Acquiring a French Subsidiary: Directly vs Through a Holding Company, Which Structure Is Best?

When an international group weighs acquiring a French subsidiary directly vs through an intermediate holding company, the answer is never one-size-fits-all, it depends on the interplay of tax efficiency, financing needs, liability ring-fencing and eventual exit strategy. At abci Avocats, I advise cross-border buyers on exactly this decision, and I have seen how the wrong French M&A structure can erode deal value long after closing. This guide sets out a practical, side-by-side comparison, covering legal control, the participation exemption in France, acquisition financing, employee liabilities and exit planning, so that M&A teams, CFOs and in-house counsel can make the right structural call before signing a letter of intent.

Quick answer, which structure is better?

There is no universally superior route. A direct acquisition in France is simpler and cheaper when a single buyer acquires one target with no plans to bolt on further European assets. An acquisition through a holding company is typically better when the buyer plans to centralise financing, benefit from the participation exemption on future dividends and capital gains, or add further subsidiaries within the EU. Private equity sponsors almost always favour the holding route for leveraged structures and clean exit mechanics.

The sections below unpack each variable in detail. If you need a tailored recommendation for a live transaction, you can reach cross-border M&A specialists through the Global Law Experts lawyer directory.

How acquisitions in France normally work, share vs asset purchase

Before comparing direct and holding structures, it helps to understand the two principal deal mechanics available under French law. The vast majority of mid-market and large-cap transactions in France proceed as share purchases (cession de titres), where the buyer acquires all or a controlling block of shares in the target entity, typically a société par actions simplifiée (SAS) or a société à responsabilité limitée (SARL). Share deals preserve the target’s contracts, permits and employment relationships by operation of law, because the legal entity itself does not change.

Asset purchases (cession de fonds de commerce) are less common but serve specific purposes, for example, when the buyer wants to cherry-pick assets and avoid inheriting hidden liabilities. Asset deals trigger different tax consequences (registration duties on the purchase price, VAT considerations) and require individual consent or novation for each commercial contract and lease.

Typical steps in a French acquisition

• Due diligence. Legal, financial, tax and (where relevant) environmental audits. In my experience, French targets often carry complex employment obligations that require early scrutiny.
• Heads of terms / term sheet. Non-binding summary of price, structure and key conditions, for guidance on what to include, see our overview of common elements of a term sheet.
• Share purchase agreement (SPA). Governed by the French Commercial Code (Code de commerce) for corporate formalities and freely negotiated contractual warranties.
• Regulatory clearances. Merger control filings (France or EU level) and, for foreign buyers in sensitive sectors, prior authorisation from the Ministry of Economy.
• Closing and post-closing. Transfer of shares, registration with the greffe du tribunal de commerce, and filing of updated corporate documents.

Direct acquisition of a French subsidiary, legal and operational features

A direct acquisition in France means the parent company, wherever it is incorporated, holds the target’s shares on its own balance sheet with no intermediate entity between them. This is the simpler route and, in many cases, the fastest to execute.

Corporate control mechanics (SAS and SARL specifics)

When the buyer acquires shares directly in a French SAS, it becomes the sole or majority shareholder and appoints the président (and, optionally, a directeur général). The SAS offers substantial contractual freedom: its articles of association can be drafted to mirror the governance preferences of the foreign parent. A SARL is more rigid, decisions above certain thresholds require qualified majorities set by law, but is sometimes retained for smaller targets. Under both forms, the foreign parent exercises legal control immediately upon closing.

Key characteristics of the direct route:

• Fewer layers. One shareholder relationship; no intermediate board or compliance obligations.
• Operational simplicity. The parent deals directly with French management, auditors and regulators.
• Full liability exposure. The parent’s investment is on its own books, if the subsidiary faces a large claim beyond its assets, the parent is exposed to the extent of its shareholding (limited liability still applies, but reputational and practical exposure is direct).
• Employment continuity. In a share deal, all employment contracts transfer automatically by virtue of Article L. 1224-1 of the French Labour Code (Code du travail), because the employing entity does not change.

The direct structure works well for trade buyers focused on a single French target with no immediate plans to expand their European footprint. It avoids the cost of forming and maintaining a holding company and eliminates the additional transfer-pricing documentation that an interposed entity would require.

Acquiring a French subsidiary through a holding company, legal and tax features

An alternative, and, for many cross-border acquirers, the preferred, approach is acquiring a French subsidiary through a holding company. The holding sits between the ultimate parent and the French target. It can be incorporated in France itself (a French HoldCo, often an SAS) or in another EU jurisdiction such as Luxembourg or the Netherlands, depending on the group’s wider structure and tax treaty network.

When the holding is in France vs in another EU jurisdiction

A French holding company benefits from the domestic régime mère-filles (parent-subsidiary regime) and the participation exemption under the Code général des impôts (CGI). It can also form a tax-consolidated group (intégration fiscale) with the French target, offsetting profits and losses across the group. A holding established in Luxembourg or the Netherlands may offer additional treaty benefits, but post-BEPS and post-ATAD, the substantive advantages of purely treaty-driven structures have narrowed considerably. In my view, a French HoldCo is now the default recommendation unless the buyer’s group already has an operational presence in another EU jurisdiction that justifies a different location.

Tax comparison, acquiring a French subsidiary directly vs through a holding

Tax is the single most decisive factor for many buyers when choosing between a direct acquisition and an acquisition via holding. Below is a detailed comparison of the principal tax issues that arise in each structure, grounded in the Code général des impôts and guidance published by the French Tax Administration.

The participation exemption in France is the single most important tax advantage of the holding route. It allows a qualified holding to receive dividends and realise capital gains on the sale of subsidiaries with minimal French tax. In my practice, this exemption alone often tips the balance for buyers who anticipate meaningful dividend flows or a medium-term exit.

Financing, debt push-down and restrictions

Acquisition financing in France is heavily influenced by the structural choice. When a buyer acquires directly, the acquisition debt typically sits on the foreign parent’s balance sheet. Interest on that debt is deductible under the parent’s home-country rules, but France provides no corresponding tax shield, there is no French entity carrying the borrowing.

By contrast, when a French holding company is used, the acquisition debt can be housed at the HoldCo level. Interest is then deductible against the HoldCo’s French taxable income (which, under intégration fiscale, includes the target’s profits). This debt push-down is a central feature of leveraged buyout (LBO) structures in France.

Practical constraints and lender preferences

• Thin-capitalisation rules. Article 212 bis of the CGI limits the deductibility of net borrowing costs to the greater of 30% of the taxpayer’s EBITDA or €3 million per year. Excess interest can be carried forward.
• Financial assistance prohibition. French law restricts a target company from providing security or funding to assist in the acquisition of its own shares. Structuring debt at a HoldCo and later merging HoldCo with target (fusion rapide) is a common workaround, but timing and anti-abuse provisions must be carefully managed.
• Lender security packages. Banks financing French acquisitions typically require a pledge over the target’s shares, assignment of receivables (cession Dailly), and sometimes asset-level security. Having a French HoldCo as borrower simplifies the security package under French law.
• Anti-abuse scrutiny. The French tax authorities apply substance-over-form analysis. A holding company with no genuine economic activity beyond holding shares and servicing debt may see its interest deductions challenged.

For further background on how international commercial law principles interact with cross-border financing, the Global Law Experts guide provides useful context.

Labour, pensions and employee liabilities

Employee liabilities in a France acquisition deserve careful attention regardless of structure. Under Article L. 1224-1 of the Code du travail, when there is a transfer of an autonomous economic entity that retains its identity, all employment contracts in force at the date of transfer are automatically continued with the new employer. In a share deal, whether direct or via a holding, the employing entity does not change, so this provision does not technically apply. However, the practical consequences differ:

• Direct acquisition (share deal). The French subsidiary remains the employer. The buyer inherits all existing employment terms, collective bargaining agreements (conventions collectives), profit-sharing schemes (participation and intéressement), and any pending labour disputes.
• Acquisition via holding (share deal). Identical position, the subsidiary’s workforce is unchanged. The holding layer does not alter employee rights or obligations.
• Asset deal. Article L. 1224-1 applies directly: employees attached to the transferred business unit transfer automatically to the buyer, with all accrued rights. The buyer must also consult the comité social et économique (CSE) before completion.

In all cases, works-council (CSE) information and consultation obligations apply before the acquisition closes. Failure to consult does not invalidate the deal but exposes the buyer to damages claims. Redundancy plans post-acquisition must follow the strict procedural requirements of French law, including the plan de sauvegarde de l’emploi (PSE) for large-scale layoffs.

Regulatory and antitrust considerations

Cross-border buyers must navigate two regulatory gatekeepers when acquiring a French subsidiary directly vs through a holding structure:

• Merger control. If the combined worldwide turnover of the parties exceeds €150 million and each party has French turnover above €50 million, a pre-closing notification to the Autorité de la concurrence is required. Deals meeting EU thresholds (Council Regulation 139/2004) are filed with the European Commission instead. The structure (direct vs holding) does not change the filing obligation, control is assessed at the ultimate parent level.
• Foreign investment screening. Since 2019, France has progressively expanded the scope of prior authorisation required for non-EU/EEA investors acquiring control of French entities in sensitive sectors (defence, energy, telecommunications, health, media, food security, AI, cybersecurity and others). The buyer must file with the Direction Générale du Trésor and obtain ministerial clearance before closing. Interposing an EU holding does not eliminate this requirement if the ultimate beneficial owner is non-EU.
• Sectoral licences. Certain industries (banking, insurance, pharmaceuticals) require separate regulatory approvals that apply regardless of deal structure.

Exit planning and future flexibility

The structural choice at entry has a profound impact on the buyer’s options at exit. Here is how the two approaches compare when the time comes to sell, list or reorganise:

• Exit via sale of target shares (direct structure). The parent sells its shares in the French subsidiary. Capital gains are taxed in the parent’s jurisdiction. If the parent is in a country without a participation exemption on foreign shareholdings, the tax cost of exit can be significant.
• Exit via sale of holding shares (holding structure). The seller can offer buyers the choice of acquiring the HoldCo (cleaner for the buyer, they inherit the French tax consolidation, contracts and history) or the underlying target shares. Capital gains on the sale of qualifying shares held by a French HoldCo for at least two years benefit from the long-term exemption, with only the 12% quote-part taxable. This materially reduces exit taxation.
• IPO. Listing a HoldCo that sits above several European subsidiaries is more attractive to institutional investors than listing a single operating subsidiary, it offers a diversified revenue base and growth narrative.
• Group reorganisation. A holding layer makes it far easier to insert or remove subsidiaries, merge entities, or spin off divisions without disrupting the target’s operations or triggering unnecessary tax events.

In my experience, buyers who acquire directly and later want to introduce a holding for exit purposes face additional costs, share transfers, potential registration duties and transfer-pricing re-documentation. Planning the right structure at entry is almost always cheaper than restructuring mid-way.

Decision checklist and sample buyer profiles

Before committing to a structure, run through this ten-point checklist:

1. How many entities will the group ultimately hold in France or the EU?
2. Will acquisition debt be required, and where should it sit for optimal interest deductibility?
3. Does the buyer’s home jurisdiction offer a participation exemption or equivalent relief on foreign dividends and gains?
4. Is the buyer a non-EU investor subject to French foreign investment screening?
5. What is the anticipated hold period, short-term flip, medium-term build, or long-term integration?
6. Will the buyer need to repatriate profits regularly, or can dividends be reinvested?
7. Are there deadlock provisions in shareholders agreements that need to be accommodated in governance design?
8. Does the target operate in a sector subject to foreign-investment screening or sectoral licensing?
9. What is the employee headcount, and are there pending labour disputes or restructuring needs?
10. Is the buyer prepared to maintain the compliance burden of an intermediate holding (annual accounts, transfer-pricing documentation, substance requirements)?

Based on these considerations, here are three representative profiles and the structure I would typically recommend:

Conclusion, acquiring a French subsidiary directly vs through a holding

The choice between acquiring a French subsidiary directly vs through a holding company ultimately comes down to the buyer’s complexity tolerance, tax position, financing needs and exit horizon. Direct acquisitions win on simplicity and cost when the deal is straightforward and standalone. A holding company wins when the buyer seeks participation exemption benefits, acquisition debt deductibility, platform-building flexibility and a tax-efficient exit. In my practice, the majority of cross-border acquirers investing more than €10 million in France opt for a holding structure, the upfront cost of an intermediate entity is modest relative to the tax savings and operational flexibility it unlocks.

Whichever route you choose, the key is to make the structural decision early, ideally at term-sheet stage, rather than retrofitting a structure after closing.

Sources

1. French Tax Administration (impots.gouv.fr), corporate tax and participation exemption
2. French Commercial Code (Code de commerce) and Labour Code (Code du travail), Legifrance
3. Ministry of Economy / Direction Générale du Trésor, foreign investment screening
4. Baker McKenzie, Global Private M&A Guide (France)
5. IBA, France Negotiated M&A Guide
6. Altios, Setting up a subsidiary in France for foreign companies
7. OECD, corporate tax and BEPS guidance