THE FUNDING OF MICRO, SMALL AND MEDIUM ENTREPRISES: FROM FINANCING INSTRUMENTS TO FINANCING MARKETS. RETROSPECTIVE AND CURRENT OBSERVATIONS ON FRENCH LAW

French micro, small and medium enterprises (MSME) are traditionally dependent on debt, especially on bank credit. This financial situation is uncomfortable in case of credit crunch, as we observed it in Europe after the 2008 financial crisis. From a strict legal point of view, such an addiction to debt could be explained by the lack of opportunities given to the main French private limited company – the "societe a responsabilite limitee" (SARL), which is statistically the most common legal form of incorporation – to issue diversified financing instruments. The rise of an innovative legal form since the mid-1990s – known as the "societe par actions simplifiee" (SAS) – has certainly brought to small and medium-sized businesses numerous new financing tools. But this kind of company is still unauthorised to offer shares to public… Given that numerous legal hurdles impede the development of financing instruments in MSME, an alternative legal approach could be to promote micro, small and medium financing markets for MSME. This is precisely the path upon which French law has decided to embark. First, a suitable legal framework has been shaped in the field of crowdfunding. In spite of its traditional reputation to be quite frivolous, this financial sector has enjoyed strong growth for several years; for example, more than 75% of fundraising in France have been allocated to MSME in 2017, representing 259 million euros. One of the reasons why this market took off is a set of legal reforms led by French government as of 2014. These reforms can be summarised in three main points: crowdfunding online platforms were both liberalised and regulated, the access to crowdfunding equity and loan markets was simplified, and the funding caps were increased both for equity and loan markets. Moreover, an ad hoc financing instrument was designed in 2016, dedicated to the sole crowdfunding: the "minibon" (i.e. "minibond"). From a legal point of view, this bond is not a new kind of security, for that reason that it is not negotiable and for example couldn't be traded on a financial market… But such a bond can be bought or sold by mutual agreements; moreover, the French Financial and Monetary Code expressly states that a blockchain device can be used to this end! Last but not least, the SARL, which is the legal form mostly used by MSME, is allowed to issue such bonds… Another aspect of the efforts undertaken by French law in order to foster the sustainability of financing markets for MSME lies in the enforcement of investment contracts. Indeed, the French civil supreme court, namely the "Cour de cassation", surprisingly seemed to challenge, from 2007 to 2014, the selling price of shares as it was agreed (or rendered determinable) in the articles of corporation or in a shareholders' agreement. In doing so, the French judges were organising a judicial breach of investment contract: a fair price (i.e. an economic value) was being preferred over a negotiated price (i.e. contractual value)! This precedent would have been crippling for private equity funds and investors, but fortunately, the French Parliament allowed the government to undermine it. Today, in accordance with new article 1843-4 of the French Civil Code, no expert appointed by a judge could be entitled to depart from the parties' agreement concerning share price. Such a clarification has helped to preserve confidence in private equity markets, which have become a significant source of funding for MSME: in 2016, more than 12 billion of euros were allocated by French funds and investors to more than 1900 companies. This French legal "saga" is a relevant example of the need to secure existing financing markets before creating new technical financing instruments.