Your French company has just closed a bad year. The accountant sends the draft balance sheet, and one line jumps out: after two loss-making years, the equity of your French subsidiary is now worth less than half of its registered share capital. You live in London, New York, Dubai or Singapore, you run the business remotely, and you wonder whether this accounting signal really matters. In France, it matters enormously. French company law does not treat this as a mere warning. The moment the annual accounts show that equity has fallen below half of the share capital, a strict legal procedure starts: the shareholders must formally vote, within four months of approving those accounts, whether to dissolve the company early or to keep it alive, and if they choose survival, they must rebuild the equity within two financial years or reduce the capital. Every step must be published, filed with the court clerk’s office and entered in the trade register. Missing a deadline exposes the company to a court-ordered dissolution sought by any interested party, and exposes you personally, as the foreign director or shareholder, to liability claims if the situation later slides into insolvency. This guide explains, for the non-resident founder, how to detect the trigger, how to organise the vote and the filings from abroad, and how to choose between injecting fresh money, reducing the capital or closing the company before a judge does it for you.

I. Your French Company Has Lost Half Its Capital: How the Trigger Works and the Four-Month Decision You Must Organise From Abroad

French law watches the balance sheet of every limited-liability company through a single ratio: equity (capitaux propres) divided by share capital (capital social). When losses push equity below half of the share capital, the law presumes the company is seriously weakened and forces the shareholders to face the question openly. Understanding this trigger, and the four-month clock that comes with it, is the first duty of any foreign owner of a French SARL (société à responsabilité limitée, the French private limited company), SAS (société par actions simplifiée, the flexible joint-stock company most foreign founders choose) or SA (société anonyme, the classic public limited company).

A. How to Tell That Your French Company’s Equity Has Fallen Below Half Its Share Capital

The trigger is purely accounting, and it is read in the annual accounts (comptes annuels) once they are drawn up. Equity means everything the company truly owns net of its debts: share capital plus reserves, retained earnings, the profit or loss of the year, and any share premiums, minus accumulated losses. Share capital is the fixed nominal amount stated in the articles of association (statuts), the figure that appears on the Kbis extract. The Kbis is the official identity card of a French company, issued by the trade and companies register (registre du commerce et des sociétés, known as the RCS), and every partner, bank and administration will ask for a recent one. When the approved accounts show equity below half of that fixed capital figure, the procedure applies, whatever the company’s cash position. A company can still pay its bills normally and yet be caught by this rule, because the rule measures the erosion of the shareholders’ stake, not the ability to pay creditors on time.

Two distinctions matter for a foreign founder. First, this half-capital procedure has nothing to do with cessation des paiements, the French legal test for insolvency, which means the company can no longer pay its due debts with its available assets. A company can breach the half-capital threshold while remaining perfectly solvent, and conversely a company can be insolvent with equity still above half its capital. The two regimes run side by side, and each has its own clock: the half-capital procedure gives you months and years, while insolvency forces the debtor to request the opening of rehabilitation proceedings within forty-five days of the cessation of payments, unless conciliation proceedings have been requested in the meantime, as article L. 631-4 of the Commercial Code expressly provides. If your French subsidiary shows both symptoms at once, the forty-five-day insolvency duty takes priority, and you should read our companion guide on facing insolvency from abroad alongside this article.

Second, the trigger is assessed company by company. If you hold a French subsidiary through a foreign parent, the parent’s wealth is irrelevant: only the French company’s own accounts count. Intra-group loans booked as liabilities of the French company depress its equity just like bank debt, which is why heavily debt-financed subsidiaries, funded by shareholder current-account advances (comptes courants d’associés) rather than capital, trip this wire so often. Before each annual approval, ask your French accountant (expert-comptable) for one explicit number: total equity as a percentage of share capital. That single ratio tells you whether the procedure described below must be launched this year.

The statute governing the SARL states the rule in these terms: where, as a result of losses recorded in the accounting documents, the equity of the company falls below half of the share capital, the shareholders must decide, within four months of the approval of the accounts showing this loss, whether the company should be dissolved early, as article L. 223-42 of the Commercial Code provides. For the SA, and therefore in practice for the SAS, the parallel text provides that where equity falls below half of the share capital, the board of directors or the management board, as the case may be, must within four months of the approval of the accounts showing this loss convene an extraordinary general meeting to decide whether the company should be dissolved early, as article L. 225-248 of the Commercial Code provides. The four-month period runs from the approval of the accounts, not from the year-end and not from the filing of the accounts: the clock starts when the shareholders formally approve the balance sheet that reveals the loss.

A recent court decision shows how strictly judges apply this timetable. In a dispute between shareholders of a French SAS, where the general meeting approving the 2019, 2020 and 2021 accounts and recording that equity had fallen below half of the capital was held on 14 November 2022, the Caen Court of Appeal held that regularisation of the situation had in principle to occur no later than the closing of the second financial year referred to in the statute, that is before 31 December 2024. The court recalled in its own words that the meeting approving the accounts for the years ended 31 December 2019, 2020 and 2021 and recording that equity had become lower than half of the share capital was held on 14 November 2022, and that consequently the regularisation had in principle to intervene at the latest on the closing date of the second financial year targeted by the statute, that is before 31 December 2024 (Caen Court of Appeal, 2nd civil and commercial chamber, 19 February 2026, registry no. 24/02752). Foreign shareholders who approve accounts late, or who postpone the loss-revealing meeting, do not gain extra time: they compress their own compliance calendar.

B. The Four-Month Shareholder Vote to Continue or Dissolve, and the Filings That Make It Public

Once the accounts revealing the loss are approved, the company has four months to hold the formal vote on early dissolution, and this vote is a matter of public record, not an internal memo. In a SARL, the shareholders (associés) vote directly; dissolution requires the majority needed to amend the articles. In a SAS or SA, the competent body is the extraordinary general meeting of shareholders, convened by the president or the board. The rules on public limited companies apply to the SAS to the extent they are compatible with the special SAS provisions, with only a closed list of excluded articles, as article L. 227-1 of the Commercial Code provides, and article L. 225-248 is not among the excluded texts, so the half-capital procedure fully applies to the SAS, the vehicle most foreign founders use.

Living abroad changes nothing to the obligation, but it changes the logistics, so prepare them early. Check your articles: many SAS articles allow consultation by videoconference, electronic vote or written consultation, which lets a sole shareholder or a small group of non-resident shareholders record the decision without flying to France. If the articles are silent or impose physical presence, amend them before the deadline or give a written proxy (pouvoir) to a trusted person in France, such as your lawyer or accountant. The minutes (procès-verbal) must state the exact resolution adopted, either early dissolution or continuation of the company despite the losses, with the precise figures. Sloppy minutes are the most common fault in foreign-owned companies: a resolution that merely notes the losses without expressly deciding on continuation or dissolution does not satisfy the statute.

The decision must then be made public through three channels, and each channel has its own office. For a SARL, the shareholders’ decision required by article L. 223-42 must be published in a gazette authorised to carry legal announcements (support habilité à recevoir les annonces légales) in the department (département, the French administrative county) of the registered office, filed with the clerk’s office of the commercial court (greffe du tribunal de commerce, the registry office attached to the local business court) of that place, and entered in the trade and companies register, as article R. 223-36 of the Commercial Code provides. For an SA or SAS, the meeting’s decision must be filed with the clerk’s office of the commercial court of the registered office and entered in the trade and companies register, and it must also be published in an authorised legal announcements gazette in accordance with the general publication rules, as article R. 225-166 of the Commercial Code provides. In practice, your French counsel or your legal-announcements platform handles the gazette insertion, and the filing is now done electronically through the one-stop company formalities portal (guichet unique), which forwards the documents to the clerk’s office and the national companies register (registre national des entreprises). Keep the filing receipts: they are your proof of compliance if a creditor or a minority shareholder later challenges the procedure.

If you are based in Paris or the Île-de-France region, two local specifics deserve attention. First, the competent clerk’s office is the greffe of the Paris commercial court, one of the busiest in France, so allow several weeks of processing margin before the four-month deadline expires rather than filing in the final days. Second, the authorised gazettes circulating in Paris apply standard per-line tariffs, and the insertion must identify the company, the date of the decision and its outcome; a publication that omits the outcome is treated by the registries as incomplete and will be sent back for correction. None of this requires your physical presence in Paris: counsel holding a written delegation can sign and file everything, provided the delegation is in the file before the deadline.

Failure to organise the vote has an immediate sanction built into the statute itself. If the manager (gérant, the legal representative of a SARL) or the statutory auditor (commissaire aux comptes, the independent auditor mandatory above certain thresholds) fails to trigger a decision, or if the shareholders could not validly deliberate, any interested party (tout intéressé) may ask the court for the dissolution of the company. That open standing is deliberately wide: a creditor, a minority shareholder, even a competitor in some cases, can seize the judge. The same open standing applies to public limited companies and the SAS under the parallel text. From abroad, the lesson is simple: a silent file is far more dangerous than a published continuation decision, because silence invites third parties to take the initiative away from you.

II. After the Vote to Continue: Rebuild the Equity Within Two Financial Years or Face the Courts

Voting to continue the company despite the losses is only a pause, not a pardon. The statute gives the surviving company a fixed recovery window: by the closing of the second financial year following the one in which the losses were recorded, the equity must be rebuilt to at least half of the share capital, failing which the capital itself must be reduced. This second phase is where foreign shareholders decide with their wallets, and where the courts take over if they decide nothing.

A. The Three Ways Back to Compliance: Profits, Fresh Cash and the Capital Reduction

The first and happiest route is organic recovery: the company trades profitably again, retains its earnings instead of distributing dividends, and equity climbs back above the half-capital line before the deadline. Nothing needs to be filed for this route beyond the ordinary annual accounts, but monitor the ratio every year with your accountant, because the Caen case cited above shows that judges compute the deadline mechanically from the loss-revealing meeting. In that case, the meeting of 14 November 2022 set a recovery deadline at the closing of the second subsequent financial year, expiring on 31 December 2024, and the court verified compliance against the 2024 balance sheet. A return to profits documented only by management accounts, without approved annual financial statements, will not convince a judge.

The second route is fresh money from the shareholders, and it is the most common choice for foreign-owned subsidiaries whose parent still believes in the French project. The injection can take the form of a cash capital increase (augmentation de capital en numéraire), reserved to the existing shareholders or opened to a new investor, or of shareholder loans left in a blocked current account later converted into capital. A capital increase requires its own extraordinary decision, a bank certificate for the deposited funds (certificat du dépositaire), publication and filing, exactly like the initial formation steps described in our founders’ guide to setting up a company in France from abroad. Non-resident shareholders can subscribe and pay from a foreign bank account; French banks sometimes slow down the release of the depository certificate for foreign-sourced funds because of anti-money-laundering checks, so start the banking step at least a month before the shareholders’ meeting. Shareholder current-account advances are faster but weaker: as long as they remain debt, they do not count as equity, so they only help once formally converted into capital or waived with a return-to-better-fortunes clause (clause de retour à meilleure fortune).

The third route is the capital reduction (réduction de capital), sometimes called the accordion operation (coup d’accordéon) when combined with an immediate re-increase: the nominal capital is lowered to match the shrunken equity, so that equity once again represents at least half of the new, smaller capital. The statute expressly offers this alternative: the company must, no later than the closing of the second financial year following the one in which the losses were recorded, rebuild its equity to at least half of the share capital or reduce its share capital by the amount needed for equity to equal at least half of it. One hard floor limits this route for public limited companies: the share capital must be at least 37,000 euros, and a reduction below that figure can only be decided under the condition precedent of a capital increase bringing it back to at least that amount, unless the company converts to another form, as article L. 224-2 of the Commercial Code provides. For SARLs and SASs, which have no statutory minimum capital, the floor is replaced by a balance-sheet threshold examined below. A capital reduction also requires a dedicated procedure: auditors’ report where applicable, protection of creditors who may object within a statutory period, publication and filing. It is a notarial-grade operation even without a notary: do not attempt it by a one-line minute.

French law adds a second-stage mechanism that many foreign shareholders discover too late. Where equity has not been rebuilt by the first deadline, and the share capital exceeds a threshold set by decree according to the size of the balance sheet, the company must, no later than the closing of the second financial year following that first deadline, reduce its share capital to bring it down to or below that threshold. The implementing decree sets that threshold, for companies subject to no minimum capital requirement by reason of their corporate form, at one percent of the company’s balance-sheet total as recorded at the last year-end, as article R. 225-166-1 of the Commercial Code provides. Where a minimum capital does apply, the threshold is the higher of that one percent and the statutory minimum. The Caen Court of Appeal applied exactly this mechanism: finding from the 2024 balance sheet that the SAS’s 600,000-euro capital exceeded one percent of its latest balance-sheet total, it held that the company enjoyed a fresh period of two additional financial years from 31 December 2024 to reduce its capital before facing dissolution, a period expiring on 31 December 2026, in the court’s own words: the company therefore has a new time limit, two additional financial years from 31 December 2024, to reduce its capital before incurring dissolution, this period expiring on 31 December 2026, and the dissolution claims were consequently dismissed. The lesson for a foreign owner is double-edged: the second-stage reduction duty can buy two more years, but it converts a warning into a mandatory downsizing of the capital, with all the creditor-protection formalities that entails.

B. Missed Deadlines, Court-Ordered Dissolution and Your Personal Exposure as a Foreign Director

If the vote was never organised, or if the recovery deadline expires with equity still below half of the capital, the initiative passes to the courts. Any interested party may petition the commercial court for dissolution, and the judge will order it unless the company regularises before judgment on the merits. Regularisation remains possible until the very last moment: rebuilding equity or completing the capital reduction before the court rules on the substance defeats the claim. That is why, even after receiving a writ (assignation, the formal court summons served by a judicial officer), a foreign shareholder should urgently convene the meeting and inject or reduce rather than ignore the summons from abroad. Default judgments in French commercial courts are enforceable, and a dissolved company’s liquidation will then be run by a court-appointed liquidator, not by you.

A parallel dissolution route exists for deadlocked companies: article 1844-7 of the Civil Code provides that a company ends through early dissolution ordered by the court at the request of a shareholder for legitimate grounds (justes motifs), in particular where a shareholder fails to perform its obligations or where disagreement between shareholders paralyses the operation of the company, as article 1844-7, 5° of the Civil Code provides. In the Caen case, the minority shareholders tried this second door alongside the half-capital claim, and the court declared inadmissible their demand to have the early dissolution of the SAS pronounced on the basis of article 1844-7 5° of the Civil Code, while confirming the lower court’s judgment and ordering the claimants to pay additional costs. The message is that French judges keep the two doors separate: a half-capital claim is judged on figures and deadlines, a deadlock claim on proof of paralysis, and neither succeeds without its own evidence.

Beyond the company itself, the foreign director’s personal assets enter the picture as soon as the trajectory points toward collective proceedings. If the weakened company later falls into judicial liquidation (liquidation judiciaire) and the assets do not cover the liabilities, the court may, where a management fault (faute de gestion) contributed to the shortfall, order that all or part of the shortfall be borne by some or all of the de jure or de facto directors who contributed to it, as article L. 651-2 of the Commercial Code expressly states. The same article adds that the action is time-barred three years after the judgment opening the judicial liquidation, which gives liquidators a long arm to reach back to directors who have since returned abroad. The continuing pursuit of a loss-making activity without corrective measures is one of the classic faults invoked under this text, and letting a half-capital situation drift for years without recapitalising or reducing capital feeds precisely that narrative.

Group structures, the daily reality of foreign investors, offer no automatic shelter. The French Supreme Court (Cour de cassation) has held that liability for shortfall of assets, incurred under article L. 651-2, applies in particular to directors of a private-law entity subject to collective proceedings and to natural persons who are the permanent representatives of such corporate directors, and that under the first paragraph of article L. 225-20, where a legal entity is appointed director it must designate a permanent representative who is subject to the same conditions and obligations and incurs the same civil and criminal liability as if he were a director in his own name, without prejudice to the joint and several liability of the company he represents (Court of Cassation, commercial chamber, 8 January 2020, appeal no. 18-15.027, published in the Bulletin, ECLI:FR:CCASS:2020:CO00011 (ECLI:FR:CCASS:2020:CO00011)). The Court drew the operational conclusion that where a debtor public limited company is managed by a legal entity which has designated a permanent representative, the management fault capable of engaging shortfall liability may be established indifferently against the corporate director or against its permanent representative. Concretely, if your foreign parent company sits on the board of its French subsidiary through a permanent representative, both the parent and the individual face the claim, and the individual’s return to his home country does not extinguish an action that can still be served through international channels.

None of this means that every loss-making French subsidiary must be closed. It means the foreign owner must run the statutory sequence like clockwork: detect the ratio at approval, vote within four months, publish and file, then rebuild or reduce within two financial years, while watching insolvency separately under the forty-five-day rule recalled above and explained in our guide to facing insolvency of your French company from abroad. Companies that follow the sequence keep control of their destiny; companies that ignore it hand control to any interested party, then to the court, then to the liquidator.

Conclusion

A French subsidiary that has lost half its share capital is not yet a dead company, but it is a company under a statutory ultimatum. The annual accounts start a four-month countdown to a public vote on dissolution or continuation; continuation opens a two-financial-year window to rebuild equity or reduce capital, with a possible second two-year stage for the mandatory reduction when the capital exceeds one percent of the balance-sheet total; and every missed step can be seized upon by any interested party asking the commercial court for dissolution. For the founder living abroad, distance is no excuse and no obstacle: videoconference meetings, written proxies, electronic filings and foreign-funded capital increases all allow full compliance without relocating. What distance does punish is inattention, because the same drift that breaches the half-capital procedure also builds tomorrow’s management-fault file if liquidation follows within three years. Read your balance sheet, count your deadlines from the approval date, publish every decision, and choose deliberately between fresh money, a smaller capital or an orderly exit while the choice is still yours.