Your French subsidiary has burned through its first years: launch costs, salaries, a Paris lease, and revenue that arrived slower than planned. Then your accountant sends the draft balance sheet with a warning you did not expect: the company’s equity has fallen below half of its share capital, and French law now forces a formal choice between dissolving the company and rebuilding it. If you are a foreign founder or a foreign group with a French SAS, the simplified joint-stock company most foreigners choose, or a SARL, the limited liability company with stricter voting rules, this is not a courtesy notice. From the day the loss-making accounts are approved, a four-month clock starts running, the decision must be published, a warning appears on the company’s Kbis, the identity certificate issued by the greffe, the registry office of the commercial court, and any interested party can ask a judge to dissolve the company if the procedure is ignored. This article explains, with the exact statutes and three recent court rulings, how to tell whether the alarm threshold is crossed, what must be decided and published within four months, what happens if nothing is done, and how a foreign owner rebuilds equity from abroad, by fresh cash, by converting a shareholder loan, or by cutting the capital, before the two-year deadline expires. It follows our legal calendar of a French company, which sets the rhythm of approving, filing and paying, and zooms in on the one calendar event that can kill the company: the year the losses eat half the capital.
I. How do you know your French company has lost half its capital, and what must happen within four months?
A. When do losses trigger the alarm: equity below half the share capital?
French company law watches one ratio above all others: equity, called capitaux propres, against share capital, called capital social. Equity is what remains for the shareholders once all debts are subtracted from all assets: share capital plus reserves plus retained earnings, minus accumulated losses. Share capital is only the starting stake written in the articles, les statuts: 1 euro is legally enough for a SAS or SARL, though foreign founders often inject 10,000, 30,000 or 100,000 euros to reassure banks and landlords. As long as the company makes money or breaks even, equity stays above capital and nobody asks questions. But every loss-making year eats into equity while the capital figure on paper stays frozen, and one day the two curves cross the legal tripwire. The official business portal gives a textbook example: a company with 5,000 euros of capital whose equity falls to 2,000 euros, because 2,000 is below half of 5,000, namely 2,500 euros, has crossed the line. The computation is done from the approved accounts, never from a rough mid-year feeling, which is why the alarm always rings at the annual accounts meeting.
The statute states the trigger identically for every company form. For the SA, the public limited company, and by extension the SAS, article L. 225-248 of the Commercial Code provides: “Si, du fait de pertes constatées dans les documents comptables, les capitaux propres de la société deviennent inférieurs à la moitié du capital social, 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 SARL, article L. 223-42 of the same Code uses the same words with the SARL’s own decision-making: “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.” Foreign founders sometimes wonder whether their SAS, a vehicle with freely tailored articles, escapes this old public-company rule. It does not. The Paris Court of Appeal confirmed on 24 February 2026, RG 23/18848, that the mechanism reaches the SAS through the cross-reference in article L. 227-1 of the Commercial Code, which imports compatible public-company rules into the simplified company. So whether you hold a SASU with yourself as sole shareholder or a SARL shared with a French partner, the same four-month machinery starts the day you sign off loss-making accounts.
Three practical points decide whether the alarm is real. First, only losses recorded in the accounting documents count, which means the trigger is pulled by the accounts as approved by the shareholders, not by the bank balance or by a scary interim report. That is also why keeping proper books matters from day one: article L. 123-12 of the Commercial Code requires that “Toute personne physique ou morale ayant la qualité de commerçant doit procéder à l’enregistrement comptable des mouvements affectant le patrimoine de son entreprise”, so a foreign owner who runs the French company from spreadsheets and reconstructs the accounts at year-end may discover the breach months late, with the four-month clock already running. Second, the comparison uses the capital stated in the articles on that day: if you increased the capital mid-year, the threshold moves with it, and if equity is exactly at one-half, the company is safe, since the law strikes only below half. Third, groups must look entity by entity. Your Dutch or American holding can be gloriously profitable while the French operating subsidiary bleeds; the French judge looks only at the French company’s own balance sheet, and a comfort letter from the parent changes nothing until it is translated into booked equity, a point the courts hammer home, as Section II shows.
B. What must the company decide and publish within four months of the accounts meeting?
Once the accounts revealing the loss are approved, the directors have four months to put the existential question to the shareholders: dissolve now, or carry on? In a SAS the president or the board convenes an extraordinary meeting, in a SARL the gérant, the manager, calls the shareholders, and in a one-person SASU or EURL the sole shareholder simply records the decision in writing. There are only two lawful answers. Either the shareholders vote early dissolution, dissolution anticipée, and the company enters voluntary liquidation, a path our French-language guides describe step by step. Or they vote continuation despite the losses, poursuite de l’activité, and the company buys itself time, two financial years, to rebuild. What is forbidden is the third option most busy foreign owners drift into by default: deciding nothing, signing nothing, and hoping next year will be better. Silence is itself a breach, and it opens the door to a court-ordered dissolution at the request of literally any interested party, as Section II explains.
Whichever answer the shareholders give, it must be made public, and the publicity has teeth. The statute says, in both company forms, that the vote must be published as set by regulation: article L. 225-248 states: “Dans les deux cas, la résolution adoptée par l’assemblée générale est publiée selon les modalités fixées par décret en Conseil d’Etat.” In practice the publication chain has three links. First, a legal notice, une annonce légale, must appear within one month of the decision in an authorized gazette, and the official business portal confirms the gazette notice must be published within one month of the decision (Perte de la moitié des capitaux propres). Second, the minutes are filed through the guichet des formalités des entreprises, the single online desk run by the INPI, the French intellectual-property and business-registry office, which forwards them to the greffe for entry in the RCS, the Registre du commerce et des sociétés, the Trade and Companies Register. Third, and most visible, the Kbis itself carries the warning: the extract states that the equity has fallen below half the capital, a red flag every bank, landlord, supplier and public-tender body reads before signing with you. Foreign owners underestimate this reputational cost. The Kbis mention does not block contracts by itself, but procurement officers and credit insurers treat it exactly as what it is, a public signal that the company is living on borrowed time, and some will demand cash deposits or parent guarantees they would never have asked for the year before.
Two formalities traps catch foreigners in particular. The first is language and form: the minutes, the notice and the filing run entirely in French, through a French gazette and the French single desk, and the foreign shareholder’s English-language board consent, however clear, is not a substitute for the French-language resolution the greffe expects. The second is the calendar trap. The four months run from approval of the accounts, not from the year-end and not from the day your accountant emails you the PDF. A company closing on 31 December whose shareholders approve the accounts on 30 June must decide by 30 October. Miss that window and the decision is late even if the substance is right, which hands any creditor, any minority shareholder, even a former employee, the argument that the procedure was never followed. Diary discipline therefore matters as much as money: the vote, the gazette notice within one month, and the single-desk filing form one chain, and a missing link is visible to anyone who pulls the Kbis.
II. What do you risk if you do nothing, and how does a foreign owner rebuild from abroad?
A. What do you risk: a judge dissolving the company and making you pay the shortfall?
The first sanction is collective: the company itself can be dissolved by a court. If the directors never convened the shareholders, or if the shareholders never reached a valid decision, the official portal states the consequence bluntly for each company form: any interested party may petition the commercial court to dissolve the company, a court-ordered dissolution. Any interested party means what it says: a creditor chasing an unpaid invoice, a minority shareholder frozen out of decisions, the public prosecutor, le ministère public, alerted by the greffe. The judge does not dissolve automatically; the company can still save itself by complying before judgment, and courts routinely grant a short grace period to file the missing decision. But the foreign owner who learns of the petition from abroad, in French, weeks after service, starts defending with a handicap, and the legal fees of a dissolution fight dwarf the cost of the gazette notice that would have prevented it. The lesson is the same as for every French compliance deadline: the procedure is cheap, the cure is expensive.
The second sanction is personal, and it is the one foreign directors consistently underestimate. Rebuilding equity is the shareholders’ job, putting in fresh money, but living with unrepaired losses is the directors’ responsibility. The Court of Cassation fixed this division of labour on 8 January 2026 in a published Bulletin ruling, Commercial Chamber, appeal 18-15.027, ECLI:FR:CCASS:2020:CO00011, concerning a group whose operating company’s equity had been negative since 2007: “à concurrence de 3 020 962 euros au 31 décembre 2007, 4 118 790 euros au 31 décembre 2008, 7 912 336 euros au 31 décembre 2009 et 24 903 381 euros au 31 décembre 2010”. Endorsing the appeal court’s reasoning, the Court held: “si la reconstitution des capitaux propres appartient aux actionnaires et non aux dirigeants, il appartient en revanche à ces derniers de tirer les conséquences d’un défaut de reconstitution”. The ruling was a rejection, rejet, meaning the convictions stood: the de facto directing company and its representative were kept liable for millions in shortfall compensation. Translated for a foreign owner who is also president of the SAS: you cannot be forced to refill the coffers from your own pocket, but you can be ordered to compensate the company’s creditors if you kept trading for years on knowingly hollow equity instead of drawing the consequences, scaling down, refinancing, or filing for insolvency protection in time.
The bridge from hollow equity to personal liability is the action for shortfall compensation, l’action en comblement de l’insuffisance d’actif. Article L. 651-2 of the Commercial Code provides: “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.” Letting losses pile up while equity stays below half the capital is precisely the kind of management fault liquidators plead: pursuing a structurally loss-making activity, refusing the capital decision, hiding the situation behind unfiled or cosmetic accounts. And beyond money, the ultimate personal sanction exists for the worst cases: article L. 653-4 of the Commercial Code allows the court to pronounce personal bankruptcy, la faillite personnelle, against a director, de jure or de facto: “Le tribunal peut prononcer la faillite personnelle de tout dirigeant, de droit ou de fait, d’une personne morale, contre lequel a été relevé l’un des faits ci-après”. A foreign passport is no shield: French courts routinely sanction non-resident directors of French companies, serve them through international channels, and enforce bans that follow them into every French directorship. None of this means every loss-making subsidiary ends in liability; it means the capital decision is the moment to create the paper trail, vote, publish, refinance, that proves you acted like a careful director the day the alarm rang.
B. How does a foreign owner rebuild equity from abroad before the two-year deadline?
If the shareholders vote to carry on, the law grants a fixed repair window: equity must be back to at least half the capital by the end of the second financial year following the year the loss was recorded. The official portal illustrates it with unusual clarity: accounts for the year ended 31 December 2026 approved in 2027 with losses beyond half the capital give the company until 31 December 2029, not 2028, to put things right, the portal giving this exact example, and it confirms the company has two years to repair its position, running from the ordinary meeting that approved the fatal accounts. There are then two, and only two, lawful ways out: rebuild equity up to the threshold, or cut the capital down to it, subject for public limited companies to the statutory floor recalled by article L. 224-2 of the Commercial Code: “Le capital social doit être de 37 000 € au moins.” Everything else, waiting for a miracle year, parking the problem in the parent’s goodwill, is not a strategy the greffe recognizes.
Rebuilding usually means a capital increase, and foreign parents have three funding routes. The cleanest is fresh cash wired from abroad, documented by a bank certificate and a shareholder resolution, with the usual anti-money-laundering questions answered upstream so the funds are not frozen mid-operation. The fastest, when the parent has already been funding the subsidiary through a shareholder current account, un compte courant d’associé, the intra-group loan account through which foreign parents drip-feed cash, is conversion by set-off: the parent subscribes new shares and pays by cancelling its loan claim, a technique the Paris Court of Appeal validated in the very February 2026 ruling cited above, noting that one shareholder subscribed 6,000,000 euros, paid in full by setting off its shareholder current-account claim. The third route is debt forgiveness, l’abandon de créance, often with a return-to-better-fortunes clause, which books an exceptional profit and lifts equity without issuing a single share, though the tax treatment on both sides of the border needs modelling before signing. When even these routes cannot fill the hole, the honest tool is the accordion operation, le coup d’accordéon: first reduce the capital to absorb the losses, in the Paris case down to 632,800 euros, then immediately increase it back up, there by up to 6,814,200 euros, because the operation was driven by the losses and the need to keep equity at least at half the capital at the 2021 year-end. One warning from that same ruling for foreign majority owners: the minority shareholder who refused to follow the increase cried foul, and the court restated the test every parent should memorize before squeezing anyone out: a majority abuses its power when a decision against the company’s interest is taken solely to favour the majority at the minority’s expense. A recapitalization that deliberately prices out the French minority partner can therefore buy a lawsuit along with the equity.
Distance changes the logistics, not the law, so organize the repair like a cross-border closing. First, have your accountant certify the exact equity figure and the exact deadline date in writing; foreign owners repeatedly miscompute which year-end counts, and the portal’s 2026-2029 example exists precisely because the counting is counterintuitive. Second, choose the tool, cash, set-off, forgiveness, accordion, or a straight capital cut, and check the tax and foreign-exchange consequences in both countries before the vote, since a set-off that works beautifully in French company law can trigger withholding or transfer-pricing questions at home. Third, hold the decision remotely but validly: SAS articles usually allow video or written consultation, while SARLs follow stricter meeting rules, so read the articles before sending a Zoom link, and give a French-law representative, mandataire, your lawyer or accountant, a written power to sign, file and publish. Fourth, run the full publicity chain in French within its deadlines: gazette notice within one month, single-desk filing with the minutes, and keep the receipts, because the day equity is genuinely restored you will want the Kbis cleaned immediately. The portal confirms the reward for finishing the job: once the company has put its house in order, it may request removal of the half-capital warning from its registration certificate, by filing the minutes recording the rebuilt equity through the single desk, and the warning disappears from the extract banks and partners pull. And if the deadline expires with equity still short, the statute offers one last narrow corridor, cutting the capital down toward a regulatory minimum threshold over a further two years, but at that stage the file is flagged, creditors are nervous, and any interested party may already have filed for judicial dissolution, which the portal describes as the standard outcome once the two-year window closes with equity still short: court-ordered dissolution at any interested party’s request. Rebuild early, publish everything, and keep the proof: that is the whole method.
Conclusion
Losing half the capital of a French company is a controlled emergency, not a death sentence, provided the foreign owner treats the procedure as seriously as the money. The mechanism has four beats: the approved accounts reveal equity below half the capital; the shareholders vote within four months to dissolve or carry on; the decision is published within one month through a gazette notice and the single desk, with the warning entered on the Kbis; and equity is rebuilt or the capital cut by the end of the second following financial year, with the mention erased once the repair is filed. Skip a beat and the sanctions escalate exactly as the rulings above show: any interested party can petition for judicial dissolution, and directors who sail on for years with knowingly hollow equity, like the group officers condemned in the January 2020 Cassation ruling, can be ordered to shoulder millions of shortfall. The three funding tools, fresh cash from the parent, conversion of the shareholder current account by set-off as validated by the Paris Court of Appeal in February 2026, and the accordion reduction-then-increase, all work from abroad when prepared as a proper closing with a French representative, French minutes, and filed receipts. The companies that die from this alarm are rarely the ones with the worst numbers; they are the ones whose owners, busy in another country, never convened the meeting. If your accountant’s draft shows equity sliding toward half the capital, that meeting is your most profitable hour of the year.
Need a quick opinion on your case
Equity below half the capital, a dissolution threat, or a recapitalization to run from abroad for your French SAS, SARL or subsidiary? Our firm offers a phone consultation within 48 hours with a lawyer of the firm to review your accounts, your deadline and your rebuild options. Call +33 6 46 60 58 22 or write through our contact page. Our office in Paris advises foreign founders across Paris and Ile-de-France and from abroad in English.