Your French accountant sends the annual accounts for signature and one line stops you cold: after a bad year, the equity of your SAS (simplified joint-stock company) or SARL (private limited company) has fallen below half of its share capital. You live in London, New York, Dubai or Singapore, the business still runs, and you wonder whether you can simply sign, inject a little cash later and move on. French law answers with a clock that already ticks: once the accounts showing the loss are approved, shareholders have four months to vote on early dissolution, the decision goes on the public record, and if nothing is fixed within two financial years, any interested party can ask a court to dissolve the company. This guide explains, for a foreign owner living abroad, how the half-capital rule works, how to recapitalise a French company from another country, when dissolution is the wiser exit, and what happens if losses slide into a court insolvency where directors pay personally.
The rule surprises foreign founders because in many countries losses are a private matter between shareholders until creditors sue. France treats deep losses as public information: the Kbis (the official identity certificate issued by the greffe, the registry office of the commercial court, proving registration, directors and capital) carries a mention that equity fell below half the capital, banks read it before renewing an overdraft, suppliers read it before granting payment terms, and the BODACC (Bulletin officiel des annonces civiles et commerciales, the official gazette publishing corporate and insolvency notices) publishes the outcome of the shareholder vote. If you created the company through the foreign-founder setup guide, Setting Up a Company in France as a Foreign Founder: Bank Account, Kbis, VAT and Your First Hire, this article covers the moment every founder hopes to avoid: the year the balance sheet turns red and French procedure takes over. The companion guide on lending to your own company, You Funded Your French Company Yourself? How a Foreign Owner Lends via Shareholder Current Account and Gets Repaid, explains the shareholder current account (compte courant d’associe, money lent by a shareholder to the company) route in detail; here that route appears only as one tool among others to rebuild equity.
I. What French law forces you to do within four months when equity falls below half the capital
The trigger is purely accounting: equity (capitaux propres, meaning share capital plus reserves plus retained profits minus accumulated losses) compared with half of the share capital. A company with 10,000 euros of capital whose accumulated losses push equity to 4,000 euros is caught. A company with heavy shareholder loans is still caught, because current-account advances are debts, not equity, and do not rebuild capitaux propres. The comparison is made on the approved annual accounts, not on a mid-year feeling, which is why the approval meeting itself starts every deadline.
A. How do you find the loss and vote on dissolution when you live abroad
Accounts must be approved every year, and the six-month rule sets the pace. For the SARL, Article L.223-26 of the Commercial Code provides that “Le rapport de gestion, l’inventaire et les comptes annuels établis par les gérants, sont soumis à l’approbation des associés réunis en assemblée, 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.”, which means the management report, inventory and annual accounts drawn up by the managers are submitted to the shareholders meeting for approval within six months after the financial year ends, unless a court extends the period. For companies with a shareholders meeting regime, 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.”, which means the ordinary general meeting is held at least once a year within six months after year-end, unless extended by a court. A foreign sole shareholder of a SAS or SARL approves alone but must still sign dated approval minutes; foreign co-owners must organise a real meeting, by video if the articles allow it, with a signed attendance sheet, because the four-month dissolution-vote clock runs from approval, and an undated or missing approval makes every later deadline contestable.
Once the loss appears in approved accounts, the vote is mandatory. Article L.223-42 of the Commercial Code for the SARL 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.”, which means that if accounting losses push equity below half the share capital, the shareholders decide, within four months after approving the accounts that revealed the loss, whether to dissolve the company early. Article L.225-248 of the Commercial Code imposes the same four-month extraordinary-meeting mechanism for companies with a board of directors or supervisory board, applied in practice to the SAS through its own decision-making rules. In a SAS, re-read the articles: dissolution votes often require unanimity or a reinforced majority, and a foreign majority shareholder who assumes a simple majority suffices can see the whole vote annulled by a minority co-founder.
From abroad, organise the vote as a formal package: convening notices sent within the article deadlines, the exact resolution recording the equity figure and the half-capital threshold, the vote for continuation or dissolution, and powers of attorney (pouvoirs, written proxies) with apostilled signatures if a co-shareholder cannot attend. If the shareholders vote to continue, that decision must be published: filing on the INPI Guichet unique (the single online company formalities portal), a legal notice in a JAL (journal d’annonces legales, a newspaper authorised to publish legal notices), registration by the greffe on the RCS (Registre du commerce et des societes, the Trade and Companies Register), and a Kbis mention that the company continues despite losses. If they vote dissolution, the company enters liquidation under Article L.237-2 of the Commercial Code, which states that “La société est en liquidation dès l’instant de sa dissolution pour quelque cause que ce soit”, meaning the company is being wound up from the moment of dissolution for whatever cause. Either way, silence is the one forbidden answer: shareholders who approve loss-making accounts and vote nothing leave the company in breach, and the breach is visible to anyone who orders a Kbis.
Foreign owners often ask whether skipping the approval meeting avoids the trigger. It does the opposite. Unapproved accounts still show losses to the tax office DGFIP (Direction generale des finances publiques, the French tax authority) and the social collector URSSAF (Unions de recouvrement des cotisations de securite sociale et d’allocations familiales), late approval exposes the managers to a court injunction with daily penalties, and the four-month period will simply start from the late approval while banks already ask questions. Approve on time, vote within four months, publish the outcome: that sequence alone removes half the risk.
B. What does the Kbis mention mean and what is the two-year clock to rebuild equity
Voting to continue does not end the matter; it opens a two-year repair window. If the company was not dissolved, it must, no later than the end of the second financial year after the one in which the loss was recorded, either rebuild its equity to at least half the capital or reduce its capital to absorb the losses. If it does neither, any interested party, a creditor, a competitor, the public prosecutor, can ask the commercial court to order dissolution. Courts may grant a grace period for regularisation, but they are not obliged to, and a foreign owner who discovers the claim through a French summons served abroad starts the case already late.
The Kbis mention matters commercially long before any court. French banks check the RCS before renewing credit lines, landlords check it before renewing a 3/6/9 commercial lease (bail commercial, the standard nine-year business lease with three-year break options), and major customers check it during supplier onboarding. A mention of continuation despite deep losses does not block contracts by itself, but combined with late filings it reads as distress. Rebuilding equity quickly therefore protects both the legal position and the business: each euro of fresh capital or qualifying reserve improves the ratio that every counterparty can compute from the published accounts.
Two traps catch non-residents during this window. First, cosmetic fixes do not count: revaluing assets without an auditor, booking future profits early, or converting a shareholder loan into a gift without a deed leaves the statutory auditors, the greffe or a later insolvency practitioner unconvinced, and creative accounting that hides insolvency can later be treated as a management fault. Second, the clock keeps running during shareholder disputes: a deadlock between a foreign majority and a French minority does not suspend the two-year period, and a minority shareholder can itself petition for dissolution at the end of the period. If co-founders disagree on who pays fresh money, put the disagreement in writing early and choose between a negotiated capital increase, a documented loan with a conversion plan, a sale of shares, or a voluntary dissolution while the company can still pay its debts.
Track the window with dated documents: the approval minutes showing the loss, the continuation vote with its JAL notice and updated Kbis, then each year the accounts proving the ratio improves. When the ratio returns above half, file and publish the regularisation so the next Kbis no longer flags the company. Directors who keep this paper chain in English and French, accessible from abroad, answer a bank, a court or a buyer in days instead of months.
II. How a foreign owner recapitalises or closes without paying company debts personally
Once the vote to continue is published, the real choice begins: put money back in properly, or dissolve while the company is still solvent. Both routes can be run from abroad with a French accountant, a notary where required, and filings on the Guichet unique. What cannot be done from abroad is improvisation: wiring cash without a capital decision, backdating minutes, or letting losses drift until the company cannot pay its suppliers, the landlord, URSSAF or the tax office. The second part of this guide compares the clean recapitalisation, the clean dissolution, and the court insolvency that punishes delay.
A. How do you put money back from abroad through a cash increase or reserve incorporation
The standard repair is a cash capital increase (augmentation de capital en numeraire) subscribed by the existing shareholders or by a new investor. For the SARL, Article L.223-32 of the Commercial Code sets the mechanics: “En cas d’augmentation de capital par souscription de parts sociales en numéraire, les dispositions du dernier alinéa de l’article L. 223-7 sont applicables.”, meaning cash increases follow the subscription rules, and “Ces parts sont obligatoirement libérées, lors de la souscription, d’un quart au moins de leur valeur nominale.”, meaning the new shares must be paid up at subscription for at least one quarter of their nominal value, with the balance due within five years after the increase becomes final. In practice the foreign shareholder wires the funds to a blocked capital-increase account opened in the company name, the bank issues a deposit certificate (certificat de depot des fonds), the shareholders vote the increase, the articles are amended, and the greffe registers the new capital. For a SAS the articles and any shareholders agreement set pre-emption rights and approval clauses, so check who can subscribe before wiring: funds sent by a person the articles do not admit as shareholder can sit blocked for months.
Three alternatives exist, each with a foreign-owner trap. Incorporating reserves or share premiums into capital works only if reserves exist, which loss-making companies rarely have. Converting a shareholder current account into capital (conversion de compte courant en capital) is popular with foreign parents, but it requires a formal offset agreement, proof the claim is certain and due, and often an auditor certificate; the detailed mechanics are covered in You Funded Your French Company Yourself? How a Foreign Owner Lends via Shareholder Current Account and Gets Repaid. Reducing capital to absorb losses (reduction de capital par absorption des pertes, sometimes combined with an immediate increase, the so-called accordion technique) resets the ratio without fresh cash but needs an auditor report, creditor opposition periods and precise filings; done wrong, it wipes out minority shareholders and triggers litigation rather than saving the company.
Tax and social discipline must accompany the money. A cash increase has registration and publication costs but no corporate tax on the subscribed amount itself; interest paid later on any remaining shareholder loan must follow French deductibility caps and treaty withholding. VAT registration, IS (impot sur les societes, corporate income tax) instalments and DSN payroll declarations (declaration sociale nominative, the monthly payroll data) continue normally: recapitalising does not pause filings, and DGFIP and URSSAF treat a freshly recapitalised company that files late exactly like any other late filer. Keep the accountant mandated until the new Kbis shows the increased capital and the BODACC publishes it, because banks release new credit only against the updated Kbis, not against wire receipts.
Before choosing recapitalisation, run the honest test: will the business generate enough margin within the two-year window to justify the cash, or does the increase only fund another year of losses? If the company already misses supplier payments, tax deadlines or salary dates, fresh capital poured into an insolvent company can later be seen as reckless continued trading. In that case the dissolution route below, or an early court-supervised procedure, protects the director better than good money thrown after bad.
B. When should you dissolve instead and how do you avoid personal liability for the shortfall
Dissolving while the company can still pay everyone is a shareholder decision, not a court case. Article 1844-7 of the Civil Code lists as a cause of ending “4° Par la dissolution anticipée décidée par les associés”, meaning early dissolution decided by the shareholders. From that moment, Article L.237-2 of the Commercial Code recalls that “La personnalité morale de la société subsiste pour les besoins de la liquidation, jusqu’à la clôture de celle-ci.”, meaning the company keeps legal personality only for winding-up purposes until closure. The liquidator, often the foreign owner or a trusted person in France, sells assets, collects receivables, pays suppliers, the landlord, URSSAF and DGFIP, files final IS and VAT returns, then distributes any surplus and obtains RCS radiation. For a company whose equity fell below half but which remains solvent, this route closes the file cleanly within months and stops the two-year clock permanently.
The danger starts when dissolution is voted too late, after the company already stopped paying. A private liquidation attempted while insolvent must be redirected to the commercial court: declaration of cessation des paiements (insolvency, the inability to meet current liabilities with available assets) within forty-five days, then redressement judiciaire (court-supervised recovery) or liquidation judiciaire (court-ordered liquidation) run by a court-appointed practitioner. Continuing a private wind-down while knowing creditors cannot be paid, preferring one supplier, repaying your own current account first, or selling equipment cheaply to another company you control are textbook management faults.
If the court liquidation shows a shortfall, the director pays the price. Article L.651-2 of the Commercial Code provides 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.”, which means that when a court liquidation reveals missing assets, the court can order directors in law or in fact whose management fault contributed to the shortfall to bear all or part of it. The Cour de cassation recalls the time limit: “Selon le premier de ces textes, l’action en responsabilité pour insuffisance d’actif se prescrit par trois ans à compter du jugement qui prononce la liquidation judiciaire.”, meaning the shortfall action is time-barred three years after the judgment opening the liquidation, and that “le jour du jugement prononçant la liquidation judiciaire, qui constitue le point de départ du délai de prescription de l’action en responsabilité pour insuffisance d’actif, ne peut être inclus dans la computation de ce délai, lequel expire trois ans après le jour suivant cette date”, meaning the opening day itself does not count and the period expires three years after the following day (Cass. com., 18 Jan. 2023, No. 21-22.090, official decision 21-22.090). A foreign director who assumes that three quiet years abroad equal safety is wrong unless a dated procedural analysis proves it.
Closure for lack of assets does not bury every claim either. The Cour de cassation holds that “Aux termes de l’article L. 643-13, alinéa 1er, du code de commerce, dans sa rédaction antérieure à celle issue de l’ordonnance n° 2014-326 du 12 mars 2014, si la clôture de la liquidation judiciaire est prononcée pour insuffisance d’actif et qu’il apparaît que des actifs n’ont pas été réalisés ou que des actions dans l’intérêt des créanciers n’ont pas été engagées pendant le cours de la procédure, celle-ci peut être reprise.”, meaning a liquidation closed for lack of assets can be reopened if assets were left unrealised or creditor actions were never started (Cass. com., 21 Oct. 2020, No. 19-14.894, official decision 19-14.894). In that case the practitioner enforced a 200,000 euro shortfall judgment against the director after closure by seizing partnership shares and sequestering sale proceeds. And even a supposedly dead company can still be sued: “Il résulte de ce texte que la personnalité morale d’une société dissoute subsiste aussi longtemps que ses droits et obligations à caractère social ne sont pas liquidés.”, meaning a dissolved company survives legally as long as its corporate obligations are not fully wound up (Cass. com., 20 Sept. 2023, No. 21-14.252, official decision 21-14.252). Dissolving with unpaid French debts therefore never guarantees peace; only paying, documenting and publishing each step does.
The practical sequence for a foreign owner is therefore simple: approve accounts on time, vote within four months, publish the outcome, then either recapitalise with traced funds and registered minutes or dissolve while still solvent with the bank account kept open until radiation. Stop trading the moment insolvency is clear, file within forty-five days, keep every accounting record, and attend hearings by video or through a French lawyer. Beyond money, Article L.653-4 of the Commercial Code allows personal bankruptcy and management bans for directors who used company assets as their own or continued a deficit activity that could only end in insolvency, which can close France for years to an entrepreneur who planned to restart. Early, documented, published decisions are the only reliable shield.
Conclusion
Equity below half the capital is not a private embarrassment but a French procedure with dates: approval within six months, dissolution vote within four, repair within two financial years, publication at every stage on the RCS and the BODACC. A foreign owner who respects that chain keeps every option: a clean cash increase from abroad with a bank certificate and an updated Kbis, a documented current-account conversion, or a solvent dissolution that ends liability instead of starting a dispute. Ignoring the chain reverses the option: court-ordered dissolution at a creditor request, then court liquidation with personal shortfall claims, time limits counted to the day, reopenings after closure, and bans on managing. Read the accounts early, vote within four months, publish, and either rebuild equity with traced money or close while the company can still pay: that is how a loss-making year in France stays a business setback rather than becoming a personal one.
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