Sale of company shares: remaining a surety after selling your shares

The scene is commonplace and yet formidable. A former manager of a SARL (French limited liability company) sold his shares (parts sociales) three years ago, turned the page and sometimes even started a new business. Then a registered letter arrives from the bank: the company he left is no longer repaying its loan, and the bank is claiming the balance from him as surety. The surprise comes from a frequent confusion: believing that selling one's shares wipes out the personal guarantees given for the company. This article explains why the sale of shares and suretyship follow distinct legal logics, how to obtain a release of the surety (mainlevée) or a substitution of surety at the time of the sale, and what recourse the seller who remains bound retains.

Suretyship is a personal undertaking, not an accessory of the shares

Three things that practice often mixes up must be distinguished: the company's debt to the bank, the status of shareholder (represented by the shares), and the suretyship given by the manager or the shareholder.

The debt belongs to the company, a legal entity. The shares represent a fraction of the capital and are transferred by sale. The suretyship, for its part, is an autonomous contract entered into directly between the surety (an individual) and the creditor (most often a bank). Article 2288 of the French Civil Code defines it: the surety undertakes towards the creditor to satisfy the debtor's obligation if the debtor does not itself satisfy it.

This contract is not attached to the shares. It does not travel with them. When a shareholder sells its securities, it transfers its holding in the capital, not its personal undertakings to third parties. The buyer becomes a shareholder, but does not automatically become surety in place of the seller. This is the central point of the whole subject: the sale of shares does not release the seller from its suretyship, except with the creditor's express agreement.

This autonomy is explained by the bank's interest. It lent to the company in consideration of the solvency and involvement of the person who stood surety. Imposing a change of guarantor on it without its agreement would amount to unilaterally altering the terms of its security. The law therefore protects the creditor: the surety remains bound until expressly discharged.

Why the surety undertaking survives the sale

The idea that the sale of the shares "closes" the seller's liabilities is a false certainty. In reality, the surety undertaking after a sale depends on the nature of the suretyship and on the date on which the guaranteed debts arose.

Suretyship of a specific debt: the surety remains bound until repayment

Where a manager stood surety for a specific loan, an investment loan to the company for example, the debt arose on the day the funds were released. That debt exists and remains guaranteed until it is fully extinguished. Selling one's shares changes nothing: the surety answers for the loan until its last instalment, even if that falls years after the sale.

Take a typical case. A majority shareholder of a restaurant SARL stands surety for a bank loan to the company taken out over seven years. Two years later, she sells all of her shares. The loan keeps running for five more years. If the company, under the buyer's direction, stops repaying in the fourth year, the bank can claim the balance from the former shareholder, even though she left the business long ago and has no power over its management.

All-monies suretyship: distinguishing the obligation of cover from the obligation of settlement

Many managers sign a so-called "all sums" or all-monies suretyship (cautionnement omnibus), which guarantees all the company's present and future commitments (overdraft, discounting, revolving credit). This type of suretyship is subject to an essential technical distinction.

The obligation of cover (obligation de couverture) refers to the undertaking to guarantee debts that will arise in the future. The obligation of settlement (obligation de règlement) refers to the obligation to pay debts that have already arisen. Case law considers that the sale of shares, or more precisely the end of the manager's functions, may end the obligation of cover for the future, but leaves the obligation of settlement in place for debts already arisen on the day of departure.

In concrete terms, if the all-monies suretyship contains a clause tying its duration to the status of manager, the end of functions stops the cover of new debts. By contrast, the debit balance of the current account existing on the day of the sale remains due from the surety. Without such a clause, the surety may remain liable for debts arising after departure, which makes a formal termination notified to the bank indispensable. The practical lesson is simple: never presume that departure amounts to termination. Termination of a suretyship for future debts must be notified in writing to the creditor.

Obtaining the release of the surety: the safest solution

The release of the surety (mainlevée) is the act by which the creditor discharges the surety from its undertaking. It is the only solution that gives the seller total security: once the release is obtained, the bank can no longer claim anything from the seller.

The difficulty is that release requires the bank's agreement. The bank has no obligation to grant it. It will accept all the more readily where its claim is otherwise well secured: by a new solvent surety, by real security (mortgage, pledge), or because the loan has already been largely repaid and the residual risk is low.

The decisive moment to negotiate the release is the sale itself, never afterwards. As long as the seller still holds its shares, it keeps bargaining power: it can make signing of the sale agreement conditional on obtaining its release by the bank. Once the shares are sold and the price collected, that leverage disappears, and the bank has no reason left to make a gesture.

The release must absolutely be in writing. Verbal tolerance, an oral promise from a bank adviser, the mere silence of the institution have no discharging value. A document signed by an authorised representative of the bank must be required, expressly stating the discharge of the surety for all sums.

Substitution of surety: replacing the seller with the buyer

Substitution of surety consists in bringing in the buyer (or another person) as the new surety, in place of the seller who is released at the same time. It is often the most logical route on a sale of control: whoever takes the helm of the company now assumes the guarantees linked to its financing.

Substitution cannot be decreed between the seller and the buyer. An agreement between them, even written into the sale agreement, cannot be enforced against the bank. As long as the bank has not accepted the new guarantor and signed the release of the former one, the seller remains bound. An internal agreement on taking over the surety applies only in the relations between seller and buyer: it founds a claim, but it does not protect against the bank.

The bank will assess the buyer's solvency before accepting. If the buyer has fewer assets, a less reassuring banking history, or simply refuses to commit, the bank may decline the substitution and keep the former surety. This is a frequent and treacherous situation: the seller has "provided" for its exit in the sale agreement, but the bank, a third party to that agreement, is not bound.

To secure a substitution, three documents must coincide: the buyer's surety undertaking to the bank, the written release of the seller's surety, and the clause of the sale agreement organising how the two fit together. Without one of these elements, the seller's exit is not legally secured.

The clauses to negotiate in the share sale agreement

Since the bank is not a party to the sale, the share sale agreement cannot directly release the seller from its suretyship. It can, however, organise the buyer's obligations and provide guarantees in case the bank is slow or refuses.

Several clauses deserve particular attention:

• a surety take-over clause placing on the buyer the obligation to use its best efforts, or even an obligation of result, to obtain the seller's release within a set period
• an indemnity clause, by which the buyer undertakes to hold the seller harmless from any sum that the bank may claim from the seller under the suretyship that remains in place
• an escrow clause (clause de séquestre), holding a portion of the sale price in the hands of a third party (notary, lawyer) until the release is actually obtained
• a counter-guarantee, where the buyer or the company grants security to the seller to cover its residual risk

These clauses do not remove the risk as regards the bank, but they transfer the final economic burden to whoever now benefits from the company. They turn a risk suffered into an organised claim. The escrow clause is particularly effective, because it gives the seller a concrete pledge: as long as the release has not been produced, part of the price remains blocked and serves as leverage.

If the bank refuses: the recourse of the surety who remains bound

Where neither release nor substitution has been achieved and the surety is called to pay, the surety is not without recourse. These remedies must still be directed against the right debtor.

Recourse against the company, the principal debtor

The first reflex is recourse against the principal debtor, that is, the company itself. A surety who has paid has two complementary bases, as reorganised by Ordinance No. 2021-1192 of 15 September 2021 reforming security law, which entered into force on 1 January 2022.

Article 2305 of the French Civil Code opens a personal recourse: the surety who has paid may claim from the debtor reimbursement of what it has paid out, in principal, interest and costs. Article 2306 opens a subrogation recourse: the surety is subrogated to the rights of the creditor it has satisfied, which allows it to benefit from any security attached to the claim.

The French Civil Code even allows recourse before payment. Article 2308 allows a surety pursued by the creditor to act against the debtor to obtain its guarantee, or security, even before having paid out, in particular where the debtor is in difficulty. This option is valuable for a surety who sees the company deteriorating and wants to get ahead of events.

The practical limit is obvious: if the company is no longer paying, it is generally because it is drained. Recourse against an insolvent company, often in collective insolvency proceedings, remains theoretical. Hence the interest in turning to the buyer. The position of a manager-surety when the company is subject to collective insolvency proceedings is dealt with in our analysis of the manager's personal surety in collective insolvency proceedings.

Recourse against the buyer: essentially a contractual recourse

The point to understand is this: the surety has no automatic statutory recourse against the buyer of the shares. The buyer is neither the principal debtor (that is the company) nor a co-surety (cofidéjusseur), unless the buyer has itself stood surety. Recourse against the buyer therefore requires a contractual basis: the indemnity or surety take-over clause inserted in the sale agreement.

This is where the full importance of drafting the agreement is measured. If the sale agreement provides that the buyer holds the seller harmless from any call on the guarantee by the bank, the seller who has paid can turn against the buyer on that basis, regardless of the company's solvency. Without such a clause, this recourse does not exist, and the seller ends up bearing permanently a debt from which it no longer derives any benefit.

Where the buyer has stood co-surety alongside the seller, the allocation of the final burden is governed by the rules on recourse between co-sureties: a surety who has paid more than its share may claim from the other sureties their respective contribution. But this scenario assumes that the buyer has actually signed a surety undertaking to the bank, which, precisely, corresponds to the substitution or addition of a surety. On the limit that the guaranteed debt places on the cumulative amount of orders made against several sureties, see our commentary on non-joint co-sureties.

The defences specific to the surety

Even before paying, a surety who is called upon may raise several defences against the creditor. The surety may invoke the manifest disproportion of the undertaking in relation to its assets and income on the day it was entered into, on the basis of Article 2300 of the French Civil Code, which may fully or partly discharge an individual surety against a professional creditor. The criteria for assessing disproportion and the allocation of the burden of proof between bank and surety are set out in our article on manifestly disproportionate suretyship.

The surety may also check the bank's compliance with its annual information obligation, provided for by Article 2302 of the French Civil Code, which requires the professional creditor to inform the individual surety each year of the amount of the guaranteed debt. Breach of this obligation is sanctioned by forfeiture of the interest accrued since the previous information. Finally, the surety may check compliance with the duty to warn where its undertaking was unsuited to its financial capacity.

Conclusion: plan ahead on the day of the sale, never afterwards

The rule to remember fits in one sentence: selling one's shares does not release one from one's suretyship. The surety undertaking survives the sale because it rests on an autonomous contract entered into with the bank, which is never bound by the arrangements made between seller and buyer. Believing otherwise risks having to pay, years later, the debts of a company over which one no longer has any hold.

The only real security is obtained at the time of the sale, when the seller still has bargaining power. Two outcomes genuinely protect: the written release issued by the bank, and the substitution of surety accepted by the bank in favour of the buyer. Everything else, indemnity clauses, escrow, counter-guarantee, is merely a safety net that organises a recourse without removing the risk as against the creditor.

The actionable advice is clear: before signing a share sale agreement, never settle for an internal clause providing that the buyer will "take over" your sureties. Require, as a condition precedent to the sale, production of the bank's written release or formal acceptance of the substitution, and have part of the price held in escrow until that document is delivered. Have a lawyer review this balance before any signature: it is the only moment when your position is strong.

Frequently asked questions

Does the sale of my shares automatically release me from my suretyship? No. The suretyship is an autonomous contract entered into with the bank, distinct from ownership of the shares. The sale transfers the securities, not the personal undertakings to third parties. As long as the bank has not signed a release or accepted a substitution of surety, the seller remains bound, including for debts that fall due after the sale.

How can I obtain the release of my surety after a sale of shares? Release requires the bank's written agreement, which no text obliges it to give. It should ideally be negotiated at the time of the sale, by offering a replacement guarantee (new solvent surety, real security, loan already largely repaid). Require a document signed by an authorised representative of the institution expressly stating your discharge. A verbal promise has no discharging value.

Can the bank refuse the buyer's substitution as surety? Yes. The bank is free to assess the buyer's solvency and may refuse to substitute it if its assets or risk profile do not reassure the bank. An agreement on taking over the surety concluded between the seller and the buyer cannot be enforced against the bank. Without the bank's formal acceptance and release of the former surety, the seller remains bound.

Does the buyer have to take over my surety undertakings? Only if the sale agreement so provides. No text requires the buyer to substitute itself as surety. A surety take-over or indemnity clause must therefore be inserted in the agreement, and preferably the sale should be made conditional on actually obtaining the release. Failing that, the seller remains legally alone bound towards the bank.

What should I do if I have to pay the company's debt after selling my shares? A surety who has paid has a personal recourse against the debtor company (Article 2305 of the French Civil Code) and a subrogation recourse (Article 2306). In practice, the company is often insolvent. Recourse against the buyer exists only if an indemnity clause appears in the sale agreement. Also check the disproportion of the undertaking (Article 2300) and compliance with the annual information (Article 2302), which may reduce the debt.

How long does one remain a surety after a sale of shares? For a suretyship of a specific loan, one remains bound until the credit is fully repaid, even long after the sale. For an all-monies suretyship of future debts, the end of the manager's functions may end the cover of new debts, but leaves in place the obligation to settle debts that have already arisen. A written termination notified to the bank is necessary to stop the cover for the future.

Can a clause in the sale agreement guarantee my exit from the suretyship? A clause in the agreement cannot release you directly as against the bank, which is not a party to the sale. It can, however, organise an effective recourse against the buyer (indemnity, escrow of part of the price, counter-guarantee). The most robust protection is to make the bank's release or an accepted substitution a condition precedent to the sale itself.