The first warning is often not a court summons. It is a line in the French statutory accounts, or a bank that wants a comfort letter because the Kbis — the official extract from the registre du commerce et des sociétés (RCS, the Trade and Companies Register) — now mentions that equity has fallen below half the share capital. For a foreign parent the pattern is familiar: the French SAS (société par actions simplifiée, a simplified joint-stock company) or SARL (société à responsabilité limitée, a private limited company) was capitalised lightly, the first years produced losses, and nobody diaryed the French recapitalisation clock.

French company law does not wait for insolvency. When losses recorded in the accounts bring capitaux propres (equity) below half of the capital social (share capital), the shareholders must meet, decide whether to dissolve, publish that decision, then rebuild equity or reduce capital within a statutory period. If they do nothing, any interested party may ask the commercial court to dissolve the company. The court may grant up to six months to regularise; it cannot dissolve if, on the day it rules on the merits, the situation has been repaired. Those rules sit in article L. 223-42 of the French Commercial Code for the SARL and in article L. 225-248 for companies limited by shares, applied to the SAS by article L. 227-1.

This article is for the foreign owner who has just seen negative equity on a French balance sheet and needs the usable sequence: the threshold, the meeting from abroad, a cash injection or conversion of a parent loan, the 2023 “1 per cent of the balance sheet” reduction, and the defence to a dissolution claim.

I. When must a foreign-owned French company recapitalise after losses?

A. How do you know the equity has fallen below half the share capital?

The trigger is arithmetic, not a feeling of “cash-flow stress”. Article L. 223-42 of the Commercial Code opens with this sentence: “Si, du fait de pertes constatées dans les documents comptables, les capitaux propres de la société deviennent inférieurs à la moitié du capital social, les associés décident, dans les quatre mois qui suivent l’approbation des comptes ayant fait apparaître cette perte s’il y a lieu à dissolution anticipée de la société.” In English: if, because of losses recorded in the accounting documents, the company’s equity becomes lower than half of the share capital, the members decide, within the four months following approval of the accounts that revealed that loss, whether the company should be wound up early. Article L. 225-248 uses the same threshold for companies limited by shares, and places the duty to convene on the board or the management board.

Equity is not share capital. Share capital is the figure in the articles — often 1 euro for a foreign-owned SAS, 1,000 euros or 10,000 euros for a more classical SARL. Equity is a broader aggregate. Article R. 123-191 of the Commercial Code states: “Les capitaux propres correspondent à la somme algébrique des apports, des écarts de réévaluation, des bénéfices autres que ceux pour lesquels une décision de distribution est intervenue, des pertes, des subventions d’investissement et des provisions réglementées.” Equity is the algebraic sum of contributions, revaluation differences, profits other than those for which a distribution has been decided, losses, investment grants and regulated provisions. A parent-company current account is a liability, not equity, until it is incorporated or waived. That is why a subsidiary can look “funded” from the group treasury dashboard and still be below the legal line.

The official Entreprendre Service-Public page on loss of half the capital, fiche F36700, walks through a simple SARL: share capital 5,000 euros, reserves 3,000, retained earnings 2,000, regulated provisions 1,000, loss 9,000. Equity equals 2,000 euros, which is below half of 5,000. The company is then in the statutory situation. The same page stresses that the comparison uses the share capital as it stands, whether or not it is fully paid up. A foreign founder who left 75 per cent of a SARL capital uncalled does not get a more generous threshold; the denominator remains the stated capital.

The one-euro SAS is the trap that international groups meet most often. Half of 1 euro is 50 cents. Almost any first-year loss crosses the line. The 2023 reform did not repeal that test. What it added, in the fourth paragraph of L. 223-42 and L. 225-248, is a later capital-reduction duty when equity has still not been restored and the capital remains above a size-based ceiling. Article R. 223-37, inserted by decree no. 2023-657 of 25 July 2023, provides: “Le seuil de capital social mentionné au quatrième alinéa de l’article L. 223-42 est égal à 1 % du total du bilan de la société, constaté lors de la dernière clôture d’exercice.” The ceiling is 1 per cent of the company’s total assets at the last year-end. For companies that have a statutory minimum capital, article R. 225-166-1 takes the higher of that 1 per cent and the legal minimum — 37,000 euros for a French SA under article L. 224-2. A SAS is not bound by that 37,000 euro floor: article L. 227-1 lists L. 224-2 among the SA rules that do not apply to the SAS.

The accounts that “reveal” the loss are the approved French statutory accounts, not the parent’s IFRS pack. Article L. 223-26 requires the SARL manager to put the management report, inventory and annual accounts to the members “dans le délai de six mois à compter de la clôture de l’exercice sous réserve de prolongation de ce délai par décision de justice” — within six months of the year-end, unless the court extends that period. A foreign parent that delays approval because the group audit is late does not freeze the recapitalisation file; it delays the four-month meeting clock, and it can itself be forced. The same article allows the public prosecutor or any interested person to apply to the president of the competent court, sitting in summary proceedings, to order the managers, if need be under an astreinte (a periodic penalty payment), to convene the meeting or to appoint an agent to do so.

Two exclusions matter. First, L. 223-42 and L. 225-248 both end with the same carve-out: the article does not apply to companies in safeguard or judicial recovery, or companies that benefit from a safeguard or recovery plan. Second, Service-Public F36700 recalls that SNC, SCS and SCI vehicles are outside this particular recapitalisation duty. A French operating SAS or SARL held by a foreign parent is inside it. A branch (succursale) is not a French company with share capital; its PE and tax issues are a different file.

B. What decision must shareholders take within four months, and how is it filed?

The first legal act is not the cash injection. It is a decision on early dissolution. For the SARL, the members decide within four months of the approval of the accounts. For the SA, and therefore for the SAS, the president (standing in the place of the board) must convene an extraordinary general meeting within the same four months “à l’effet de décider s’il y a lieu à dissolution anticipée de la société”. The Commercial Chamber of the Cour de cassation confirmed that L. 225-248 applies to the SAS through L. 227-1 in its judgment of 13 March 2024, appeal no. 22-15.164. The Court quoted the two articles “dans sa rédaction antérieure à celle issue de la loi n° 2023-171 du 9 mars 2023” — in the wording prior to law no. 2023-171 of 9 March 2023 — and then held: “Il résulte du second de ces textes que si, à la clôture du deuxième exercice suivant celui au cours duquel la constatation des pertes est intervenue, la dissolution de la société n’a pas été prononcée et, à défaut, soit de réunion de l’assemblée générale chargée de se prononcer sur la réduction du capital, comme dans le cas où cette assemblée n’a pas pu délibérer valablement, soit d’application de la décision de réduction de capital, soit de reconstitution des capitaux propres à concurrence d’une valeur au moins égale à la moitié du capital social, tout intéressé peut la demander en justice.” If, at the close of the second financial year following the year in which the losses were recorded, the company has not been dissolved and equity has not been restored to at least half the capital, any interested person may ask the court to dissolve it. The 2023 law added a further reduction-to-threshold stage; it did not repeal that core timetable. The decision is online on the Cour de cassation site.

The majority depends on the form. In a SARL, a vote to dissolve is a statutory amendment. Article L. 223-30 states that, apart from nationality and certain seat transfers, “Toutes autres modifications des statuts sont décidées par les associés représentant au moins les trois quarts des parts sociales.” Companies formed after the law of 2 August 2005 also need a quorum of one quarter of the shares on first call and one fifth on second call, with a two-thirds majority of the shares present or represented. An EURL (single-member SARL) is decided by the sole member, who cannot delegate that power; article L. 223-31 requires the decision to be entered in a register. In a SAS, L. 227-1 leaves the meeting rules to the articles: the majority for dissolution is the majority the statutes require for that decision, not a hidden SA rule. A foreign parent that never translated the SAS articles, or that copied a template with an 80 per cent supermajority, discovers the blockage at this meeting.

Holding the meeting from abroad is lawful if the form is respected. For the SARL, article L. 223-27 allows the articles to provide for written consultation or a unanimous act, including electronically, and, where the articles so provide, for members attending by a telecommunication means that identifies them to be treated as present for quorum and majority, except for certain operations. The same article is unforgiving on notice: “Toute assemblée irrégulièrement convoquée peut être annulée.” An irregularly convened meeting may be cancelled. The Commercial Chamber, in its published judgment of 29 May 2024, appeal no. 21-21.559, involving a French SARL 63 per cent owned by Brigade Electronics Group PLC, an English company, held: “Il résulte de ce texte que le défaut de convocation régulière de l’associé d’une société à responsabilité limitée à l’assemblée générale de cette société n’entraîne la nullité des délibérations de cette assemblée que si cette irrégularité a privé l’associé de son droit d’y prendre part et qu’elle était de nature à influer sur le résultat du processus de décision.” Failure to convene a SARL member regularly leads to nullity only if that member was deprived of the right to take part and the defect was capable of affecting the outcome. The judgment is published on courdecassation.fr. A foreign parent that was not called, and that would have voted against dissolution or against an accordion, is exactly the profile of that case. The practical lesson is the opposite of folklore: do not “pass a paper AGM” in Paris without tracing notice to the foreign shareholder. The firm’s guide on approving annual accounts from abroad deals with the ordinary meeting; the recapitalisation vote is the extraordinary one that must follow it.

Publication is mandatory whether the company dissolves or continues. Article R. 223-36 provides that the members’ decision under L. 223-42 “est publiée dans un support habilité à recevoir les annonces légales dans le département du siège social, déposée au greffe du tribunal de commerce du lieu de ce siège et inscrite au registre du commerce et des sociétés.” It is published in a medium authorised to carry legal notices in the department of the registered office, filed with the greffe (the court registry) of that commercial court, and entered in the RCS. For companies limited by shares, article R. 225-166 requires deposit at the greffe, RCS registration, and publication in a legal-notice support in accordance with article R. 210-11. In practice the filing now goes through the Guichet unique des formalités des entreprises, the one-stop business counter operated under the INPI (Institut national de la propriété industrielle, the National Institute of Industrial Property). Service-Public F36700 currently lists the packet: the minutes deciding dissolution or continuation, updated articles certified by the legal representative if the articles change, and the attestation of publication. After registration, the Kbis can carry the mention of the loss of half the capital. Banks, landlords and public buyers read that line. That is why a foreign parent that “will recapitalise next year” still needs this year’s publication if it has voted to continue.

If the manager or the president never calls the meeting, or the members cannot validly deliberate, L. 223-42 and L. 225-248 both say that any interested person may apply to the court for dissolution. Service-Public F36700 adds that the quality of creditor, by itself, does not prove the interest the statute requires; a competitor or a co-shareholder may have that interest. The four-month clock is therefore not an internal KPI. It is the period during which the company still controls the narrative on the Kbis.

II. How can a foreign parent recapitalise from abroad or fight a dissolution claim?

A. How to rebuild equity: cash, current-account conversion, reduction and the accordion

If the meeting refuses dissolution — the usual vote — the company must restore the ratio. L. 223-42 states: “Si la dissolution n’est pas prononcée à la majorité exigée pour la modification des statuts, la société est tenue, au plus tard à la clôture du deuxième exercice suivant celui au cours duquel la constatation des pertes est intervenue, de reconstituer ses capitaux propres à concurrence d’une valeur au moins égale à la moitié du capital social ou de réduire son capital social du montant nécessaire pour que la valeur des capitaux propres soit au moins égale à la moitié de son montant.” If dissolution is not pronounced, the company must, at the latest at the close of the second financial year following the year in which the losses were recorded, rebuild equity to at least half of the share capital, or reduce share capital by the amount needed for equity to equal at least half of that capital. L. 225-248 says the same for companies limited by shares, “sous réserve de l’article L. 224-2” — subject to the SA minimum capital, a reservation that does not bind a SAS.

How that deadline is counted is a place where administrative guidance and the Code should not be blended. The Code and the Cour de cassation in 22-15.164 speak of the close of the second financial year following the year of the recorded losses. Service-Public F36700 currently describes “un délai de 2 ans” running from the ordinary meeting that approved the loss-making accounts, and gives this illustration: accounts closed on 31 December 2026, approved in 2027, regularisation until 31 December 2029 rather than 31 December 2028. A foreign parent should not plan on the later date without a written analysis of the file. The safer working calendar is the statutory close. The Commercial Chamber already refused, in its judgment of 11 April 2018, appeal no. 16-21.886, to treat a missed reconstitution as a management fault contributing to asset shortfall without checking whether the L. 225-248 paragraph 2 period had even expired at the opening of insolvency. The Court held that the court of appeal “n’a pas recherché, pour chacune des sociétés, si, au regard de la date de l’assemblée générale extraordinaire décidant de ne pas la dissoudre par anticipation, le délai imparti par l’article L. 225-248,alinéa 2, du code de commerce pour la reconstitution des capitaux propres était expiré au jour de l’ouverture de la procédure collective de cette société, n’a pas donné de base légale à sa décision.” The decision is on courdecassation.fr. Directors are not automatically liable because equity is negative; they become exposed if they ignore a deadline that has actually run.

Rebuilding equity from a foreign parent usually takes one of four routes, which can be combined.

First, trading out of the loss. If the next two years produce enough profit, the ratio repairs itself. That is rare for a still-investing subsidiary, and it leaves the Kbis mention in place until a later meeting records the repair.

Second, a cash capital increase. The foreign parent subscribes new shares or new SARL units and pays them up. For a SARL, article L. 223-32 requires that cash units be paid up as to at least one quarter on subscription, with the balance within five years, and organises the depositary certificate. The funds cannot be used as a casual intercompany sweep. The firm’s note on subscribing a French capital increase from abroad covers the banking and INPI mechanics. A SAS follows its articles and the SA issuance rules that L. 227-1 leaves applicable.

Third, conversion of a parent receivable. Many groups have already pushed cash down as a compte courant d’associé (shareholder current account). That is debt. It does not improve equity until it is incorporated or waived. Article L. 225-128 states that new shares “sont libérés soit par apport en numéraire y compris par compensation avec des créances liquides et exigibles sur la société, soit par apport en nature…” They may be paid up in cash, including by set-off against liquid and payable claims on the company, or by a contribution in kind. A documented, due, uncontested parent loan can therefore be converted. A vaguely described “group funding” cannot. Conversion is a related-party corporate act; it is not the same file as keeping the loan outstanding with interest, which the firm has treated in the parent-loan article. Waiving the claim without issuing shares can also restore equity, but it may have tax consequences in France and in the parent’s country; those consequences are not a reason to pretend the current account was already capital.

Fourth, a reduction of capital for losses, sometimes followed by an increase — the “coup d’accordéon”. The reduction lowers the denominator so that remaining equity again equals at least half of the new capital. The increase then brings in fresh money. The accordion is lawful when the ratio is actually broken and the operation is not a device to squeeze a minority. A foreign 51 per cent parent that reduces capital to zero and re-subscribes alone, while a 49 per cent local founder cannot wire funds in fourteen days, should expect an abuse-of-majority debate. The Paris Court of Appeal, Pôle 5, chamber 8, in its judgment of 24 February 2026, no. 23/18848, examined a recapitalisation motivated by the need to keep equity at least equal to half the capital, including by capitalising a 6,000,000 euro current-account claim. That case is a reminder, not a blank cheque: the minutes must record the true accounting situation, the subscription window must be real, and L. 225-248 must not be cited as if it required an emergency reduction on a date when the two-year period had not expired.

If the first reconstitution deadline passes without repair, and share capital still exceeds the 1 per cent-of-balance-sheet ceiling, the 2023 paragraph applies. The company then has, at the latest, until the close of the second financial year following that first deadline to reduce capital to a figure less than or equal to the ceiling. If it later increases capital without having restored equity, it must fall back into line with that same ceiling before the close of the second financial year after the increase. That is the text of the fourth and fifth paragraphs of L. 223-42 and L. 225-248. A foreign parent that “cleans” the Kbis with a tiny reduction, then recapitalises massively for a funding round, restarts a compliance clock. The decree of 25 July 2023 only sets the percentage; it does not invent a discretion to skip the filing.

B. What the greffe, the Kbis and the commercial court can do if you miss the deadline

The public file is part of the sanction. Once the continuation decision is registered, third parties can see that equity has fallen below half the capital. Service-Public F36700 describes the commercial effect: banks become more cautious, suppliers ask for cash on delivery or extra security, and financing is harder. Infogreffe’s thematic note on loss of half the share capital, updated on 30 April 2025, presents the same event as a credibility shock as well as a formalities file. Legalstart’s practical page on reconstitution lists the meeting, the legal notice and the registry steps, with a FAQ on whether the vote is an ordinary or an extraordinary meeting. What those French pages do not do is map the foreign-parent sequence: notice to an address abroad, a current-account conversion instead of a new SWIFT, a parent board that must authorise the subscription, and a French bank that will not release a depositary certificate until KYC on the foreign subscriber is complete. That is the gap this article is written to fill.

If the company later repairs the ratio, the mention can be removed. Service-Public F36700 indicates that the company then files, on the Guichet unique, the minutes of the meeting that records the reconstitution. Until that filing, the Kbis continues to speak. A foreign treasurer who has already wired the cash but has not closed the corporate file has not finished the legal work.

If nothing is done, dissolution in court becomes available. Both L. 223-42 and L. 225-248 repeat two sentences that a foreign parent should keep in the brief: “Dans tous les cas, le tribunal peut accorder à la société un délai maximal de six mois pour régulariser sa situation. Il ne peut prononcer la dissolution, si, au jour où il statue sur le fond, cette régularisation a eu lieu.” In all cases the court may grant the company a maximum of six months to regularise. It cannot order dissolution if, on the day it rules on the merits, regularisation has occurred. The 2024 judgment 22-15.164 is the mirror image: the court of appeal had refused dissolution on vague grounds; the Cour de cassation required a real examination of whether the statutory reconstitution period had run. A dissolution claim served too early can be fought. A claim served after two silent financial years is a different case. Regularising on the eve of the hearing is expressly contemplated by the Code. That is not an invitation to wait until the hearing; it is a last ramp.

Director liability is a second, separate track. Missing the meeting can be a civil fault toward the company or the shareholders. If the company later goes into judicial liquidation with an asset shortfall, article L. 651-2 allows the court, where a management fault contributed to that shortfall, to put all or part of the shortfall on the de jure or de facto directors who contributed to the fault. The same article adds: “Toutefois, en cas de simple négligence du dirigeant de droit ou de fait dans la gestion de la personne morale, sa responsabilité au titre de l’insuffisance d’actif ne peut être engagée.” Mere negligence is not enough. Combined with 16-21.886, the picture for a foreign president of a SAS is this: you are not automatically the guarantor of French losses; you are exposed if you let the reconstitution period expire, if you never convene, or if you treat the French subsidiary as a cost centre with no corporate calendar. Simple negligence in the L. 651-2 sense is a litigation argument, not a planning tool.

The greffe’s judge supervising the RCS can also issue an injunction, with an astreinte, to complete the publicity formalities. That is an order to file, not yet a winding-up. Ignoring it usually precedes the worse application.

In Paris and Île-de-France the map is concrete. A company with its registered office in Paris is before the Tribunal de commerce de Paris; the greffe that receives the minutes and updates the RCS is the Paris greffe. A Nanterre, Bobigny, Créteil or Évry registered office sits in the commercial court of that jurisdiction. The legal notice must appear in a support authorised in the department of the seat. The Guichet unique filing is national, but the RCS inscription remains local. For a hearing, a foreign parent will need a French lawyer with a power of attorney, a set of approved accounts, the four-month meeting file or an explanation of its absence, and evidence of any cash or conversion already decided. Postal delays between a Delaware or London parent and a Paris hearing date are not a recognised excuse. If the president lives abroad, the company should also check that the Kbis still names a reachable representative and that the bank mandate will survive a recapitalisation; those issues are treated in the firm’s pieces on changing a président or gérant from abroad and on setting up the French company, the bank account and the Kbis.

If the meeting instead votes to dissolve, the file leaves this article and joins a liquidation. That path is described in the firm’s guides on closing a French company from abroad. The recapitalisation regime is the alternative to that closing. Mixing the two — voting to continue, then disappearing — is how a foreign parent ends up as the defendant to a dissolution claim with an outdated Kbis in the hands of a French counterparty.

Conclusion

Negative equity on a French SAS or SARL is a statutory event, not a group-accounting inconvenience. The sequence is rigid: approve the accounts, hold the four-month meeting, publish, then rebuild equity or reduce capital by the close of the second following financial year, with a further 1 per cent-of-balance-sheet reduction if the 2023 paragraph applies. The SAS is inside that net because L. 227-1 applies L. 225-248. The Cour de cassation has said so. The same Court has refused to treat the reconstitution duty as a management fault before the period has expired, and has required a real causal link before a SARL meeting is annulled for defective notice to a foreign shareholder.

A foreign parent that still wants the French vehicle should treat the next sixty days as a closing checklist: retrieve the last approved accounts, compute equity against half of the stated capital, call the meeting with traceable notice, vote to continue if that is the business decision, publish, file on the Guichet unique, then choose the instrument — cash increase, conversion of a liquid parent claim, reduction, or accordion — with minutes that match the figures. A parent that no longer wants the vehicle should dissolve cleanly rather than let a third party do it. In both cases the Kbis will tell the market what the company decided. Silence is also a decision; it is the one the Code allows other people to finish.

Need a quick opinion on your case.

Our firm offers a telephone consultation within 48 hours with an avocat of the cabinet, to review the last French accounts, the four-month meeting file and the recapitalisation options from abroad.

The discussion is built on your documents: Kbis, approved accounts, parent-loan statements and draft minutes.

Call Maître Reda Kohen on +33 6 46 60 58 22 (06 46 60 58 22 in France) or use the firm’s contact form.

The firm advises companies in Paris and Île-de-France, including before the Tribunal de commerce de Paris and the greffes of the inner suburban courts.