French Monetary and Financial Code
In forceI. - Local investment funds (fonds d'investissement de proximité) are venture capital investment funds (fonds communs de placement à risques), at least 70% of whose assets consist of financial securities, shares in limited liability companies and current account advances, as defined by I and 1° of II of article L. 214-28, which give subscribers only the rights resulting from their status as shareholders or partners, to the exclusion of any other consideration, in particular in the form of a capital guarantee. 214-28, which give subscribers to equity securities only the rights resulting from their status as shareholders or partners, to the exclusion of any other consideration, in particular in the form of a capital guarantee, preferential rates or priority access to goods produced or services rendered by the company, issued by companies that have their registered office in a Member State of the European Union or in another State party to the Agreement on the European Economic Area that has signed an administrative assistance agreement with France to combat tax evasion and avoidance, that are subject to corporation tax under ordinary law or would be subject to corporation tax under the same conditions if their business were carried on in France, and that meet the following conditions:
1° Carry out their activities mainly in establishments located in the regions chosen by the fund, or, where this condition does not apply, have established their registered office there. The fund may also choose a geographical area consisting of one or more overseas departments, or the Department of Mayotte and Saint-Barthélemy and Saint-Martin;
2° Be, at the time of the initial investment by the fund, a small or medium-sized enterprise within the meaning of Annex I to Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty ;
3° Not have as their purpose the holding of financial participations, except for holding exclusively securities giving access to the capital of companies whose purpose is not the holding of financial participations and which meet the eligibility conditions of the first paragraph of this I, and of 1°, 2°, 4°, 5° and 6° ;
4° a) Comply with the conditions defined in c of 1 bis of I of Article 885-0 V bis of the French General Tax Code as it stood on 31 December 2017, subject to 3° of this I, and in d and e of 1 bis of I of the same Article 885-0 V bis as it stood on 31 December 2017;
b) Comply, at the time of the fund's initial investment, with the condition set out in g of the same 1a;
c) Comply with the conditions set out in b and j of the said 1a at the time of each investment by the fund;
5° Have at least two employees. This condition does not apply to the companies mentioned in 3° of this I;
6° Not have reimbursed all or part of any contributions over the last twelve months.
The conditions set out in 1° to 6° are assessed on the date on which the fund makes its investments.
II. - When the shares of a company that initially complies with the conditions set out in I of this article held by a local investment fund are admitted to trading on a regulated market or a multilateral trading facility in France or abroad, they continue to be taken into account in the 70% investment quota for a period of five years from the date of their admission.
III. - A. - In order to meet the quota referred to in I, the fund's assets are made up of
1° Securities or units received as consideration for capital subscriptions, bonds whose issue contract provides for mandatory redemption in shares, securities received as consideration for converted bonds, convertible bonds or current account advances from companies meeting the conditions defined in I. Securities or units received as consideration for capital subscriptions, securities received as redemption of bonds and securities received as consideration for converted bonds must represent at least 40% of the fund's assets;
2° Securities or units in a company that have been redeemed if one of the following two conditions is met:
a) Their value is less than the value of the securities or units of this company mentioned in 1° of this A held by the fund;
b) At the time of the redemption of the securities or units, the fund undertakes to subscribe, during its lifetime, to securities or units mentioned in the same 1°, the issue of which is provided for in the business plan, for a value at least equivalent to the redemption.
The fulfilment of this condition is assessed over the lifetime of the fund.
B. - Securities or units acquired in connection with follow-up investments in companies whose securities or units are already present in the fund's assets under the quota mentioned in I of this article may be counted towards this quota if the conditions mentioned in Article 21(6) of the aforementioned Commission Regulation (EU) no. 651/2014 of 17 June 2014 are cumulatively met.
IV. - No more than 25% of the fund's assets may consist of financial securities, limited liability company units and current account advances of companies carrying out their activities mainly in establishments located in the same region or having established their registered office in this region. When the fund has chosen a geographical area consisting of one or more overseas departments, the Department of Mayotte, Saint-Barthélemy or Saint-Martin, this limit is increased to 50% and applies to each of the local authorities in the geographical area.
V. - A. - The provisions of V of Article L. 214-28 apply to local investment funds subject to compliance with the 70% quota and eligibility conditions as defined in I and II of this Article.
B. - Compliance with the conditions specified in 1° of I and IV of this article is examined in the light of the regional boundaries in force on the day the fund is approved by the Autorité des marchés financiers.
VI. - The units of a local investment fund may not be held :
1° More than 20% by any one investor ;
2° No more than 10% may be held by any one investor who is a legal entity governed by public law;
3° More than 30% may be held by legal entities governed by public law taken together.
VII. - A decree of the Conseil d'Etat sets the conditions for application of the quota provided for in I where the fund makes additional capital calls or new subscriptions. It shall also lay down the rules for assessing the quota as well as the specific rules relating to disposals and limits on asset holdings.
VIII. - The Autorité des marchés financiers refuses to approve the creation of a local investment fund if, over a period set by decree, each of the innovation mutual funds and local investment funds set up by the management company concerned has subscribed less than a threshold set by decree and if all the private equity funds mentioned in articles L. 214-27 et seq. and the professional investment funds referred to in article L. 214-159 managed by the management company represent total assets under management of less than a threshold set by decree.
