Can a limited company that acts in accordance with its non-profit corporate purpose commit an act of improper management?

An English limited company owned houses in the south of France, which it made available to its shareholders in accordance with its corporate purpose.

Following a tax audit,administration that this company should be treated as a limited liability company (SARL) under French law and that it should therefore be subject to corporate income tax. Furthermore,administration that the company had committed an act of abnormal management by waiving the rent that should have been collected in exchange for making the real estate available to the partners.

The Conseil d'Etat, having been asked to rule on the dispute, will first outline the criteria used to treat a foreign company as a French company for the purpose of determining its tax regime.

In this regard, it specifies that whether a company’s purpose is civil or commercial is not a criterion to be considered when classifying a foreign company as a type of French company. It further notes that Article 206 of the General Tax Code provides that companies are subject to corporate income tax“by virtue of their legal form, regardless of their purpose.”

The High Court thus held that the absence of a civil company in the United Kingdom does not preclude treating the company in this case as a limited liability company. The non-profit nature of the company’s purpose was irrelevant in this regard.

The Conseil d'Etat then hold that even if a company commits an act consistent with its corporate purpose, this does not necessarily mean that it is acting in its own interest, and that the classification of the act as an abnormal management act cannot be ruled out.

The Board considers that, in this particular case, even though the waiver of revenue is consistent with the company’s purpose, it could be characterized as an irregular act of management.

The recovery of the British company is thus confirmed.

EC, 9th and 10th Chambers, April 8, 2026, No. 499815, Lebon T.

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