You live in London, New York, Dubai or Singapore. Your French company, a SARL or a SAS that you own from abroad, has just closed its annual accounts at a loss. The balance sheet shows that the equity of the company, called capitaux propres in French, has fallen below half of the share capital. At the same time, the French subsidiary owes you money: over the years you left cash in the company through a shareholder loan, known in France as a compte courant d’associe, literally a current account in the name of the shareholder. Your French accountant tells you that the company must vote on its own survival within four months. Your auditor mentions a formal alert procedure. And you wonder whether the simplest rescue, writing off the loan so the balance sheet breathes again, will be accepted by the French tax administration or treated as a disguised gift that triggers a reassessment. This article gives you the full sequence in plain English: the company-law clock that starts running as soon as the accounts reveal the loss, the boundary with insolvency proceedings when the company can no longer pay its debts, the tax test that decides whether your debt waiver is deductible, with the exact holdings of the Conseil d’Etat including its July 2026 ruling, and the practical steps to sign, fund and file everything from abroad with documents the greffe, the clerk of the commercial court, and the tax auditor will actually accept.
Every French acronym you will meet below is explained the first time it appears. The Kbis is the official identity certificate of a French company, issued by the greffe. The BODACC is the official gazette where company decisions are published. The INPI single portal, called guichet unique, is the only online counter where company filings are now submitted. The commissaire aux comptes is the statutory auditor. URSSAF is the agency that collects social contributions. With these five definitions, you can read the rest of this article as easily as a board memo.
I. Your French company has lost half of its share capital: the decision the foreign owner must take within four months
French company law does not let a loss-making company drift. As soon as the approved annual accounts show that equity has fallen below half of the share capital, a strict timetable starts. The foreign shareholder, who is often the only person who can inject fresh money, must organise a formal vote on whether the company continues or is dissolved early, and then either rebuild the equity or reduce the capital within a fixed number of financial years. Missing these steps does not make the problem disappear: any interested party can ask the court to dissolve the company, and the director who sleeps through the procedure exposes himself to personal liability claims when the situation later turns into an insolvency.
A. The four-month shareholder vote and the two-year deadline to rebuild equity or dissolve
If your French company is a SARL, the French limited liability company, Article L.223-42 of the Commercial Code states the rule in one sentence that every foreign owner should keep: “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: the shareholders decide, within four months following the approval of the accounts that revealed the loss, whether the company should be dissolved early. The text adds the second half of the mechanism: “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.” In English: the company must, no later than the end of the second financial year following the year in which the losses were recorded, rebuild its equity to an amount at least equal to half of the share capital, or reduce its share capital by the amount needed so that equity reaches at least half of it. Read the article here: Article L.223-42 of the Commercial Code on Legifrance. This version has been in force since 11 March 2023, so it is the text your auditor and your lawyer will apply to accounts approved in 2026.
If your French company is a societe anonyme or, much more commonly for foreign founders, a SAS, the simplified joint-stock company, the mirror rule is Article L.225-248 of the Commercial Code: “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.” In English: the board must, within four months following the approval of the accounts that revealed the loss, call an extraordinary general meeting, called assemblee generale extraordinaire or EGM, to decide whether early dissolution is appropriate. Read the article here: Article L.225-248 of the Commercial Code on Legifrance. Foreign founders sometimes ask whether this regime, written for the classic public company, really applies to their SAS. The answer is yes, and it is written in Article L.227-1 of the Commercial Code: “Dans la mesure où elles sont compatibles avec les dispositions particulières prévues par le présent chapitre, les règles concernant les sociétés anonymes, à l’exception de l’article L. 224-2 , du second alinéa de l’article L. 225-14 , des articles L. 225-17 à L. 225-102, L. 225-103 à L. 225-126 , L. 225-243 , du I de l’article L. 233-8 et de l’article L. 236-17, sont applicables à la société par actions simplifiée.” In English: to the extent compatible with the SAS chapter, the rules for public companies apply to the SAS, except a closed list that does not include Article L.225-248. Read the article here: Article L.227-1 of the Commercial Code on Legifrance. Your SAS therefore follows the same four-month and two-financial-year timetable as a societe anonyme, with the powers of the board exercised by the president of the SAS or the managers named in the articles.
Three practical consequences follow for a shareholder living abroad. First, the four-month period runs from the approval of the accounts, not from the end of the financial year, so the shareholders meeting that approves loss-making accounts must in practice schedule the continuation-or-dissolution vote in the same season. A foreign sole shareholder of a SASU or a foreign parent company holding a French subsidiary should sign written minutes, in English with a French working translation if needed, recording the decision to continue the business and the chosen clean-up method: fresh cash contribution, conversion of the shareholder loan into capital, debt waiver, or capital reduction. Second, the resolution must be published as the decree requires, which in practice means a filing through the INPI single portal and a notice in a legal announcements journal, followed by registration at the greffe and an entry on the Kbis extract. An unpublished continuation vote is a vote the tax administration and the courts may treat as never having happened. Third, the procedure has teeth but also a safety valve. If the manager or the auditor fails to trigger the vote, or if the shareholders cannot validly deliberate, any interested party, a creditor, a minority shareholder, even the public prosecutor, can petition the court for dissolution. Yet the same article protects a company that fixes things in time: the court may grant the company up to six months to put its situation in order, and it cannot order dissolution if the situation has been fixed by the day it rules on the merits A companion article of this series explains the EGM vote itself in detail: Your French Company Lost Half Its Share Capital: Recapitalize or Dissolve From Abroad. The present article takes over where that vote ends: how the foreign parent actually supplies the rescue money, and at what tax price.
B. When losses hide a cash crisis: the auditor alert and the forty-five-day court filing duty
Accounting losses and inability to pay debts are two different legal situations, and confusing them is the most expensive mistake a foreign director can make. The equity procedure described above applies when the balance sheet is damaged but the company still pays its suppliers, its rent and URSSAF on time. When the company can no longer meet its due liabilities with its available assets, French law calls this cessation des paiements, cessation of payments, and a different, much shorter clock starts. Article L.631-4 of the Commercial Code provides: “L’ouverture d’une procédure de redressement judiciaire doit être demandée par le débiteur au plus tard dans les quarante-cinq jours qui suivent la cessation des paiements s’il n’a pas, dans ce délai, demandé l’ouverture d’une procédure de conciliation.” In English: the opening of rehabilitation proceedings must be requested by the debtor no later than forty-five days after the cessation of payments, unless conciliation proceedings were requested within that period. Read the article here: Article L.631-4 of the Commercial Code on Legifrance. The forty-five days run in calendar days, and the declaration is filed with the commercial court of the registered office, which for a Paris company means the Paris commercial court. A director living abroad who discovers the cash freeze during a quarterly review must therefore act within days, not months: mandate a French lawyer, prepare the statement of cessation of payments, and choose between a confidential conciliation and a collective rehabilitation procedure.
Between these two poles sits the statutory auditor alert, called procedure d’alerte, which is often the document that wakes the foreign owner up. Article L.234-1 of the Commercial Code provides: “Lorsque le commissaire aux comptes d’une société anonyme relève, à l’occasion de l’exercice de sa mission, des faits de nature à compromettre la continuité de l’exploitation, il en informe le président du conseil d’administration ou du directoire dans des conditions fixées par décret en Conseil d’Etat.” In English: when the statutory auditor identifies, in the course of his duties, facts likely to jeopardise the continuity of operations, he informs the chairman of the board. If no answer arrives within fifteen days, or if the answer does not remove the concern, the auditor escalates step by step: invitation to deliberate with a copy to the president of the commercial court, special report to a shareholders meeting, and ultimately information of the court. Read the article here: Article L.234-1 of the Commercial Code on Legifrance. A foreign president who receives such a letter should treat it as the starting gun for the rescue plan, not as routine correspondence: the letter will be in the court file if insolvency follows, and a judge assessing a later claim for mismanagement will ask what the director did in the weeks after receiving it.
The articulation between the three regimes is straightforward once stated clearly. The equity procedure cures a damaged balance sheet while the company is solvent. The auditor alert bridges the two worlds by forcing management to answer while there is still time. The forty-five-day filing duty takes over the moment cash fails, and at that point the equity timetable no longer protects anyone. Note also that Article L.223-42 itself steps aside once collective proceedings begin: its final paragraph excludes companies under safeguard or rehabilitation proceedings or benefiting from a safeguard or rehabilitation plan. For completeness, the Civil Code lists the general causes of company termination, including early dissolution voted by the shareholders and dissolution ordered by the court at the request of a shareholder for legitimate grounds: Article 1844-7 of the Civil Code, available here: Article 1844-7 of the Civil Code on Legifrance. If your company still pays its debts, stay in the equity procedure and organise the parent rescue described in Part II. If it has stopped paying, stop reading about waivers and file within forty-five days.
II. The foreign parent writes off its loan to save the French company: amount, tax and proof
For a foreign group, the fastest rescue is usually a debt waiver, called abandon de creance in French: the parent company gives up repayment of the shareholder loan it had granted to the French subsidiary, and the subsidiary books an exceptional profit that rebuilds its equity. No new cash crosses the border, no bank is involved, and the EGM can record the cleaned-up balance sheet. But the French tax administration examines these waivers with a magnifying glass, because a waiver between related companies can hide a transfer of profits or a disguised capital gift. Whether the waived amount reduces the French subsidiary taxable profit in France depends on one decisive distinction, commercial versus financial character, and on the amount of the waiver relative to the subsidiary negative net worth. The Conseil d’Etat, the supreme administrative court, clarified both points in two landmark rulings, including one delivered on 7 July 2026 that every foreign group with a loss-making French subsidiary should know.
A. How much of the waiver is deductible: the commercial-or-financial test decided by the Conseil d’Etat
The starting point is the French Tax Code, called Code general des impots or CGI. In the version in force on 22 September 2026, Article 39 lists deductible charges and expressly mentions, for companies in collective proceedings or conciliation agreements, the following: “8° Les abandons de créances à caractère commercial consentis ou supportés dans le cadre d’un plan de sauvegarde ou de redressement ainsi que ceux consentis en application d’un accord constaté ou homologué dans les conditions prévues à l’ article L. 611-8 du code de commerce” In English: commercial debt waivers granted or borne under a safeguard or rehabilitation plan, and those granted under an agreement recorded or approved under Article L.611-8 of the Commercial Code on conciliation. Read the article here: Article 39 of the French Tax Code on Legifrance. Beyond these distressed-company cases, deductibility follows the case law distinction between commercial and financial waivers. The official tax doctrine, published by the tax administration in the BOFIP database, states the two principles side by side. Commercial waivers produce losses that are fully included in the deductible expenses of the company that granted them. Financial waivers, and more generally all non-commercial assistance, are excluded from deductible expenses. Read the doctrine here: BOI-BIC-BASE-50-20-10 on debt waivers, BOFIP official doctrine.
The decisive question is therefore what makes a parent-to-subsidiary waiver commercial rather than financial, and the answer was given by the Conseil d’Etat on 7 February 2018 in the France Frais case, appeal number 398676. The parent, a holding company, had waived debts owed by distribution subsidiaries it controlled almost entirely, and the tax administration had classified the waivers as financial. The court annulled that analysis. It held: “Elle entretenait ainsi des relations commerciales avec ses filiales, avec lesquelles elle réalisait l’essentiel de son chiffre d’affaires, dont le montant était au demeurant très supérieur à celui des dividendes que lui versaient les mêmes filiales.” In English: the parent maintained genuine commercial relations with its subsidiaries, with which it earned most of its turnover, an amount well above the dividends those subsidiaries paid it. And the court added the economic rationale that foreign groups should quote in every file: “la défaillance éventuelle des sociétés concernées aurait été de nature à amputer significativement sa propre activité.” In English: the potential failure of those companies would have significantly reduced its own business. Read the ruling here: Conseil d’Etat, 9th-10th chambers, 7 February 2018, No. 398676, SARL France Frais. The practical test for your file is therefore threefold: does the foreign parent trade with the French subsidiary, billing services, purchasing goods, licensing technology, rather than merely holding its shares. Does the turnover from those commercial flows exceed the dividends received. And would the subsidiary collapse damage the parent own business. A parent that only collects dividends and provides passive financing will struggle to pass this test, while an operating parent embedded in the subsidiary supply chain has a strong commercial-waiver file.
Even a financial waiver is not always lost for tax purposes, but the deductible amount is capped by law and doctrine. Under the distressed-company exception, the waiver is deductible up to the negative net equity of the beneficiary company and, for any excess, in proportion to the holdings owned by persons other than the company granting the aid. For a French subsidiary wholly owned by its foreign parent, this means the deductible portion of a financial waiver is in practice limited to the subsidiary negative net worth at the waiver date, a figure the statutory auditor must certify from interim accounts. Any amount waived above that line increases the parent acquisition cost of the shares instead of reducing taxable profit, and will only be recognised later, if ever, through the capital gain or loss computed on a future sale of the shares.
The newest piece of the puzzle, and the reason to act with a properly drafted clause in 2026, comes from the Conseil d’Etat ruling of 7 July 2026, appeal number 506015, Sparflex case, mentioned in the tables of the Lebon reports. A French company had waived debts owed by its subsidiary with a return-to-better-fortune clause, called clause de retour a meilleure fortune, under which the debt revives if the subsidiary recovers. Years later the subsidiary recovered, the parent booked the revived claim, and the tax administration taxed the full amount as profit while refusing any deduction. The Conseil d’Etat drew a clean line. First, the principle: “lorsqu’un abandon de créance est consenti sous réserve de retour à meilleure fortune du débiteur, la réunion au cours d’un exercice ultérieur des conditions du retour à meilleure fortune, telles qu’elles sont stipulées dans cette clause, fait naître dans le chef du contribuable ayant consenti cet abandon, au titre de cet exercice, une créance qui constitue en principe un produit imposable.” In English: when a waiver is granted subject to the debtor return to better fortune, the later fulfilment of the clause conditions creates, for the waiving taxpayer and for that financial year, a claim that is in principle taxable profit. The legal basis is paragraph 1 of Article 38 of the Tax Code, which defines taxable net profit as follows: “Le bénéfice net est constitué par la différence entre les valeurs de l’actif net à la clôture et à l’ouverture de la période dont les résultats doivent servir de base à l’impôt diminuée des suppléments d’apport et augmentée des prélèvements effectués au cours de cette période par l’exploitant ou par les associés.” In English: net profit is the difference between net asset values at year-end and year-start, minus additional contributions and plus withdrawals by the operator or shareholders. Read Article 38 here: Article 38 of the French Tax Code on Legifrance. Then the exception that changes negotiation strategy: “Il en va toutefois différemment, eu égard à la nécessité d’assurer la neutralité de l’application de la loi fiscale compte tenu de la nature particulière d’une telle opération, lorsque l’abandon n’a pas lui-même été déduit du résultat imposable, le cas échéant rectifié, de l’exercice au cours duquel il a été consenti.” In English: it is different, to keep the tax law neutral given the special nature of this transaction, when the waiver itself was never deducted from the taxable result, as corrected if needed, of the year in which it was granted. In short, a waived amount that was never deducted cannot be taxed again when the clause brings it back to life. Read the ruling here: Conseil d’Etat, 9th-10th chambers, 7 July 2026, No. 506015, Sparflex. For a foreign parent, the lesson is to always attach a return-to-better-fortune clause to the waiver deed, to keep the proof that the original waiver was not deducted where that is the case, and to define the trigger, profit thresholds, audited accounts, repayment schedule, with the same care as a loan covenant.
B. Signing, funding and filing the rescue from abroad without breaking shareholder equality
Once the tax analysis points to a waiver, with or without a parallel cash injection, execution from abroad must satisfy three audiences at once: the other shareholders if any, the greffe that registers the resulting capital operation, and the tax auditor who will review the file two or three years later. The most common structure combines two deeds signed the same day. First, a waiver deed by which the foreign parent gives up a defined amount of its shareholder loan, with an express return-to-better-fortune clause setting the trigger ratios, the reference accounts, the repayment timetable and the interest regime on revival. Second, where the balance sheet still needs fresh equity beyond the waiver profit, a cash contribution by the parent, wired from abroad with a stated value date, or a conversion of the remaining loan balance into share capital voted by the EGM. The waiver and the contribution must each be traceable: board minutes of the foreign parent authorising the transaction, EGM minutes of the French company recording the continuation decision and the equity clean-up, bank statements showing the wire with the foreign-exchange conversion into euros, and a certificate from the French bank when funds are deposited for a capital increase. A file without wire proof is a file the auditor will treat as a paper-only operation.
When the rescue takes the form of a capital reduction followed by an immediate capital increase, a technique French practitioners call coup d’accordeon, one ruling of the Cour de cassation, the supreme civil court, is mandatory reading. On 4 January 2023, appeal number 21-10.609, the Commercial Chamber held: “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.” In English: a reduction of a company capital to zero is lawful only if decided subject to the condition that an effective capital increase brings the capital to at least the legal or statutory minimum. Read the ruling here: Cour de cassation, Commercial Chamber, 4 January 2023, No. 21-10.609. The reduction and the increase form a single indivisible transaction, which means the EGM resolutions must be drafted as conditional on each other, every shareholder must be able to participate in the increase on equal terms, and any court suspension of the increase automatically suspends the reduction. For a foreign parent that ends up as the only subscriber, the minutes must show that minority shareholders, if any, were offered their preferential subscription rights and that the transaction was not designed to squeeze them out at zero value. A squeeze-out disguised as a rescue is the fastest route to a nullity claim and, in serious cases, to criminal exposure for abuse of corporate assets.
Filing from abroad follows a fixed administrative chain. The EGM minutes, the updated articles of association, the waiver deed and, for a capital increase, the bank deposit certificate and the auditor report where required, are submitted through the INPI single portal at INPI, the French intellectual-property and companies portal. After registration, the greffe issues an updated Kbis extract and the decision is announced in the BODACC gazette, which is the moment the rescue becomes visible to banks, suppliers and future claimants. Keep every filing receipt, because the six-month court grace period and the cure-on-judgment-day rule of Article L.223-42 only help a company that can prove it actually fixed the situation. Two companion guides complete this rescue from the financing side: the deductibility of interest when the parent lends instead of waiving, Your French Company Pays Interest to Its Foreign Parent: Deductibility, Withholding and Rate Defence, and the founding outlook that serves as the hub for this series, Setting Up a Company in France as a Foreign Founder: Bank Account, Kbis, VAT and First Hire. Read them before choosing between a new loan, a waiver and a straight capital increase, since each route carries a different tax price and a different paper trail.
Conclusion
A French subsidiary in losses is not a lost cause, but it is a file with clocks running. Within four months of the accounts that reveal equity below half of the share capital, the shareholders must vote on continuation or early dissolution, and by the end of the second following financial year the equity must be rebuilt or the capital reduced, with publication at the greffe and in the BODACC. If the auditor sends an alert letter, answer within fifteen days with a funded plan. If the company stops paying its debts, the forty-five-day court filing duty replaces every other timetable. For the rescue itself, a parent debt waiver works best when the parent can prove real commercial flows with the subsidiary, turnover above dividends, and a business that would suffer from the subsidiary failure, following the France Frais test, and it should always carry a return-to-better-fortune clause whose revival profit escapes tax to the extent the original waiver was never deducted, following the Sparflex ruling of July 2026. Amounts above the subsidiary negative net worth need a different justification, and any capital reduction to zero must be conditional on an effective simultaneous increase, following the Cour de cassation. Prepare the deeds, the wires and the filings as if the auditor were already reading over your shoulder, because he will be, and decide this quarter, not next year.
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