Your French subsidiary has closed its accounts and the balance sheet makes uncomfortable reading: after two difficult years, the equity line has sunk below half the share capital. If you run the group from London, New York, Dubai or Singapore, this French peculiarity can look like a technicality you can ignore until profits return. It is not. From the day the accounts showing the loss are approved, a four-month clock starts running, and at the end of that clock the shareholders must formally choose between early dissolution and continuation. If they choose continuation, a second clock starts: within two financial years the equity must be rebuilt or the capital reduced, with publications, filings and registry entries at every step. Miss the steps and any interested party, from a creditor to a competitor, can ask a court to dissolve the company, while a parent that keeps a hollow subsidiary trading can find itself accused of mismanagement when the money runs out. This guide explains, for a foreign owner, how to read the threshold, how to take the decision from abroad, which cash injections actually count, how the capital reduction and the so-called coup d’accordéon work, and how to dissolve cleanly if rescue makes no commercial sense. SAS means société par actions simplifiée, the flexible joint-stock company most foreign founders choose. SARL means société à responsabilité limitée, the limited liability company with associés rather than shareholders. RCS means Registre du commerce et des sociétés, the trade and companies register kept by the greffe, the registry office of the commercial court. The Kbis is the official extract proving the company exists. BODACC means Bulletin officiel des annonces civiles et commerciales, the gazette where company notices appear. SIREN is the nine-digit company identification number. AGE means assemblée générale extraordinaire, the extraordinary general meeting. DPS means droit préférentiel de souscription, the preferential subscription right. CAC means commissaire aux comptes, the statutory auditor. IS means impôt sur les sociétés, French corporate tax. CGI means Code général des impôts, the French Tax Code.

I. Your French Subsidiary Has Lost Half Its Capital: What the Four-Month Decision Really Means for a Foreign Parent

A. How to Check the Threshold, Count the Four Months and Take the Decision From Abroad

The trigger sits in the approved accounts, not in a letter from the administration. Compare the capitaux propres, the shareholders’ equity shown on the balance sheet, with half the capital social, the nominal share capital stated in the articles. If equity has fallen below that half, the special procedure applies, even when the company still pays its bills on time and no creditor has complained. The comparison uses the documents as approved by the shareholders, which means a foreign parent that approves the accounts late is only postponing, never cancelling, the starting point. Ask the French accountant for the equity computation in writing every year, and where the subsidiary is a SARL, the rule you live under states: article L. 223-42 of the Commercial Code provides that “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 plain English, the shareholders must decide, within four months after approving the loss-making accounts, whether the company should be dissolved early. For a company with a board of directors or a management board, the parallel provision states that article L. 225-248 of the Commercial Code requires that “le conseil d’administration ou le directoire, selon le cas, est tenu dans les quatre mois qui suivent l’approbation des comptes ayant fait apparaître cette perte, de convoquer l’assemblée générale extraordinaire à l’effet de décider s’il y a lieu à dissolution anticipée de la société.” The board must therefore convene the extraordinary meeting within the same four months, with dissolution on the agenda.

Foreign parents usually hold the French company as a SAS, and the SAS follows the same logic through a cross-reference. The SAS chapter opens by recalling that article L. 227-1 of the Commercial Code allows that “Une société par actions simplifiée peut être instituée par une ou plusieurs personnes qui ne supportent les pertes qu’à concurrence de leur apport.” Shareholders risk only their contributions, but only if the company plays by the collective-decision rules. In practice the SAS articles of association, the statuts, designate which body decides on dissolution and reconstitution, and where there is a single shareholder, the same article adds that “L’associé unique exerce les pouvoirs dévolus aux associés lorsque le présent chapitre prévoit une prise de décision collective.” A sole foreign parent can therefore take the decision itself, but it must still take it expressly, in writing, within the four months, and keep the signed minutes with the company records. An email saying the group will support the subsidiary is not a decision. A board pack noting the losses is not a decision. The decision is a dated resolution choosing dissolution or continuation, taken by the competent body, with the majority the articles require for amending the statuts.

Acting from abroad changes the logistics, not the substance. The parent should first check who is legally entitled to convene and vote: the statuts of the SAS, or the law for the SARL, plus any shareholders’ agreement that adds consent rights for the minority. Second, it should verify the majority actually obtained, because a continuation resolution adopted without the amendment-level majority is vulnerable, and a dissolution pronounced without the required majority exposes the directors. Third, it should organise attendance across borders: written consultation, videoconference and remote voting are valid only if the statuts allow them and the minutes record the method used. Fourth, where a CAC exists, loop the auditor in early, because the same article L. 223-42 of the Commercial Code that starts the clock also punishes inertia: “A défaut par le gérant ou le commissaire aux comptes de provoquer une décision ou si les associés n’ont pu délibérer valablement, tout intéressé peut demander en justice la dissolution de la société.” If the manager or the auditor fails to trigger the decision, or if the shareholders could not validly deliberate, any interested party can ask the court for dissolution. That open standing is what makes delay dangerous: the threat does not come only from creditors, it can come from a minority shareholder, a former director, or a contracting party with an interest in the outcome. The court is not obliged to dissolve immediately, since the statute continues: “Dans tous les cas, le tribunal peut accorder à la société un délai maximal de six mois pour régulariser sa situation.” The judge may grant up to six months to fix the position, which rewards parents that arrive with a plan and punishes parents that arrive empty-handed.

The Paris and Île-de-France practicalities deserve one paragraph because most foreign groups register there. The decision is filed through the guichet unique, the single online filing portal operated with the INPI, the national industrial property institute that now routes company filings, and it lands at the greffe of the registered office, for example the Paris commercial court registry for a Paris siège, then on the RCS extract and in a legal notice gazette. A foreign director who has never used the portal should mandate the French accountant or counsel with an express power before the four months expire, because a filing rejected for a missing signature or a wrong legal notice does not stop the clock. Keep the Kbis before and after, the filed resolution, the legal notice clipping and the BODACC reference in one folder: that folder is your proof, two years later, that the procedure was followed on time.

B. What to Publish, File and Register So the Continuation Decision Actually Protects the Group

Choosing continuation is the common route, and it is the route the administration watches. The resolution must be published, filed and registered, and each of the three steps has its own recipient. For the SARL, the implementing decree states the full circuit in one sentence: article R. 223-36 of the Commercial Code provides that “Dans le cas où, du fait de pertes constatées dans les documents comptables, les capitaux propres de la société deviennent inférieurs à la moitié du capital social, la décision des associés prévue à l’article 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.” Publication in an authorised legal notice outlet in the department of the registered office, filing at the local commercial court registry, entry in the RCS: miss one and the decision is procedurally naked. For companies under the board regime, article L. 225-248 of the Commercial Code says the same in substance, requiring that “Dans les deux cas, la résolution adoptée par l’assemblée générale est publiée selon les modalités fixées par décret en Conseil d’Etat.” SAS companies follow the publication duties applicable to them, and the parent should assume the full circuit rather than argue for a lighter one.

The continuation decision also starts the second clock, and this is the point foreign parents most often misunderstand. Continuation is not a pardon, it is a timetable. The statute gives the company until the end of the second financial year after the loss year to fix the balance sheet: article L. 223-42 of the Commercial Code states that “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.” Rebuild equity to at least half the capital, or reduce the capital so that equity again represents at least half: one of the two must be done by that second year-end. Where the capital exceeds a threshold set by decree relative to the balance-sheet size and equity has still not been rebuilt, the company must reduce its capital down to or below that threshold by the end of the second year after the first deadline. A parent that reads continuation as business as usual therefore walks into a second breach two years later, with the same dissolution remedy available to any interested party. Diarise both dates the day the resolution is signed: the four-month decision date already passed, and the second-year-end reconstitution date now running.

Three filing mistakes recur in foreign-owned groups, and each is avoidable. The first is publishing the wrong resolution: the notice must reflect exactly what the shareholders decided, dissolution or continuation, with the company name, SIREN, capital, siège and registry as shown on the current Kbis. The second is filing at the wrong registry after a move: where the subsidiary transferred its siège across departments, the competent greffe is the new one, and our companion guide on setting up a company in France as a foreign founder explains how the Kbis, the registered office proof and the first filings fit together. The third is forgetting the RCS update after the operation that fixes the ratio: a capital increase or reduction only protects the company once registered and published, because third parties read the Kbis, not the group minutes. Build the closing checklist before the AGE, not after: signed minutes, legal notice, guichet unique filing receipt, updated Kbis, BODACC clipping. A Paris-registered subsidiary adds one discipline: the legal notice must run in an outlet authorised for the Paris department, and the filing must match the Paris RCS entry exactly, including the punctuation of the company name.

II. How a Foreign Parent Recapitalises, Reduces Capital or Dissolves Without Paying the Debts Itself

A. How to Answer the Losses With Cash That Counts and Avoid the Shareholder Loan Trap

Not every euro sent from abroad repairs the ratio. The test compares equity with capital, so only operations that increase equity, or that reduce capital, move the needle. Profits retained in the company count, which is why a profitable second year can cure the breach by itself, provided the accounts are approved and the appropriation of profit to reserves is documented. Fresh cash counts when it enters as capital: a cash increase subscribed by the foreign parent, with the funds released, the deposit certificate drawn up and the AGE resolution recording the new capital, rebuilds equity directly. The competence rule is strict: article L. 225-129 of the Commercial Code states that “L’assemblée générale extraordinaire est seule compétente pour décider, sur le rapport du conseil d’administration ou du directoire, une augmentation de capital immédiate ou à terme.” Only the extraordinary meeting decides the increase, on the board report, and a parent that wires money without that resolution has made an undocumented advance, not a capital increase. Respect the DPS of existing shareholders unless it is lawfully waived, record the subscriptions individually, and complete the publicity and RCS entry before claiming the ratio is fixed.

The classic trap is the shareholder loan, the compte courant d’associé, the current-account advance through which the foreign parent funds the subsidiary month after month. The loan keeps the lights on, and it is often the fastest tool in a crisis, but a loan is a debt, and debt does not increase equity. A subsidiary financed only by current-account advances can show a healthy bank balance and a still-broken ratio at the same time, and the second-year deadline will arrive with the breach uncured. Loans also carry their own tax discipline: interest paid to a related foreign lender is deductible only within limits, since article 212 of the CGI opens by recalling that “Les intérêts afférents aux sommes laissées ou mises à disposition d’une entreprise par une entreprise qui est son associée ou par une entreprise liée, directement ou indirectement, au sens du 12 de l’article 39, sont déductibles :” and then caps the deduction, notably “Dans la limite de ceux calculés d’après le taux prévu au premier alinéa du 3° du 1 du même article 39 ou, s’ils sont supérieurs, d’après le taux que cette entreprise emprunteuse aurait pu obtenir d’établissements ou d’organismes financiers indépendants dans des conditions analogues”. Document every advance with a signed agreement, a rate at or below the deductible ceiling, actual interest flows and repayment terms, and convert into capital, through a formal increase by set-off of a certain, liquid and due claim, the portion that must count as equity. Undocumented advances risk reclassification, non-deductible interest and, in a later insolvency, treatment as equity that is repaid last.

Between the loan and the increase sits the debt waiver, the abandon de créance, by which the parent forgives all or part of its current-account claim. A waiver with no strings rebuilds equity immediately and can cure the ratio without new cash leaving the group, which is why groups use it at year-end. A waiver with a return-to-fortune clause, the clause de retour à meilleure fortune, rebuilds equity too but makes the subsidiary promise to repay if profits return, and the accounting and tax treatment of that conditional promise must be settled with the auditor in advance. In every case, the waiver must be written, certain in amount, approved by the competent body and reflected in the accounts that prove the cure. Parents should also coordinate the equity cure with the corporate tax position: rebuilding through profits means taxable profits, rebuilding through an increase means registration and publication costs, rebuilding through a waiver can create taxable income at the subsidiary level. None of these is a reason to abstain; each is a reason to have the accountant quantify the three routes side by side before the AGE, so the resolution chooses the cheapest effective cure rather than discovering its cost afterwards. Where the subsidiary is an SAS with several shareholders, check the statuts for approval clauses, pre-emption and anti-dilution mechanics before the parent subscribes alone, because a cure that unlawfully dilutes a minority shareholder buys a dispute on top of a balance-sheet problem.

B. How to Reduce Capital, Run a Coup d’Accordéon or Dissolve — and When the Parent Itself Risks Paying

Reducing the capital is the second lawful cure, and it suits parents that will not put fresh money into a subsidiary sized beyond its real activity. The reduction lowers the yardstick instead of raising the equity: after the operation, the remaining equity once again represents at least half of a smaller capital. Reductions motivated by losses follow a creditor-protection procedure with a publication, an opposition period for creditors and a registry filing, and the resolution must state the new capital figure exactly. Do not confuse this solvency tool with a return of cash to shareholders: a loss-motivated reduction cancels capital against accumulated losses and distributes nothing, while a non-loss-motivated reduction can return funds but gives creditors opposition rights that can delay or block the cash. The BPI France business-creation encyclopedia and practitioner guides all structure the choice the same way, distinguishing the competent body, the loss versus non-loss procedure, and the common formalities of legal notice and single-portal filing, and our article adds what they do not: the foreign-parent sequencing, the English-language minutes that the French filing still requires in French form, and the two-year deadline that frames the whole decision.

The heavy restructuring tool is the coup d’accordéon, the accordion operation that reduces the capital to zero and immediately increases it again, wiping out the old shareholders that do not re-subscribe and leaving control to those that do. Groups use it to rescue a subsidiary while removing a blocking minority, but the courts treat the two steps as one indivisible operation, which changes everything about timing and challenge. The Court of Cassation held, in a case annulling the logic of a zero reduction without an effective increase, that Court of Cassation, Commercial Chamber, 4 January 2023, appeal no. 21-10.609, “qu’un coup d’accordéon prenant la forme d’une réduction du capital social à un montant nul suivi d’une augmentation immédiate du capital constitue une opération unique et indivisible, la réduction du capital à zéro ne pouvant produire effet qu’à la condition que les associés procèdent à une augmentation concomitante et effective du capital social”. A zero reduction produces effects only if the shareholders carry out a concomitant and effective increase. The same ruling drew the consequence bluntly: “En statuant ainsi, alors qu’elle retenait que l’augmentation du capital de la société Intégrale par la souscription d’actions nouvelles, dont la réalisation avait été suspendue, n’était pas effective, ce dont elle aurait dû déduire que la résolution décidant de la réduction à zéro du capital de la société ne pouvait, sauf à priver cette société de tout capital, légalement produire effet”. Where the increase is suspended or ineffective, the zero-reduction resolution cannot legally take effect, because it would leave the company with no capital at all. For a foreign parent, the operational lessons are direct: run the reduction and the increase in one coherent AGE process, make the increase unconditional and funded, keep subscription evidence for every euro, and never file the zero reduction alone. A phased filing, with the reduction published months before the increase is subscribed, invites the minority to have the whole operation annulled.

Dissolution is the honest answer when the subsidiary has no commercial future, and French law makes dissolution the beginning of a supervised ending rather than a disappearance. The mechanics are worth stating because foreign directors sometimes announce closure to staff and suppliers as if the company had vanished: article L. 237-2 of the Commercial Code provides that “La société est en liquidation dès l’instant de sa dissolution pour quelque cause que ce soit sauf dans le cas prévu au troisième alinéa de l’article 1844-5 du code civil.” The company enters liquidation the moment it is dissolved, and “La personnalité morale de la société subsiste pour les besoins de la liquidation, jusqu’à la clôture de celle-ci.” Legal personality survives for liquidation purposes until closure, which means contracts, claims and liabilities survive too. The name must be followed by the words société en liquidation, a liquidator must be appointed, and “La dissolution d’une société ne produit ses effets à l’égard des tiers qu’à compter de la date à laquelle elle est publiée au registre du commerce et des sociétés.” Dissolution binds third parties only from its RCS publication. Our companion guide on how a foreign parent dissolves, liquidates and strikes off a French company walks through the full winding-up sequence; use it as the checklist once the dissolution resolution is taken under the equity procedure.

The final warning concerns the parent that does none of the above and lets a hollow subsidiary keep trading until insolvency. Limited liability protects shareholders that respect the procedures; it does not protect directors, de jure or de facto, whose mismanagement deepened the shortfall. Where a judicial liquidation reveals an asset deficiency, article L. 651-2 of the Commercial Code states that “Lorsque la liquidation judiciaire d’une personne morale fait apparaître une insuffisance d’actif, le tribunal peut, en cas de faute de gestion ayant contribué à cette insuffisance d’actif, décider que le montant de cette insuffisance d’actif sera supporté, en tout ou en partie, par tous les dirigeants de droit ou de fait, ou par certains d’entre eux, ayant contribué à la faute de gestion.” A foreign parent that imposed cash sweeps, forced loss-making contracts, delayed the insolvency filing or kept trading with manifestly insufficient equity can be characterised as a de facto manager and ordered to cover all or part of the deficiency. The statute draws one line in favour of directors, adding that “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.” Simple negligence alone does not trigger liability; a management fault that contributed to the deficiency does. Practical consequence: once equity is below half and the cure is uncertain, the parent should stop upstream dividends, document every instruction as being in the subsidiary’s interest, file for insolvency within the legal time when cash runs out, and never use the subsidiary as a cost centre for group charges without real consideration. Rescue lawfully, fund properly, or close early: the three lawful attitudes all beat the drift that turns a shareholder into a payer.

Conclusion

A French subsidiary that has lost half its capital is not dead, but it is on a statutory timetable that a foreign parent must run like any other compliance deadline. Read the approved accounts, compare equity with half the capital, and take an express dissolution-or-continuation decision within four months through the competent body, even when the parent is the sole shareholder acting from abroad. If the company continues, publish the resolution in an authorised outlet, file it at the greffe and register it on the RCS, then cure the ratio by the end of the second following financial year through retained profits, a documented capital increase or a loss-motivated reduction, remembering that shareholder loans keep the company alive without rebuilding equity and that interest obeys the deductibility ceiling. Keep the coup d’accordéon for genuine rescues with an unconditional, funded increase, because the courts treat it as one indivisible operation and annul zero reductions left standing alone. And where rescue makes no sense, dissolve early and liquidate properly rather than trading a hollow company into an insolvency where the parent answers for management faults. Groups that calendar the four months, the publications and the two-year cure keep their limited liability; groups that improvise discover, too late, that French company law charges for drift.

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