Your French accountant sends an email after the year-end closing: the subsidiary’s equity has fallen below half of its share capital, the bank is asking questions, and something will now appear on the company’s public record. For a foreign parent that runs its French SAS or SARL from London, New York, Dubai or Singapore, this letter reads like a riddle. It is in fact the starting gun of one of the most strictly timetabled procedures in French company law: within four months of the approval of the accounts, the shareholders must vote on whether to dissolve the company early, publish that decision in a legal-notices newspaper, file it with the court registry, and then repair the balance sheet within two years. Miss a step, and any interested party, a creditor, a minority shareholder, even the public prosecutor, can ask a court to dissolve your company.
This guide explains the whole sequence in plain English for a foreign owner. It covers how to check whether the threshold is really crossed, who must call the vote and what happens if nobody does, how a parent can inject money from abroad, convert a shareholder loan or reset capital to zero, which filings the greffe (the registry office of the commercial court) expects, and how to fight a court dissolution claim. Every French acronym is explained, every decisive rule is quoted from the official text, and two recent court decisions show how judges actually apply these rules to recapitalizations imposed by majority shareholders.
I. Has Your French Subsidiary Really Lost Half of Its Capital?
A. How do you calculate whether equity has fallen below half of the share capital?
French law triggers the procedure with a precise sentence. Article L. 223-42 of the Commercial Code, for the SARL (the limited liability company, société à responsabilité limitée), opens as follows: « 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. » The SA (public limited company, société anonyme) and, through it, the SAS (simplified joint-stock company, société par actions simplifiée, the vehicle most foreign groups choose) follow the twin provision, article L. 225-248 of the Commercial Code. Three elements of that sentence decide everything, and each of them is a trap for a non-French reader.
First, capitaux propres, translated here as equity, is an accounting concept, not the cash in the bank. The registries’ own portal, Infogreffe, @@DEF@@ 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 @@ENDDEF@@ In practice your expert-comptable (the French chartered accountant) takes the balance sheet at year-end: share capital plus reserves plus retained earnings, minus accumulated losses, plus regulated provisions and investment subsidies. If that total is a negative number, the test is automatically met. A company can therefore be cash solvent, paying its suppliers normally, and still be below the threshold because two bad years have eaten the reserves.
Second, the reference point is half of the nominal share capital, the capital social stated in the bylaws, not the amount actually paid up. Take a French SAS with a share capital of 100,000 euros. The threshold is 50,000 euros. If the approved balance sheet shows equity of 42,000 euros, the procedure applies even though the company may still hold cash. If the capital was set at the fashionable 1,000 euros for a young SAS, the threshold is 500 euros, and almost any first-year loss trips it. Foreign founders who chose a symbolic capital to keep formation costs low discover here the price of that choice: a small capital makes the alarm bell ring at the first loss. This is one reason the sister question of unpaid capital matters so much in foreign-owned files, as explained in the guide on how a foreign owner calls up unpaid share capital when the bank asks.
Third, only losses « constatées dans les documents comptables », recorded in the accounting documents, count. A bad quarter, a worried email from the local manager or a forecast is not enough. The trigger is the annual accounts as approved by the shareholders. That approval itself has a deadline: article L. 225-100 of the Commercial Code provides that « L’assemblée générale ordinaire est réunie au moins une fois par an, dans les six mois de la clôture de l’exercice, sous réserve de prolongation de ce délai par décision de justice. » For a company closing on 31 December, the shareholders normally approve the accounts before 30 June, and the four-month clock for the loss-of-capital vote starts on that approval date. A foreign sole shareholder who signs the approval late, after a summer SDR of emails, shortens its own reaction time without knowing it.
Once the threshold is crossed, the situation becomes public. The official Entreprendre.Service-Public portal, page F36700 in its English version, warns that the loss of half of the share capital is a signal of fragility to third parties, can appear on the proof of registration of the business, and can make new financing harder to obtain. In concrete terms, the continuation-or-dissolution decision is inscribed in the RCS (the Registre du commerce et des sociétés, the trade and companies register kept by each commercial court), appears on the Kbis (the Kbis extract, the official identity card of a French company that banks, landlords and suppliers pull before signing anything), and is announced in the BODACC (the Bulletin officiel des annonces civiles et commerciales, the official gazette of commercial notices). A French bank that reviews the file for a loan, an overdraft renewal or a change of signatory will read that mention. The question is therefore never only accounting. It is commercial: every counterparty that checks your Kbis will see that the company voted on its own survival.
B. Who must call the dissolution vote within four months, and what happens if nobody votes?
The statute names the person who must act, and it differs between company forms. In a SARL, article L. 223-42 places the decision directly on the shareholders within four months of the approval of the accounts. In an SA, article L. 225-248 states 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. » For the SAS, the vehicle most foreign parents use, there is no board of directors. Article L. 227-1 of the Commercial Code extends the SA rules to the SAS insofar as they are compatible with the SAS chapter, and it does not exclude article L. 225-248. The duty therefore falls on the président of the SAS, or on the managers the bylaws designate, to put the survival question to a collective decision of the shareholders within the same four months, following the voting rules the bylaws set.
The vote itself carries a subtlety that surprises foreign directors. The resolution put to the shareholders must propose the early dissolution of the company, and it is the rejection of that dissolution that allows the business to continue. Dissolution is voted under the majority required for amendments to the bylaws, which in practice means a reinforced majority defined by law or the articles. A foreign parent holding 100 percent of a SASU (the one-shareholder SAS, société par actions simplifiée unipersonnelle) votes alone and the formality is quick. A parent holding 60 percent alongside a French minority partner must count votes carefully and document the meeting, because a contested recapitalization later will be judged on these minutes, as the 2026 Paris decision discussed below shows.
If nobody organizes the vote, or if the shareholders cannot validly deliberate, the sanction is severe. Article L. 223-42 provides: « 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. » The phrase tout intéressé, any interested party, is deliberately wide: a creditor, a minority shareholder, a contracting partner with a stake in the outcome. The same mechanism exists for companies under article L. 225-248. The claim is brought before the commercial court of the registered office, the same court whose greffe keeps the company’s RCS file. There is, however, a safety valve built into the statute. The court may grant the company up to six months to put its situation in order, and judges examine the file as it stands on the day they rule on the merits. The registries’ portal states the practical consequence plainly: once the shareholders have actually been consulted and have voted, the judge can no longer pronounce dissolution on that ground. Filing late is therefore far better than never filing, and a parent that discovers the omission in September can still cure it before a hearing.
One boundary matters for groups already in difficulty. The loss-of-capital articles do not apply to companies under safeguard or receivership proceedings, or operating under a court-approved safeguard or recovery plan. Where the subsidiary has stopped paying its debts as they fall due, the file belongs to insolvency law, with its own 45-day declaration duty and its own personal-liability risks for a foreign director who files late, described in the guide on what happens when a French company cannot pay its debts. Loss of half the capital and cessation of payments often travel together, but they are two different procedures with two different clocks, and the parent must run both if both are triggered.
II. How Can a Foreign Parent Fix a French Subsidiary That Has Lost Half Its Capital?
A. Should you inject cash, convert the shareholder loan, waive a debt or reset capital to zero?
When the shareholders vote to continue the activity, which is the outcome in the large majority of cases, the company receives time to heal: until the end of the second financial year following the one in which the loss was recorded, it must either rebuild equity to at least half of the share capital or reduce the share capital so that equity reaches at least half of the reduced amount. The official portal gives a concrete illustration: if the accounts for the year ended 31 December 2026 are approved in 2027 and show losses beyond half the capital, the company has until 31 December 2029, not 2028, to put its situation in order. That deadline sounds comfortable. It passes quickly when funds must travel across borders, through a foreign board approval, a currency conversion and a French bank’s compliance checks.
The portal lists the standard repair tools, and each has a foreign-parent version. Earning enough profit to absorb the losses is the natural cure but the slowest. Increasing the capital in cash means the parent subscribes new shares and wires fresh money, which requires a board resolution abroad, proof of the origin of funds for the bank, and sometimes a sworn translation of the corporate documents. Welcoming a new investor dilutes the parent and forces full disclosure of the company’s prospects. Converting the parent’s current-account advance, the compte courant d’associé (the shareholder current account through which many foreign groups fund their French subsidiary day to day), into capital cleans the liabilities at no new cash cost: the parent gives up a receivable and receives shares. Waiving a debt owed by the subsidiary, the abandon de créance, produces a similar accounting effect, although its tax treatment must be cleared with the accountant before signing, since the waived amount can resurface as taxable income. Finally, reducing the capital to absorb the losses resets the ratio without new money, but it shrinks the company’s stated substance on the Kbis and must respect the legal minimums and creditor-protection procedure for capital reductions.
The heavy artillery, combining both tools, is the coup d’accordéon, the accordion operation: the shareholders first reduce the capital to zero to wipe out the losses, then immediately increase it back with fresh money. The minority shareholders who do not subscribe disappear from the capital, while those who put money in remain. Two recent decisions frame exactly what a foreign majority shareholder may and may not do with this instrument, and both deserve close reading before any vote.
The first is a published ruling of the Commercial Chamber of the Cour de cassation, the supreme court for business disputes, dated 4 January 2023, appeal no. 21-10.609, concerning two SAS companies. The Court holds: « Il résulte de ces textes que la réduction à zéro du capital d’une société par actions n’est licite que si elle est décidée sous la condition suspensive d’une augmentation effective de son capital amenant celui-ci à un montant au moins égal au montant minimum légal ou statutaire. » The visa cites articles L. 210-2 and L. 224-2 of the Commercial Code, the latter providing that « Le capital social doit être de 37 000 € au moins. » for companies subject to that floor. In that case, an extraordinary meeting had voted the reduction to zero with a simultaneous increase, but a court order had suspended the increase while the reduction stood. The Court of Appeal had deduced that the ousted shareholder had lost his status. The Cour de cassation quashed that reasoning: since the recorded increase was not effective, « 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 », and the shareholder had kept his status when he filed his claim. For a foreign parent, the lesson is operational. Sequence the two steps as one conditional transaction, make the reduction expressly conditional on the effective completion of the increase, keep the subscription rights of all shareholders documented, and never treat a minority holder as eliminated while the new money has not actually arrived.
The second decision is even closer to a foreign-group scenario. On 24 February 2026, the 8th chamber of Paris Court of Appeal, Pôle 5, case RG 23/18848, ruled on a SAS whose shareholders, facing an anticipated loss of about 4,000,000 euros for 2021 against a capital of 632,800 euros, had voted on 31 December 2021 to reduce the capital to zero and immediately increase it by up to 6,814,200 euros, mostly by converting a 6,000,000 euro current-account claim held by the majority company, with a 14-day window for every shareholder to subscribe proportionally. The minority company, which had voted against and had not subscribed, sued for abuse of majority and fraud. The commercial court had found an abuse; the Court of Appeal reversed in full. It recalled the test for abuse of majority: a majority decision is abusive only when it runs against the corporate interest and was taken for the sole purpose of favouring the majority at the expense of the other shareholders. Applying that test, the court held that the minority had failed to show that an operation driven by the will to ensure the survival of the business was contrary to the corporate interest, noted that the dissenting shareholder had expressed no intention to contribute to the rescue when asked, and dismissed all of its claims with costs. The full reasoning repays reading for any parent preparing such a vote: contemporaneous accounting evidence of the losses, a subscription window genuinely open to all, maintenance of pre-emptive rights (the droit préférentiel de souscription, the right of each shareholder to subscribe in proportion to its stake), and minutes recording who was willing to fund the rescue.
Behind both rulings stands a civil-law root worth one sentence. Article 1832 of the Civil Code closes with the words « Les associés s’engagent à contribuer aux pertes. » Shareholders commit to contribute to losses. A parent that lets its French subsidiary drift below half its capital for years, then cries foul when a creditor moves, argues against the grain of that commitment. Courts notice who funded the rescue and who watched from sidelines.
B. How do you publish, file and defend the decision from abroad when a creditor moves first?
The publicity sequence is fixed and short, and foreign owners most often fail on its mechanics rather than its principle. For a SARL, article R. 223-36 of the Commercial Code provides that the shareholders’ decision « 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. » For companies under article L. 225-248, article R. 225-166 of the Commercial Code mirrors the duty: « la décision de l’assemblée générale prévue au premier alinéa de l’article L. 225-248 est déposée au greffe du tribunal de commerce du lieu du siège social et inscrite au registre du commerce et des sociétés. », with additional publication in an authorized legal-notices outlet under article R. 210-11. Three practical points follow.
First, the legal notice (the annonce légale) must be published in a newspaper or platform authorized for the department of the registered office, within one month of the decision, and it must state whether the company is dissolved or continues, with the company name, legal form, office address, SIREN number (the SIREN, the nine-digit national identification number of the company), capital amount and RCS details. The publisher issues a publication certificate (the attestation de parution), which the file cannot proceed without. A notice published for the wrong department, or naming the old address after a move, is a classic ground for rejection.
Second, the filing itself now travels through the INPI one-stop shop (the guichet unique des formalités des entreprises, the single online window run by the INPI, the French intellectual-property and companies office, which forwards filings to the competent greffe). The dossier contains the minutes deciding dissolution or continuation, the updated bylaws certified by the legal representative where capital was altered, and the publication certificate. Once validated, the decision is inscribed in the RCS and announced in the BODACC. There is one piece of good news in the official guidance: these publicity steps do not have to be repeated every year while equity remains below half. A single compliant filing covers the continuation period until the situation is repaired or the capital reduced.
Third, since March 2023 the endgame has an extra layer that foreign groups often miss. If equity has still not been rebuilt by the two-year deadline while the share capital exceeds a threshold set by decree according to balance-sheet size, the company must reduce its capital down to that threshold by the end of the second year after the deadline, and any later capital increase must bring it back into compliance within two further years. A parent that injects just enough to survive 2027 but plans a larger round in 2029 needs a calendar that covers both horizons, not one.
When a creditor or minority holder files for judicial dissolution before the parent has acted, the defence from abroad follows a fixed order: file first, argue second. Hold the shareholders’ vote immediately, by written consultation or videoconference if the bylaws allow remote decisions, publish the notice, and submit the INPI dossier so that the regularization exists on the day the court rules. Before the commercial court, the company asks for time to regularize within the six-month window the statute opens, produces the fresh Kbis showing the inscribed decision, and demonstrates the repair plan with dated fund-transfer proofs. Article 1844-7 of the Civil Code lists « la dissolution anticipée décidée par les associés » among the ways a company ends, which underlines the hierarchy judges apply: the shareholders’ own decision comes first, and a court-ordered dissolution is the fallback when the shareholders have failed to decide.
Geography sharpens the procedure in only one way, but it matters. The competent court is the commercial court of the registered office: for a siège in Paris, the Tribunal de commerce de Paris; for offices in Nanterre, Bobigny, Créteil, Évry, Versailles or Pontoise, the corresponding court of that ressort (the territorial district). A foreign president or sole shareholder never needs to fly in for routine steps: the INPI filing is online, the vote can be signed remotely where the bylaws permit, and a French avocat appears at the hearing under a power of attorney, with sworn translations of the parent’s board resolutions where the judge requires them. What cannot be delegated is the documentary discipline: consistent dates across the approval of the accounts, the four-month vote, the one-month publication and the INPI receipt. Judges deciding dissolution claims read chronologies before they read arguments, and the files that survive are the ones where every date lines up. The starting point of that chronology, the choice of vehicle and the first filings, is described in the pillar guide on setting up a company in France as a foreign founder, and the vehicle comparison in how to choose between a French SAS, SARL, branch or subsidiary.
Conclusion
A French subsidiary that has lost half of its capital is not dead, but it is on a statutory clock that no shareholder agreement can pause. The shareholders must vote on early dissolution within four months of approving the accounts that revealed the loss, under article L. 223-42 for the SARL and article L. 225-248, extended by article L. 227-1, for the SAS. The decision must be published in an authorized legal-notices outlet within one month, filed through the INPI one-stop shop to the greffe, and inscribed in the RCS where banks and partners will read it on the Kbis. Continuation opens a two-year repair window, with a further capital-reduction duty since 2023 for large-capital companies that have not recovered. Any interested party can seek judicial dissolution in the meantime, but a company that votes, files and funds its repair before the judge rules on the merits takes that weapon away.
For a foreign parent, the workable sequence is therefore concrete. Have the accountant confirm the equity calculation on the approved accounts, not on forecasts. Convene the vote inside four months and frame the resolution as the statute requires, dissolution first, with rejection meaning continuation. Publish and file inside one month, and keep the publication certificate with the INPI receipt. Fund the repair with the tool that fits the group: cash increase, conversion of the shareholder current account, targeted debt waiver cleared for tax, straight reduction, or a conditional accordion operation that keeps every shareholder’s subscription rights open and makes the reduction expressly conditional on the effective increase, exactly as the Cour de cassation required on 4 January 2023 and the Paris Court of Appeal confirmed in substance on 24 February 2026. If a dissolution claim lands before the cure is complete, vote, publish, file, then ask the court for the regularization period with a dated paper trail. Run from abroad with powers of attorney and translations, but run it on French dates: approval, vote, publication, filing. That chronology is what saves the subsidiary.
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