clearly impossible. The liquidation judgment specifies the deadline for reviewing the closure and appoints a liquidator and a commissioner.

The declaration of claims is a crucial element in these procedures (to be made within 2 months from the publication of the judgment). This allows creditors to assert their rights within the collective procedure. Article L. 626-27, III of the Commercial Code allows creditors to declare their claims, and this declaration is essential for participation in distributions in the event of judicial liquidation.

The firm remains at your disposal for any questions you may have.

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