A foreign founder who sees a profit in a French company cannot treat that figure as the amount available for a dividend. Before money can be paid to a shareholder abroad, the company must identify prior losses, make the required allocation to its legal reserve, respect any reserve required by its articles of association and confirm that its equity will remain above the statutory floor. The question is therefore not simply “how much profit did the business make?” It is “what amount remains legally distributable after every mandatory adjustment?”

This distinction matters for a French société par actions simplifiée (SAS, a simplified joint-stock company), SASU (a one-member SAS), SARL (a private limited-liability company) and EURL (a one-member SARL). A foreign parent using a French branch must first check the different accounting and remittance rules that apply to a branch, which is not a separate French subsidiary with its own share capital. This article focuses on the French subsidiary and its shareholders. It explains the calculation, the annual approval process, the documents a remote founder should retain and the risks of paying too early. Immigration questions, a founder’s personal move to France and property purchases are outside its scope.

The short answer is usually a minimum allocation of 5% of the year’s profit after prior losses, but only until the legal reserve reaches 10% of the share capital. That percentage is not the final dividend calculation. The company must then apply the wider definition of distributable profit, check its equity, follow its form-specific decision rules and separate the corporate-law analysis from withholding tax on a cross-border payment.

I. How is the French legal reserve calculated before dividends?

A. What does the 5% and 10% rule mean for a foreign founder?

The starting rule is Article L.232-10 of the French Commercial Code. It covers limited-liability companies and companies limited by shares, which is why the rule is relevant to an SAS, SASU, SARL and EURL. The provision requires, on the profit for the financial year reduced where necessary by prior losses, a minimum allocation of one twentieth to a fund called the legal reserve. The official wording describes “un prélèvement d’un vingtième au moins affecté à la formation d’un fonds de réserve dit " réserve légale "”. In the same article, the statute says that the allocation stops when the reserve reaches one tenth of the share capital. It also states that any contrary decision is null.

For practical purposes, use the following two-step test:

1. Calculate the profit base after deducting losses carried forward. If that base is zero or negative, there is no positive base on which to calculate the 5% minimum.
2. Compare 5% of that base with the amount needed to bring the legal reserve up to 10% of the share capital. The required allocation is the lower amount.

The second step is often misunderstood. Ten percent is the ceiling measured against share capital; it is not a 10% annual contribution and not a percentage of turnover. Five percent is the statutory minimum contribution while the ceiling has not been reached. The articles of association may impose a larger contribution or another reserve, and an investment agreement may require a retention policy, but a private agreement cannot authorise the company to ignore the statutory minimum.

Consider a French SAS with €10,000 of share capital, a legal reserve of €600 and no prior losses. Its accounting profit is €30,000. Five percent of the profit is €1,500, but only €400 is needed to bring the reserve to €1,000, which is 10% of the capital. The legal allocation is therefore €400, not €1,500. A resolution that allocated €1,500 would not necessarily be unlawful—the company may decide to retain more—but the extra €1,100 would need to be classified consistently with the articles and the resolution, for example as an optional or contractual reserve rather than silently described as the statutory minimum.

Now take a company with €100,000 of share capital, a legal reserve of €4,000, a current profit of €20,000 and €5,000 of losses carried forward. The profit base is €15,000. Five percent is €750. The reserve remains below its €10,000 ceiling, so the minimum legal allocation is €750. The result left for the rest of the appropriation decision is not €20,000; it is first reduced by the €5,000 prior loss and the €750 legal allocation, before the company considers statutory reserves, retained earnings and a possible dividend.

If the company has a €30,000 current profit and €40,000 of prior losses, the losses absorb the current profit for this calculation. A founder cannot describe the €30,000 as a dividend pool merely because the bank account has cash. The accounts must show how the losses are treated. The company may also need to address a negative retained-earnings balance and the rules applying when equity falls below a statutory threshold. The legal reserve calculation is part of the appropriation of the result, not an alternative to preparing reliable annual accounts.

The ceiling can change. If the shareholders increase the capital from €10,000 to €100,000, a legal reserve of €1,000 no longer equals 10% of the new capital. The obligation can therefore resume until the reserve reaches €10,000, subject to the profit base and the timing of the capital operation. A foreign founder who has completed a funding round should ask the accountant to recalculate the ceiling rather than copy the prior year’s resolution.

The reserve is an equity account, not a locked cash deposit. The company does not normally open a separate bank account containing the legal reserve. The allocation changes the presentation of equity and the appropriation of profit; it does not create cash and does not guarantee that the company has liquidity. A company can have a fully constituted legal reserve and still be unable to pay a dividend without endangering payroll, tax, social contributions or creditors.

The foreign status of the shareholder does not remove the French corporate-law rule. The relevant question is the form and legal personality of the French company, not whether the shareholder is resident in the United States, the United Kingdom, Singapore or another country. A foreign corporate shareholder, a foreign individual shareholder and a French shareholder are all affected by the French company’s reserve and distributable-profit calculations. The destination of the payment may change the tax and reporting analysis, but it does not change the amount that the company is authorised to distribute.

Do not confuse the legal reserve with a statutory reserve, a regulated reserve, a voluntary reserve, share premium or retained earnings. “Statutory reserve” here means a reserve required by the company’s own articles, while a voluntary reserve is usually created by a shareholder decision. Those accounts may have different availability rules. Before approving the accounts, obtain the current articles, any shareholders’ agreement that governs voting or retention, the opening balance-sheet reserves and the general ledger detail for each reserve account.

B. How does the reserve affect the amount that may actually be distributed?

The legal reserve is only one adjustment. Article L.232-11 of the Commercial Code defines distributable profit. Its opening sentence states: “Le bénéfice distribuable est constitué par le bénéfice de l’exercice, diminué des pertes antérieures, ainsi que des sommes à porter en réserve en application de la loi ou des statuts, et augmenté du report bénéficiaire.” In English terms, start with the year’s profit, subtract prior losses and the amounts that must go to reserves under law or the articles, then add a positive retained profit carried forward.

A useful working schedule is:

Current-year profit – prior losses – legal reserve allocation – mandatory statutory or contractual reserves + positive retained earnings = provisional distributable profit.

This is still not an unconditional authorisation to pay. The same article allows an assembly to draw on reserves that are available, but the decision must expressly identify the reserve accounts used. It also says that dividends are taken first from the distributable profit for the year. A balance-sheet line described simply as “reserves” is therefore not enough. The accountant and the legal adviser should identify whether the account is legally or contractually unavailable, and the resolution should use the exact account names.

The equity floor is a separate safeguard. Outside a capital reduction, Article L.232-11 prohibits a distribution if equity would, after the payment, be below the amount of share capital plus reserves that the law or the articles do not allow the company to distribute. A company can therefore show a current profit and still have no safe dividend capacity because accumulated losses have weakened equity. A solvency or cash-flow review should be performed alongside the legal calculation, even though cash availability and the equity floor are not the same test.

For example, assume a French subsidiary has €100,000 of share capital, €9,500 in its legal reserve, €20,000 of current profit, €2,000 of prior losses, a €1,000 statutory reserve required by its articles and €3,000 of positive retained earnings. The legal-reserve ceiling is €10,000, so the minimum legal allocation is €500. The provisional distributable amount is €20,000 – €2,000 – €500 – €1,000 + €3,000, or €19,500. The shareholders may decide to distribute less, retain all of it or use an available reserve if the statutory and equity tests permit. They cannot skip the €500 merely because the parent company wants a round-number dividend.

The purpose of a company also matters when a founder describes a payment as a dividend. Article 1832 of the Civil Code describes the company as an arrangement in which persons contribute property or industry to a common enterprise to share profit or benefit from an economy, while agreeing to contribute to losses. Article 1844-1 of the Civil Code provides that a shareholder’s share of profits and losses is generally proportionate to its share of capital, subject to a valid contrary clause, and prohibits clauses that give one shareholder the whole profit or impose the whole loss on one shareholder. The articles, share classes and any preferred rights must therefore be reviewed before the amount is allocated between foreign shareholders.

These rules also explain why a dividend is not the same as a repayment of a shareholder loan, a service fee, a management charge or a return of capital. Each payment has its own legal and accounting basis. A parent company cannot convert a payment into a dividend after the transfer by changing the bank reference. If the payment is intended as a dividend, the company should be able to identify the approved profit, the relevant resolution and the recipient’s rights at the date of the decision.

Tax is a separate layer. A non-resident individual or corporate shareholder may be affected by French withholding rules, a tax treaty, the recipient’s local tax rules and documentation such as residence certificates or forms requested by the paying institution. The official impots.gouv.fr guidance on dividends received by a non-resident is a useful starting point for an individual recipient, but it is not a substitute for checking the recipient’s exact legal status and the applicable treaty. Tax withholding cannot cure an invalid corporate-law distribution, and a valid corporate distribution can still be reported incorrectly.

II. What must a foreign founder do before paying dividends from a French company?

A. Which accounts, resolutions and filings are required in France?

The first control is the quality of the accounts. Article L.123-12 of the Commercial Code requires accounting records for movements affecting the business, an inventory at least once every twelve months and annual accounts prepared at the end of the financial year. The official text states that “Ces comptes annuels comprennent le bilan, le compte de résultat et une annexe, qui forment un tout indissociable.” The dividend file should therefore be based on the signed or final accounts, not a spreadsheet showing sales less bank expenses.

For an international group, the closing process should reconcile at least the following items before the resolution is drafted:

• the opening retained-earnings and reserve balances with the previous approved accounts;
• the treatment of prior losses, tax provisions, depreciation and provisions;
• the amount and status of the share capital after any recent issue, reduction or conversion;
• intercompany invoices, management fees, shareholder current accounts and foreign-exchange entries;
• the 5% legal-reserve allocation and every reserve required by the articles;
• the equity floor after the proposed distribution; and
• the cash plan for tax, social contributions, employees, suppliers and known creditors.

A foreign founder should ask for a written appropriation schedule in euros. If the parent’s books use another currency, the French company’s statutory accounts remain the reference for the French decision. The schedule should show the formula, the relevant account numbers, the rounding method and the proposed amount per share or unit. A parent-company board paper can support the decision, but it does not replace the French company’s own corporate resolution.

The decision-making route depends on the legal form and the articles. For an SARL or EURL, Article L.223-26 of the Commercial Code requires the annual accounts and management report to be submitted to the shareholders within six months after the end of the financial year, subject to a court-ordered extension. The text uses the words “dans le délai de six mois à compter de la clôture de l’exercice”. The gérant, meaning the SARL manager, should not wait for a parent-company calendar that ignores this French deadline.

For an SAS or SASU, the articles play a central role. Article L.227-9 of the Commercial Code states: “Les statuts déterminent les décisions qui doivent être prises collectivement par les associés dans les formes et conditions qu’ils prévoient.” The same provision reserves certain matters, including annual accounts and profits, for collective shareholder action under the statutory framework. Read the current articles before deciding whether the approval is by an ordinary shareholders’ meeting, written consultation, an electronic decision or a decision of the sole shareholder. A president’s email to the parent is not automatically the required decision.

The procès-verbal, or written minutes, should be drafted so that a French accountant, bank, tax officer or court can reconstruct the decision without relying on oral explanations. It should identify the company, financial year, date, attendees or signatory, accounts approved, prior losses, legal-reserve amount, other reserves, retained earnings, gross dividend, allocation between shareholders, payment date and source account. If an available reserve is used, name the precise reserve. If the articles require a different majority or consultation method, attach the evidence of compliance.

For a single-member company, the sole shareholder’s decision must still be recorded. The fact that the founder controls 100% of the shares does not eliminate the distinction between the company’s money and the founder’s money. A foreign parent that is the sole shareholder should issue a corporate decision in the capacity of shareholder of the French subsidiary, while the French company’s president or gérant carries out the bookkeeping and payment instructions required by the decision.

After approval, the company must make the accounting entry for the appropriation and keep the supporting documents. Depending on the company and the applicable filing exemptions, annual accounts and related documents may need to be filed through the French formalities system. The INPI explanation of the Guichet unique describes the single online portal for business formalities and the Registre national des entreprises (RNE, the national business register), including filings of annual accounts. The exact filing obligation should be checked for the company’s size, form and confidential-account option.

Several French administrative terms appear in the document trail. The Kbis is the official extract showing a commercial company’s registration details; it is not a certificate that a dividend is lawful. The greffe is the registry office attached to the competent commercial court, although many formalities are now submitted online. The RCS is the Registre du commerce et des sociétés, the commercial register whose information is connected with the wider RNE. The BODACC is the Bulletin officiel des annonces civiles et commerciales, the official bulletin that publishes certain corporate and insolvency notices. These records help a foreign bank or parent verify the company, but they do not replace the accounts, minutes and reserve calculation.

An interim dividend is not a shortcut for a company that wants to remit money before annual accounts are approved. Article L.232-12 of the Commercial Code begins with the requirement that the annual accounts be approved and distributable sums established before the shareholders determine the dividend. It then permits an advance on dividends only where an interim balance sheet, certified by a commissaire aux comptes (CAC, statutory auditor), shows a profit after the required adjustments. A management report or a bank statement is not the certified interim balance sheet described by the statute.

Finally, the payment date must be recorded correctly. Article L.232-13 of the Commercial Code provides that payment must occur within a maximum of nine months after the end of the financial year, unless a court grants an extension. The text says “la mise en paiement des dividendes doit avoir lieu dans un délai maximal de neuf mois après la clôture de l’exercice”. This is a deadline for paying a dividend that has been validly voted; it is not permission to pay before accounts are approved or to distribute more than the lawful amount.

B. What are the risks of an unlawful or premature dividend?

The first risk is that the decision itself is defective. Article L.232-10 says that a decision contrary to the legal-reserve rule is null. Article L.232-12 also concludes that a dividend paid in breach of the rules stated in that article is a fictitious dividend. In practice, a premature transfer may therefore create several questions at once: was there an approved distributable profit, were prior losses removed, was the reserve allocation made, did the articles authorise the decision, did equity remain above the floor and did the recipient know that the payment was irregular?

The criminal provisions are serious. For an SARL, Article L.241-3 of the Commercial Code covers a gérant who causes fictitious dividends to be distributed in the absence of an inventory or using fraudulent inventories. The article states the penalty of five years’ imprisonment and a €375,000 fine. For an SAS, Article L.244-1 makes the relevant provisions applicable to simplified joint-stock companies; its text says that the provisions of Articles L.242-1 to L.242-6 “s’appliquent aux sociétés par actions simplifiées”. Article L.242-6, which addresses the equivalent conduct for an SA, also states the penalty of “cinq ans d’emprisonnement et d’une amende de 375 000 euros”. The form of the company should be checked before the correct provision is cited, but an SAS label does not make the risk disappear.

The civil consequences should not be overlooked. Article L.232-17 of the Commercial Code states that “La société ne peut exiger des actionnaires ou porteurs de parts aucune répétition de dividendes” unless the statutory conditions are met: the distribution must have breached specified rules and the company must establish that the beneficiaries knew, or could not have been unaware, of the irregular character at the time. This is not a safe harbour for a knowingly unlawful payment. It is a rule that makes knowledge, circumstances and evidence central to any restitution claim.

Published case law illustrates why a foreign founder should not treat the minutes as a cosmetic document. In its Criminal Chamber decision of 22 September 2004, Cour de cassation, no. 03-83.107, the official text refers to the lower court having “n’a pas caractérisé la prétendue répartition de ces dividendes”. The reference is useful for a narrow reason: criminal liability requires the court to examine the legally relevant facts, including the alleged distribution, rather than assume that an accounting irregularity alone answers every element. It does not turn an informal payment into a valid dividend.

More recently, in its Criminal Chamber decision of 12 June 2025, Cour de cassation, no. 24-81.263, the official decision records proceedings involving false accounts and “répartition de dividendes fictifs”. The case is a practical warning about the interaction between accounting entries, management conduct and dividend payments. A parent company’s approval, a foreign bank account and the absence of an immediate creditor complaint do not remove the need for accurate accounts and a lawful appropriation decision.

Common errors in an international group include paying the parent from cash before the annual meeting, treating a forecast as a distributable profit, forgetting a loss carried forward, using the wrong post-capital-increase ceiling, calling every reserve “available”, backdating minutes, distributing to a shareholder whose rights have changed, or paying the gross amount without arranging the required tax reporting. Another error is to use the shareholder current account as a substitute for a dividend. A current-account repayment may be lawful if the debt exists and is due; it cannot be used to disguise a dividend that the company could not legally declare.

Cross-border execution adds an evidential layer. The bank may ask for the Kbis, the signed minutes, the ownership chart, a tax-residence certificate, a treaty form, beneficial-owner information or proof of the payment purpose. The company should keep a complete payment file: the final appropriation schedule, approval evidence, dividend statement for each recipient, bank instruction, accounting entry, withholding calculation where relevant and proof of payment. Use consistent names and amounts across the French ledger, parent-company ledger and bank instruction. A mismatch can create a compliance delay even where the corporate decision was correct.

If a payment has already been made and a defect is discovered, stop further transfers and preserve the original records. Do not silently replace minutes or alter the date of a resolution. Ask the accountant to identify whether the problem concerns the amount, the reserve, the approval process, the equity floor, the recipient allocation or tax reporting. Then obtain advice on the available correction, including a properly documented repayment or a new decision where the law permits it. The remedy depends on the facts; a retrospective label cannot manufacture a profit that did not exist at the relevant date.

A remote founder should also distinguish the company’s legal capacity from the group’s commercial objective. A foreign parent may need cash for an acquisition or a treasury sweep, but the French subsidiary remains a separate legal person. Its president or gérant must act within the company’s interests and authority. If the company has employees, unpaid URSSAF contributions or social-security contributions, a tax balance, supplier arrears or a threatened insolvency procedure, the payment should be examined against those facts before it is approved. URSSAF is the French body that collects much of the social-security contributions; it is not a shareholder and cannot be ignored in the cash plan.

The following final checklist is suitable for a founder who will sign remotely:

• obtain the current articles, Kbis and ownership records;
• confirm the French financial year-end and the six-month SARL/EURL approval timetable where applicable;
• reconcile opening reserves and retained earnings to the last approved accounts;
• calculate profit after prior losses and document the 5% legal-reserve test;
• identify statutory, contractual and available reserves by account;
• test the post-distribution equity floor and cash requirements;
• follow the exact SAS, SASU, SARL or EURL decision procedure;
• record the gross dividend, allocation, date and payment method in minutes;
• separate the corporate-law decision from withholding tax and treaty work; and
• retain the accounts, minutes, bank proof and tax documents in a shared, auditable file.

For a wider review of the structure before the first dividend, see the firm’s guide to French company formation and corporate structuring. The reserve calculation is often where a larger problem first becomes visible: an unclear shareholder agreement, an under-documented intercompany charge, a capital operation that was not reflected in the accounts or a French subsidiary being treated as if it were only a payment account for its foreign parent.

Conclusion

For a French SAS, SASU, SARL or EURL, the legal-reserve minimum is generally 5% of the current-year profit after prior losses until the reserve reaches 10% of share capital. That figure is only the first step. The final distributable amount must also subtract every reserve required by law or the articles, add positive retained earnings, respect the equity floor and reflect the shareholders’ valid rights. A foreign shareholder receives no exemption from those corporate rules.

The correct sequence is to close reliable French accounts, reconcile prior losses and reserves, calculate the legal reserve, check the articles, approve the accounts, adopt a traceable appropriation resolution and only then arrange the cross-border payment and its tax formalities. A Kbis, a parent-company approval or a healthy bank balance cannot replace that sequence. If an interim dividend is considered, the specific statutory conditions and CAC certification must be checked. If an irregular payment has occurred, preserve the evidence and obtain advice before trying to rewrite the record.

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