One Share, Two Masters: The Usufruct of Shares

One Share, Two Masters: The Usufruct of Shares

The usufruct of shares remains one of the mostsophisticated—yet underused—tools in corporate and succession planning. Sittingat the intersection of civil law and company law, it allows a separationbetween ownership and economic enjoyment, creating flexible butcomplex legal relationships.

This article explains how usufruct of shares is structured,how rights are allocated between the usufructuary and the bare owner, and whycareful drafting is essential in practice.

1. What is the Usufruct of Shares?

A usufruct is a real right of enjoyment that allowsits holder (the usufructuary) to use and benefit from an asset belonging toanother (the bare owner), without altering its substance.

Applied to shares, this means:

• The usufructuary receives the economic benefits (e.g. dividends)
• The bare owner retains ownership and long-term value

This creates a split between:

• Income rights (short-term)
• Capital rights (long-term)

2. How is the Usufruct of Shares Set Up?

2.1 Creation of the Usufruct

The usufruct of shares may be created through:

• Contract (most common)
• Donation (e.g. parents transferring shares while keeping income)
• Testament

In practice, it is typically established as part of

• Succession  planning
• Family business structuring
• Investment arrangements

2.2 Corporate Law Requirements

Because shares are corporate instruments, the creation ofusufruct must comply with company law rules.

Key requirements includ

• Written  form
• Consent (in some cases, from the company or other shareholders)
• Recognition by the company
• Registration (commercial registry or securities account)

Without proper registration or recognition, the usufruct maynot be enforceable against the company.

2.3 The Role of the Usufruct Agreement

A critical point:

The legal regime is largely default (suppletive)—butthe outcome depends on the usufruct agreement.

The parties can (and should) define

• Who exercises voting rights
• How dividends are handled
• Participation in capital increases
• Allocation of liquidation proceeds
• Conflict resolution mechanisms

Without clear drafting, the parties fall back on legaldefaults that may not reflect their intentions.

3. Core Legal Structure: Usufructuary vs Bare Owner

The usufruct splits the share into two positions:

Usufructuary

Bare Owner

Economic enjoyment

Legal ownership

Right to dividends

Right to capital value

Limited governance rights

Residual control and value

This division is not merely theoretical—it directly affectshow the company is governed.

4. Rights of the Usufructuary

4.1 Right to Dividends

The usufructuary is entitled to

• Dividends  distributed during the usufruct period

However:

• No right to profits generated before the usufruct
• No automatic right to retained earnings (reserves)

This is crucial:
Dividends only exist if shareholders decide to distribute them.

4.2 Voting Rights

As a general rule

• The usufructuary votes in general meetings

But for fundamental decisions (such as):

• Amendments to articles of association
• Dissolution of the company

Voting must beexercised jointly with the bare owner

4.3 Right to Participate in Liquidation

In case of liquidation

• The usufructuary is entitled to enjoy the value attributed to the shares     during the usufruct period

4.4 Right to Information (in Certain Cases)

Where the usufructuary:

• Holds voting rights, or
• Is granted rights contractually

They may access company information necessary to exercisetheir rights.

4.5 Duty of Proper Management

The usufructuary must

• Act diligently (as a “prudent administrator”)
• Preserve the economic value of the shares
• Respect their purpose

They cannot

• Dispose of the shares
• Damage their value

5. Rights of the Bare Owner

5.1 Ownership and Capital Value

The bare owner retains

• Legal ownership of the shares
• The long-term economic value (capital appreciation)

5.2 Rights over Retained Earnings

Unlike dividends:

• Undistributed profits (reserves) benefit the bare owner

This reflects the distinction between:

• Income (usufructuary)
• Capital (bare owner)

5.3 Participation in Structural Decisions

The bare owner must participate in:

• Changes to statutes
• Dissolution

These require joint decision-making.

5.4 Rights in Capital Increases

Depending on agreement:

• Bare owner and usufructuary may:
   
  • Share participation rights
   
  • Allocate new shares differently
   
  • Decide who exercises pre-emption rights

5.5 Protection Against Misuse

If the usufructuary acts improperly, the bare owner may:

• Claim damages
• Request judicial intervention
• In serious cases, seek transfer of control rights

For example, courts may:

• Transfer effective control (e.g. voting) to the bare owner
• While preserving the usufructuary’s income rights

6. The Central Tension: Income vs Control

At the heart of usufruct lies a structural conflict:

Usufructuary

Bare Owner

Wants dividends

Wants reinvestment

Short-term focus

Long-term focus

This tension is inherent because

• Dividends require shareholder approval
• Retained earnings increase long-term value

As a result, usufructis not passive—it requires coordination and alignment.

7. The Importance of Corporate Decisions

Unlike usufruct over physical assets, shares do not generate automatic income.

Instead:

• Profits only become “fruits” when distributed as dividends
• Governance decisions directly affect both parties
• Voting rights become economically decisive

This makes usufruct of shares:

A dynamic and relational legal structure, not a purelyproprietary one.

8. Risks and Practical Challenges

The current legal framework creates several risks:

• The usufructuary may depend on future dividend decisions
• The bare owner may benefit from retained profits without sharing them
• Conflicts may arise over voting and management
• Misalignment may lead to litigation

In extreme cases, misuse by the usufructuary can trigger:

• Judicial intervention
• Reallocation of control

9. A Tool Worth Rediscovering

Despite its complexity, usufruct of shares offers clear advantages:

• Flexibility in separating income and ownership
• Strong legal protection as a real right
• Usefulness in:
   
  • Family business succession
   
  • Wealth planning
   
  • Investment structuring

Its under use reflects complexity—not lack of utility.

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