You live in London, New York, Dubai or Singapore, and your French subsidiary has just closed a bad year. The Paris accountant sends the draft balance sheet, and one line jumps out: after two years of losses, the company’s net equity no longer covers half of its registered share capital. The accountant adds, in passing, that a formal shareholder decision is now required within four months, that the decision must be published and filed, and that a visible mention will appear on the company’s Kbis extract — the official company identity document issued from the trade and companies register. For a foreign parent, this moment often comes as a surprise: no creditor has sued, no court is involved, the business still pays its bills, yet French company law already treats the situation as a formal alarm bell with a strict procedural timetable. This guide explains, for the non-resident shareholder or director, how French law detects the loss of half the share capital, how the four-month decision and the two-year repair period work, and which tools — cash injection from abroad, waiver of a shareholder loan, capital reduction, or voluntary dissolution — actually fix the problem. It also marks the boundary you must never cross: the line between a loss-making subsidiary and an insolvent one, where the personal liability of the foreign director begins.

I. Your French Subsidiary Crosses the Half-Capital Line: How to Detect the Loss and Decide Within Four Months

A. How Do You Know Your French Company Has Lost Half Its Share Capital and How Is the Test Calculated?

French company law does not wait for insolvency before reacting to heavy losses. For the private limited company (SARL, and its single-member form EURL), Article L223-42 of the Commercial Code provides that where, because of losses recorded in the accounting documents, the shareholders’ equity (capitaux propres) falls below half of the share capital, the shareholders must decide within four months of the approval of the accounts showing that loss whether the company should be dissolved early. The exact statutory wording is: « 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 the shareholders decide, within four months following approval of the accounts revealing the loss, whether an early dissolution of the company is appropriate. For the public limited company (SA), Article L225-248 of the Commercial Code imposes the same test, with the board of directors or management board being « 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 », meaning it must convene an extraordinary general meeting (EGM) within those four months to decide on possible early dissolution. If your French vehicle is a simplified joint-stock company (SAS, or SASU for a single shareholder) — the form most foreign founders choose — the same regime applies by reference, because Article L227-1 of the Commercial Code states that « 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 », which means the SA rules apply to the SAS wherever they are compatible with the SAS chapter. The official service-public.fr guide on the loss of half the equity, verified on 24 April 2026, confirms that the mechanism covers SARL and EURL, SAS and SASU, SA, partnerships limited by shares and certain professional companies, while partnerships such as the SNC, the SCS and the SCI property company follow a different regime.

The calculation itself is mechanical, but foreign shareholders frequently get it wrong. You compare two figures taken from the closing balance sheet of the financial year that revealed the losses: on one side, the registered share capital as shown on that balance sheet, whether or not it has been fully paid up; on the other, the shareholders’ equity, which adds together the share capital, reserves, retained earnings carried forward (report à nouveau), share premiums (primes d’émission), investment grants and regulated provisions, minus accumulated losses and the loss of the current year. The service-public.fr guide gives a worked example: a SARL with 5,000 euros of capital, 3,000 euros of reserves, 2,000 euros of retained earnings and 1,000 euros of regulated provisions that records a 9,000-euro loss ends the year with equity of 2,000 euros — below half of the 5,000-euro capital (2,500 euros) — and therefore enters the procedure. Note the reference point carefully: the capital used for the comparison is the capital shown on the closing balance sheet, so a capital increase that has been voted but not yet completed at year-end does not count, and only the pre-increase capital is retained. In practice, the trigger usually appears when the annual accounts are approved — which, for most French companies, must happen within six months of year-end, as described in the annual legal calendar of a French company. From abroad, the practical lesson is simple: ask your French accountant, every year at accounts time, for the exact equity-to-capital ratio before you approve the accounts, because approval starts the four-month clock.

Two reservations matter immediately. First, the procedure does not apply to companies already in safeguard (sauvegarde) or judicial restructuring proceedings, or benefiting from an approved plan — both Article L223-42 and Article L225-248 say so expressly. Second, the half-capital test is not an insolvency test: a company can show equity below half its capital while still paying its debts on time, and conversely a company with intact capital can be cash-insolvent. The distinction drives everything that follows, because the remedies for the half-capital situation (recapitalise, reduce, dissolve) differ completely from the duties triggered by cessation des paiements — the French-law state of being unable to meet due liabilities with available assets — which forces a court filing within forty-five days, as Article L631-4 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 », meaning the debtor must request restructuring proceedings no later than forty-five days after payments stop, unless conciliation proceedings have been requested in the meantime. Confusing the two calendars is the most common and most dangerous mistake foreign parents make, and Part II below keeps them strictly apart.

B. What Must the Shareholders Decide Within Four Months, and What Becomes Public About Your Company?

Once the approved accounts reveal equity below half the capital, the shareholders — in practice, you, the foreign parent, voting alone or with co-investors — must formally decide whether to dissolve the company early or let it continue trading. Under Article L223-42 for the SARL and Article L225-248 for the SA and SAS, that collective decision must be taken within four months of the approval of the accounts. If the shareholders vote to continue, the company is not released from its obligations: it must, no later than the end of the second financial year following the year in which the losses were recorded, either rebuild its equity to at least half of the share capital or reduce its capital by the amount needed so that equity reaches at least half of that reduced figure. Under Article L223-42 of the Commercial Code, the alternative is phrased as follows: « 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 », meaning the company must either restore equity to at least half the capital or cut the capital so that equity equals at least half of the new, lower amount. The two-year period runs from the financial year the losses were recorded, not from the shareholder vote, so a December year-end loss discovered and approved in June of year N must be cured by 31 December of year N+2. That deadline is longer than it looks once wire transfers, foreign board approvals and French filings are factored in — start the repair work in the months after the vote, not in the final quarter.

Whatever the shareholders decide — dissolution or continuation — the resolution must be made public through three cumulative steps. For the SARL, Article R223-36 of the Commercial Code states that « la décision des associés prévue à l’article L. 223-42 est publiée dans un support habilité à recevoir les annonces légales dans le département du siège social, déposée au greffe du tribunal de commerce du lieu de ce siège et inscrite au registre du commerce et des sociétés », which means the decision is published in an authorised legal-notices outlet in the department of the registered office, filed with the greffe — the registry office of the local commercial court — and entered in the trade and companies register (RCS). The equivalent publication duties apply to the SA and SAS. The court registry clerk (greffier) then sends a notice to the BODACC, the Bulletin officiel des annonces civiles et commerciales, France’s official gazette for company events, within eight days of the registration, as Article R123-161 of the Commercial Code organises for registry notices generally. From that point, anyone consulting the company’s Kbis extract — banks, suppliers, landlords, future clients — can see that the company has gone through the half-capital procedure and whether it voted to continue. The service-public.fr guide warns expressly that this visibility can make financing harder and push suppliers toward cash-in-advance terms. For a foreign group, the reputational point deserves attention: the mention is factual and procedural, not a black mark of insolvency, but your French counterparties will read it, so prepare a one-page explanation (recapitalisation in progress, group support letter, timetable) before they ask.

If the company’s registered office (siège social) is in Paris, the filing goes to the greffe of the Paris commercial court and the legal notice must appear in an outlet authorised for the Paris department, with the whole filing now routed through the single online business formalities desk (guichet unique) operated via the INPI, the Institut national de la propriété industrielle, which forwards documents to the competent registry. The Paris and Île-de-France detail that matters most in practice is timing: the Paris registry handles very high volumes, and rejected filings for a missing signature, an untranslated foreign power of attorney or an incorrectly completed continuation form are routine. Build in a margin of several weeks between the shareholder vote and the four-month deadline, keep a French-speaking contact able to receive the registry’s correction requests, and keep proof of every filing. A missed publication does not itself dissolve the company, but it leaves the procedure visibly incomplete on the public record — exactly when banks and partners are watching most closely.

II. How a Foreign Parent Recapitalises, Reduces Capital or Closes the Company Without Creating New Liability

A. How Can You Put Money Back Into Your French Subsidiary From Abroad: Cash Increase, Loan Waiver or Accordion Operation?

The cleanest cure, and the one French registries, banks and courts read most favourably, is to restore the equity by putting new money in. The standard route is a cash capital increase (augmentation de capital en numéraire) subscribed by the foreign parent: the shareholders vote the increase at an EGM, the parent wires the funds to the company’s French bank account or to a blocked escrow account held for the increase, the bank issues a deposit certificate (certificat du dépositaire), and the increase is published, filed and registered before the capital is released for use. From abroad, three friction points recur. First, French banks sometimes delay or query incoming shareholder wires for anti-money-laundering checks, so instruct the transfer early, label it precisely (company name, purpose, EGM date) and keep the transfer slips — the difficulties foreign founders meet with French corporate bank accounts and capital deposits are well documented and affect recapitalisations as much as formations. Second, if the parent is itself a company, its own board must authorise the subscription under its home-country rules, and any foreign-language board minutes or powers of attorney used for the French filing should be ready with a certified French translation. Third, the increase only counts toward the half-capital test once it is completed and reflected in the accounts — a voted-but-unpaid increase does not repair the ratio, just as it does not count in the initial calculation. A share premium (prime d’émission) paid on top of the nominal value counts as equity in the same way and can be useful where the parent wants to inject more than the nominal increase without distorting voting proportions.

A faster and cheaper repair, very common inside groups, is the waiver of a shareholder loan (abandon de créance en compte courant d’associé). Foreign parents routinely fund French subsidiaries through current-account advances rather than equity, and those advances sit on the liability side of the balance sheet. When the parent formally waives repayment — in writing, for a stated amount, with a clear date — the liability disappears and equity rises by the same amount, often enough to cross back above the half-capital line without any bank certificate or notarial step. The waiver should be documented as carefully as a capital increase: a signed waiver letter from the parent, acceptance in the subsidiary’s books, consistent accounting treatment, and, where the group wants the option to recover the funds later, a return-to-better-fortunes clause (clause de retour à meilleure fortune) whose drafting and tax effects need review by the French accountant before signature. The tax side also needs attention in the same review: the general corporate income tax rate is set by Article 219 of the General Tax Code, which states « Le taux normal de l’impôt est fixé à 25 % », meaning the standard rate is fixed at 25 percent, and the treatment of waived or reinstated debts interacts with that framework in ways that differ between commercial waivers and financial waivers. The detailed corporation-tax mechanics are set out in the guide to French corporate tax at 25 percent and its advance payments — align the waiver with your accountant and that framework before the EGM that records the cure, not after.

The third technique, the so-called accordion operation (coup d’accordéon), combines a capital reduction to absorb the losses with an immediate capital increase to refund the company: the capital is first reduced — sometimes to zero or near zero — which wipes out the accumulated losses on paper, and new shares are then issued, usually subscribed by whoever puts fresh money in. The accordion is powerful where several shareholders are involved, because a shareholder who does not subscribe to the increase can be heavily diluted or eliminated, which is precisely why French courts police its fairness and why the minority-protection case law on reserves and dilution, including recent disputes over retained-earnings votes challenged by minority shareholders, should be read before any uneven operation. For a wholly owned French subsidiary the accordion is usually straightforward, since the foreign parent votes both steps alone; with minority partners, employees holding shares, or different classes of preference shares, each step needs separate care, equal treatment of shareholders in the same position, and minutes that record the business justification. One further statutory limit applies to reductions in an SA, flagged by Article L224-2 of the Commercial Code: « Le capital social doit être de 37 000 € au moins », meaning the share capital must be at least 37,000 euros, so a reduction below that figure is only possible under a conditional increase bringing it back up or alongside conversion into another company form. SAS and SARL companies have no such statutory minimum, but reducing the capital to a symbolic one euro sends a signal to every reader of the Kbis — prefer a reduction sized to the real business plan, documented in the EGM report.

B. What If the Money Is Not Coming: Reduce, Dissolve, and Where Does the Foreign Director’s Personal Liability Begin?

Where the group will not or cannot refund the subsidiary, the capital reduction alone can still cure the legal breach: cutting the capital to a level at which the remaining equity again represents at least half of it satisfies the statute just as a cash injection does, provided the reduction follows the full creditor-protection procedure (EGM report, auditor’s report where one exists, opposition period for creditors, publication and registration). A reduction buys legal compliance but not economic health — a company with tiny capital and no cash still needs funding or customers — so treat the reduction as a holding solution while the group decides the subsidiary’s future, not as a recovery plan. If neither injection nor reduction is realistic, the honest route is early dissolution voted by the shareholders, followed by amicable liquidation (liquidation amiable): a liquidator is appointed, creditors are paid, the remaining assets return to the parent, and the company is struck off. The closing mechanics from abroad, including the liquidation accounts, the tax filings and the strike-off, follow the steps described in the guide to closing a French company from abroad. Dissolving early while the company can still pay everyone is almost always cheaper and safer than waiting for a creditor or a minority shareholder to act.

Waiting without acting is the one option French law punishes. If no valid shareholder decision is taken, or if the two-year repair obligation and its related filing duties are ignored, any interested person — a creditor, a minority shareholder, even the public prosecutor — can ask the court to dissolve the company. The statute nevertheless leaves a last exit open: « Dans tous les cas, le tribunal peut accorder à la société un délai maximal de six mois pour régulariser sa situation », meaning in every case the court may grant the company up to six months to put its position in order, and « Il ne peut prononcer la dissolution, si, au jour où il statue sur le fond, cette régularisation a eu lieu », meaning it cannot order dissolution if, on the day it rules on the merits, the repair has been completed. The quoted sentences come from Article L223-42 of the Commercial Code, with Article L225-248 of the Commercial Code providing the identical grace period. In practice, courts use that six-month window regularly — which is why a foreign parent that receives a dissolution summons should treat it as a final deadline to recapitalise rather than as the end of the story, while understanding that the legal costs and the public record of the proceedings are already damage in themselves.

Beyond dissolution, letting a loss-making subsidiary drift exposes the people behind it — including the foreign parent company and its individual representative — to personal financial liability if the company later collapses into court-ordered liquidation (liquidation judiciaire) with debts it cannot pay. The central mechanism is liability for the shortfall of assets (responsabilité pour insuffisance d’actif): Article L651-2 of the Commercial Code provides that « 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 where a management fault has contributed to the asset shortfall, the court may order all or some of the de jure or de facto directors who contributed to that fault to bear the shortfall in whole or in part. The Commercial Chamber of the Court of Cassation confirmed on 8 January 2020 (appeal no. 18-15.027, full decision on courdecassation.fr) that « il résulte de l’article L. 651-1 du code de commerce que la responsabilité pour insuffisance d’actif, encourue sur le fondement de l’article L. 651-2 du même code, est notamment applicable aux dirigeants d’une personne morale de droit privé soumise à une procédure collective et aux personnes physiques représentants permanents de ces dirigeants personnes morales », meaning shortfall liability applies to directors of private-law entities in collective proceedings and to the individual permanent representatives of corporate directors — and added that « la faute de gestion susceptible d’engager la responsabilité pour insuffisance d’actif de ce dirigeant peut être caractérisée indifféremment à l’égard de celui-ci ou à l’égard de son représentant permanent », meaning the relevant management fault can be established against either the corporate director or its permanent representative. For a foreign group, the message is direct: where the French subsidiary is run by your foreign holding company as director, or by your appointed permanent representative, neither layer of the structure shields the decision-makers from this action.

What counts as such a fault is illustrated by a second ruling worth reading in full: on 24 March 2015 (appeal no. 14-10.354, full decision on courdecassation.fr), the Court of Cassation upheld a 500,000-euro contribution order against a director, holding that the appeal court « a ainsi caractérisé l’existence d’une faute de gestion ayant contribué à l’insuffisance d’actif constatée à la date de son arrêt », meaning it had properly established a management fault contributing to the shortfall, « en faisant supporter l’insuffisance d’actif par M. X… à concurrence d’une somme de 500 000 euros », meaning by making him bear the shortfall up to 500,000 euros — the fault consisting in continuing to take online orders and cash deposits at a time when the company could no longer honour them, increasing declared liabilities by about six million euros. Continuing to trade and collect customer money with no realistic capacity to deliver is therefore not merely a commercial gamble; in a later liquidation it becomes Exhibit One. A parallel personal sanction exists for directors who abusively prolong a loss-making operation that can only end in insolvency: Article L653-4 of the Commercial Code lists, among the grounds for personal bankruptcy (faillite personnelle), the fact of « Avoir poursuivi abusivement, dans un intérêt personnel, une exploitation déficitaire qui ne pouvait conduire qu’à la cessation des paiements de la personne morale », meaning abusively continuing, in one’s personal interest, a deficit operation that could only lead to the company’s inability to pay its debts. The moment the subsidiary can no longer pay its due debts with available assets, the forty-five-day filing duty of Article L631-4 takes over, and the half-capital timetable becomes secondary — file for the appropriate court proceedings within the deadline, because every week of unlawful delay deepens both the shortfall and the fault file.

Conclusion

A French subsidiary that has lost half its share capital is not dead, but it is on a statutory clock that no foreign parent can afford to ignore: four months to vote dissolution or continuation, two financial years to rebuild equity or reduce capital, and a public mention on the Kbis in the meantime. The foreign shareholder who acts early keeps every option — cash increase, shareholder-loan waiver, accordion operation, calibrated reduction, or clean voluntary dissolution while creditors can still be paid — and each of these routes is an ordinary French corporate procedure that works perfectly well from abroad with proper powers of attorney, translations and filings. The shareholder who waits hands the initiative to creditors, minority partners and the courts, and trades a manageable recapitalisation for dissolution proceedings, a damaged commercial reputation and, if insolvency follows, personal shortfall liability reaching through the corporate layers to the real decision-makers. Check the equity ratio at every approval of the accounts, minute the four-month decision even when the answer is continuation, and start the cure the same quarter. In French company law, losses are forgiven when they are repaired on time; delay is what gets punished.