Absence of Confidentiality of the Profit and Loss Account for Small Businesses within a Group of Companies
October 11, 2023
Written by: Antoine Cluzel
The French Commercial Code (Code de commerce), in its Article L. 232-25, allows small businesses, as defined by Article L. 123-16, to request the confidentiality of their profit and loss account when filing their annual accounts with the commercial registry. This measure, inspired by Directive 2013/34/EU, aims to ease the financial disclosure obligations for the smallest entities by allowing them to keep a strategic element like their profit and loss account private.
However, this benefit is expressly excluded for companies belonging to a group within the meaning of Article L. 233-16 of the same code. This exclusion applies regardless of the size or structure of the group concerned, even if the latter does not consolidate its accounts under the exemption provided by Article L. 233-17.
Strict Interpretation Confirmed by Practice
This strict interpretation is confirmed by the Coordination Committee of the Commercial Register (Comité de coordination du registre du commerce et des sociétés - CCRCS, opinion n° 2019-011), the National Association of Public Limited Companies (Association nationale des sociétés par actions - ANSA, communication n° 23-020 of April 5, 2023), and the Legal Studies Commission of the National Association of Statutory Auditors (Commission des études juridiques de la Compagnie nationale des commissaires aux comptes - EJ 2023-24). Once a company belongs to a group, whether as a parent company or a subsidiary, it cannot benefit from the confidentiality of its profit and loss account.
The concept of a group is broadly understood, encompassing all companies included within the scope of consolidation as defined in Article L. 233-16 of the French Commercial Code. Thus, the simple fact of controlling or being controlled by another company in an accounting sense is sufficient to prevent any request for confidentiality of the profit and loss account.
Uniform Application Despite Doctrinal Debates
Some authors have argued for a more nuanced interpretation that would reserve the prohibition to parent companies preparing consolidated accounts, as permitted by the European Directive. This position, based in particular on the preparatory works of the law, has not, however, been adopted by the French legislator.
ANSA itself acknowledges that the wording of Article L. 232-25 does not distinguish according to the role played within the group and calls for a revision of the text to narrow its scope. Under the current state of positive law, however, no distinction is made, and both case law and administrative practice converge towards a general exclusion.
Consequences for the Companies Concerned
Small businesses belonging to a group must therefore integrate this constraint into their publication strategy. The profit and loss account, a potentially sensitive element in terms of competition or negotiation, must be made public without any possibility of redaction.
This rule, although criticized by some practitioners for its lack of flexibility, is part of a desire for financial transparency and consistency within groups of companies.
References:
ANSA Communication, Legal Committee n° 23-020 of April 5, 2023
CCRS Opinion 2019-011 of December 19, 2019
Article L. 123-16 of the French Commercial Code
Article L. 232-25 of the French Commercial Code
Article L. 233-16 of the French Commercial Code
Article L. 233-17 of the French Commercial Code
Decree n° 2019-539 of May 29, 2019
Directive 2013/34/EU of June 26, 2013