Your French subsidiary has signed its first lease, hired its first employee and now needs cash before revenue arrives. The foreign parent is ready to wire the money, and the wire itself takes minutes. The legal question takes longer: should the money come as a capital increase or as a shareholder loan, known in France as an avance en compte courant d’associé, an advance booked on the shareholder’s current account with the company? Most foreign groups choose the loan for speed and flexibility, then discover that French law taxes, polices and sometimes requalifies that loan with great attention.

This guide is written for foreign founders, finance directors and groups funding a French SAS, SASU, SARL or EURL from abroad. It explains in plain English how a parent-to-subsidiary loan works, what paperwork French registries and auditors expect, where the tax office draws the line on interest rates, and how the money comes back. Every French acronym is explained, every decisive rule is quoted from the official text, and the two most useful recent court decisions, one from the Cour de cassation and one from the Conseil d’Etat, are analysed from their actual reasoning. A companion guide covers setting up the French company itself, from bank account and Kbis company ID to VAT and first hire, and a second companion explains increasing the share capital of a French company in cash, which is the equity alternative to everything described below.

Part I sets out the mechanics of lending: who is allowed to lend, which documents to sign, and what the tax administration accepts as deductible interest. Part II follows the money back out: repayment on demand or on term, disputes between shareholder and company, and how to choose between debt and equity when the Paris operation needs its next round of funding.

I. Lending to your French subsidiary from abroad: permission, paperwork and tax

French law starts from a prohibition and then carves out exactly the situation of a foreign group funding its subsidiary. Only banks may lend as a business, yet loans between companies of the same group are expressly permitted. The documents follow the money: a written loan or current-account agreement, a shareholder approval where the company form requires it, and accounting entries that match the contract. Get these three right and the loan is a normal treasury operation; neglect them and the same wire looks like disguised equity, a hidden distribution or an abnormal management decision, each with its own tax price.

A. Can a foreign parent company lend to its French subsidiary, and what must be signed?

Yes, and the permission sits in the Monetary and Financial Code. Article L511-7 of that Code provides, in the wording in force on the date of writing: “I. – Les interdictions définies à l’article L. 511-5 ne font pas obstacle à ce qu’une entreprise, quelle que soit sa nature, puisse : 1. Dans l’exercice de son activité professionnelle consentir à ses contractants des délais ou avances de paiement ; 2. Conclure des contrats de location de logements assortis d’une option d’achat ; 3. Procéder à des opérations de trésorerie avec des sociétés ayant avec elle, directement ou indirectement, des liens de capital conférant à l’une des entreprises liées un pouvoir de contrôle effectif sur les autres”. The banking monopoly of Article L511-5 therefore does not prevent treasury operations between companies linked by capital ties giving one of them effective control over the others, which is precisely a foreign parent and its French subsidiary. No banking licence is needed for the parent to lend; the group relationship itself is the legal basis.

Company law adds a second filter that foreign founders often discover late, and it works in the parent’s favour. In a SARL, managers and individual shareholders are forbidden from borrowing from the company on pain of nullity of the contract: “A peine de nullité du contrat, il est interdit aux gérants ou associés autres que les personnes morales de contracter, sous quelque forme que ce soit, des emprunts auprès de la société, de se faire consentir par elle un découvert, en compte courant ou autrement, ainsi que de faire cautionner ou avaliser par elle leurs engagements envers les tiers.” Read carefully, the prohibition of Article L223-21 of the Commercial Code targets managers and shareholders other than legal persons, plus their families and intermediaries. A foreign parent company, being itself a personne morale, a legal person, falls outside the prohibition. The parent can therefore lend to its French SARL, and receive the subsidiary’s money back as loan repayment, without facing the nullity that would strike the same operation mounted by an individual manager for personal purposes.

In a SAS, the vehicle most foreign groups choose because a single shareholder can hold everything and losses are limited to contributions, loans from the parent pass through the related-party agreements procedure. Article L227-10 of the Commercial Code states: “Le commissaire aux comptes ou, s’il n’en a pas été désigné, le président de la société présente aux associés un rapport sur les conventions intervenues directement ou par personne interposée entre la société et son président, l’un de ses dirigeants, l’un de ses actionnaires disposant d’une fraction des droits de vote supérieure à 10 % ou, s’il s’agit d’une société actionnaire, la société la contrôlant au sens de l’article L. 233-3. Les associés statuent sur ce rapport.” A shareholder loan from a parent holding more than ten percent of the votes is therefore disclosed in a report prepared by the statutory auditor, or by the president where no auditor has been appointed, and the shareholders vote on it. Unapproved agreements still take effect, but the interested party bears any harmful consequences for the company, since the same article continues: “Les conventions non approuvées, produisent néanmoins leurs effets, à charge pour la personne intéressée et éventuellement pour le président et les autres dirigeants d’en supporter les conséquences dommageables pour la société.” In a single-shareholder SASU the formality is lighter but the paper trail matters just as much at a tax audit.

The contract itself, usually titled convention de compte courant or convention de prêt intra-groupe, should state the amount made available, whether the line is a one-off advance or a revolving facility, the interest rate or the expressly interest-free character of the advance, the term or the absence of one, and the repayment mechanics. French practice distinguishes sharply between an open-ended advance and a blocked one, and the Cour de cassation has confirmed why the distinction matters. Where a shareholder’s advance is an open-ended loan, the shareholder can demand its money back at any time: “sauf stipulation contraire, tout associé était en droit d’exiger à tout moment et peu important les motifs de sa demande le remboursement du solde de son compte courant, dès lors que l’avance ainsi consentie constituait un prêt à durée indéterminée” (Cass. com., 12 February 2025, no. 23-17.483). The phrase sauf stipulation contraire, unless otherwise agreed, is the whole lesson: parties that want stability must write a fixed term or a lock-up clause, called a convention de blocage, into the agreement. Without it, the subsidiary’s cash shown on the balance sheet as a shareholder credit can walk out the door on simple demand, which banks reviewing the subsidiary’s accounts know perfectly well and treat accordingly when they assess liquidity.

For the foreign parent, the subsidiary’s separate legal personality frames the entire operation. Commercial companies enjoy legal personality from RCS registration, and the SAS and SARL confine shareholder losses to contributions, as the official texts confirm: “Les sociétés commerciales jouissent de la personnalité morale à dater de leur immatriculation au registre du commerce et des sociétés.” And in the SAS most groups use, “Une société par actions simplifiée peut être instituée par une ou plusieurs personnes qui ne supportent les pertes qu’à concurrence de leur apport.” The loan therefore moves between two distinct patrimonies: the parent’s claim sits as an asset on its books and as a liability on the subsidiary’s, interest accrues where the contract provides for it, and the subsidiary’s creditors cannot seize the parent’s accounts, just as the parent’s creditors cannot seize the subsidiary’s, outside guarantees and abuse situations. Where losses deepen to the point that insolvency threatens, the separate question of directors’ personal exposure for letting a company trade while insolvent arises, a risk examined in our guide to directors’ personal liability in French insolvency proceedings.

B. Will the French tax office accept the interest? Rate caps and abnormal management

Interest is deductible for the French subsidiary only within a statutory ceiling, and the ceiling has two layers that foreign groups must apply in order. The first layer sits in Article 39 of the General Tax Code. Interest paid to shareholders on sums they leave at the company’s disposal beyond their capital share is deductible “dans la limite de ceux calculés à un taux égal à la moyenne annuelle des taux effectifs moyens pratiqués par les établissements de crédit et les sociétés de financement pour des prêts à taux variable aux entreprises, d’une durée initiale supérieure à deux ans”, within the limit of interest computed at a rate equal to the annual average of the average effective rates charged by banks and finance companies for variable-rate business loans with an initial term above two years. This reference rate is published periodically from banking statistics, and the subsidiary’s accountant applies the rate of the relevant period to the average outstanding advance. The same provision adds a condition that surprises groups whose French capital was never fully paid up: “Cette déduction est subordonnée à la condition que le capital ait été entièrement libéré.” No fully paid-up capital, no interest deduction at all. Founders who incorporated with partly unpaid capital and then funded the company by loan should complete the capital payment first; it is the cheapest tax reform available to them.

The second layer, Article 212, I of the same Code, extends the cap to sums made available by a shareholder company or a related company: “Les intérêts afférents aux sommes laissées ou mises à disposition d’une entreprise par une entreprise qui est son associée ou par une entreprise liée, directement ou indirectement, au sens du 12 de l’article 39, sont déductibles : a) Dans la limite de ceux calculés d’après le taux prévu au premier alinéa du 3° du 1 du même article 39 ou, s’ils sont supérieurs, d’après le taux que cette entreprise emprunteuse aurait pu obtenir d’établissements ou d’organismes financiers indépendants dans des conditions analogues”. Two routes therefore exist: the statutory average rate, or, where it is higher, the rate the borrowing company could itself have obtained from independent banks in comparable conditions. The second route is a transfer-pricing-style demonstration requiring evidence, bank term sheets declined or granted, the subsidiary’s standalone credit profile, the loan’s amount, maturity and security. Groups that simply copy the rate charged between two foreign affiliates without showing what a bank would have charged the French subsidiary itself walk into the adjustment this provision was written to allow.

Beyond the ceiling, the administration can attack excessive interest as an abnormal management decision, an acte anormal de gestion, meaning an expense the company would never have accepted in its own interest. The Conseil d’Etat reset the rules of that game in a March 2025 decision every group treasurer should read. A property-dealing company had funded a building purchase with a bank loan, a current-account agreement with its parent for two point two five million euros, and a participative loan from another company paying ten point two percent plus half of the borrower’s pre-tax net profit up to a seventeen point five percent internal rate of return. The tax office reintegrated the interest exceeding an estimated market average of around two point four percent. The Conseil d’Etat quashed the appeal court’s approval of that reassessment, holding that the lower court had ruled “sans rechercher, d’une part, si l’absence d’une sûreté de cette nature s’écartait de la pratique du marché, appréciée au regard des conditions dans lesquelles un prêteur indépendant aurait consenti à une société présentant un risque de solvabilité similaire un prêt analogue par son objet, son montant, son échéance et ses modalités de remboursement et, d’autre part, sauf à ce que soit établie l’existence de relations d’intérêts entre la société Malakoff Paris 16 et la société HPI, si, en s’abstenant de constituer une telle sûreté, la première s’était délibérément appauvrie à des fins étrangères à son intérêt”, without checking whether the absence of security departed from market practice for a borrower of similar risk and an analogous loan, nor whether the company had deliberately impoverished itself for purposes foreign to its interest (CE, 12 March 2025, no. 474279, Malakoff Paris 16). The decision protects borrowers on method, but its message for lenders is symmetrical: an interest rate far above market needs a documented justification, security package, subordination, risk profile, and maturity all weigh in the comparison, and a rate of ten percent where banks charge two will be dissected line by line.

Some groups sidestep the entire rate debate by lending interest-free. Where no interest is charged, no deduction is claimed and none is at stake, which removes the rate-cap litigation at the cost of leaving the parent unremunerated for the risk. The advance must still be documented as a loan, reported in the accounts as a shareholder credit and approved under the related-party procedure where required; informality helps no one at an audit. Whether interest-bearing or free, the advance should also be consistent with the subsidiary’s equity: a company kept alive for years on shareholder debt while its equity stays at the legal minimum invites closer scrutiny of every cross-border flow than a company whose parent also maintains serious capital.

II. Getting the money back and choosing the next funding round from abroad

A loan is only good funding if the exit works. French law makes shareholder advances repayable on simple demand unless the contract says otherwise, which is a strength for a parent that may need its cash and a weakness for a subsidiary presenting its balance sheet to a bank. The funding rounds that follow, second loan, blocked advance, capital increase or dividend upstream, each carry their own approvals and tax logic. Paris practice adds one local layer: the bankers, auditors and registries that process these operations handle foreign shareholders daily, but they apply French checklists without exception.

A. How does the parent recover its advance: demand, blocking clauses and disputes?

The starting rule was stated above and deserves its operational consequences. Because an open-ended shareholder advance is a loan of indefinite duration, the parent can demand repayment at any time and for any reason, in the words confirmed by the Cour de cassation: “sauf stipulation contraire, tout associé était en droit d’exiger à tout moment et peu important les motifs de sa demande le remboursement du solde de son compte courant, dès lors que l’avance ainsi consentie constituait un prêt à durée indéterminée” (Cass. com., 12 February 2025, no. 23-17.483). In that case the shareholder tried to go further and argued that non-repayment of its current account should unwind the company’s buyback of its shares; the Court refused, treating the price of the shares and the repayment of the advance as independent obligations. For a foreign parent, the precedent is reassuring twice over: the money can be called back without justification, but calling it back, or not being repaid, does not by itself undo the other transactions between parent and subsidiary.

Where the subsidiary needs balance-sheet stability, the parties agree otherwise in writing. A convention de blocage commits the shareholder not to demand repayment before a fixed date or event, typically the maturity of a bank loan or the end of the subsidiary’s investment phase. Banks frequently require such a lock-up before lending to a thinly capitalised subsidiary, because an advance repayable on demand is economically close to equity that can evaporate. The lock-up should specify its duration, any early-release events, whether interest continues to accrue during the blocked period, and what happens at expiry, automatic release or renegotiation. Signed before the funds move, it also answers the auditor’s questions and the tax inspector’s questions in one document.

Disputes usually concern three points. First, the balance itself: advances should move by bank transfer with references matching the agreement, never through netting with unrelated flows unless a netting clause exists, so that the current-account statement reconciles with the bank statements euro for euro. Second, interest computation: the rate, the base, the day-count and the settlement dates should allow the auditor to recompute the charge independently. Third, set-off against other claims: a parent that also owes the subsidiary money, for management fees or royalties, should document any set-off expressly rather than silently netting balances. None of this requires French residence; it requires discipline, a shared file between the parent’s treasury and the French accountant, and agreements signed before the money moves rather than reconstructed the week before the audit.

When the subsidiary prospers, repayment often combines with profit distributions. Interest on the loan and dividends on the shares are different income with different tax treatments in both countries, and the applicable treaty article for interest is not the article for dividends. Routing a payment labelled as interest where the economics are those of a dividend, or the reverse, is exactly the kind of relabelling that transfer-pricing audits target. Keep the loan a loan until it is repaid, then decide separately, with the treaty text open, how profits should be repatriated.

B. Loan again, blocked advance or capital increase: funding the Paris subsidiary’s next stage

The second funding round is the moment to reconsider the debt-equity mix rather than reflexively topping up the current account. A fresh open-ended advance preserves maximum flexibility for the parent and maximum fragility for the subsidiary’s balance sheet. Converting an existing advance into capital, by incorporation of the shareholder’s receivable, strengthens equity, improves borrowing capacity and ends the interest-deduction debate for the converted amount, at the cost of the formal capital-increase procedure with its filings and announcements, described step by step in our guide to increasing the share capital of a French company, by cash, by set-off or with preferential rights. A blocked advance sits between the two: debt legally, but stable enough for lenders to tolerate.

The tax comparison should be modelled, not guessed. Interest within the statutory ceiling reduces the subsidiary’s taxable profit while being taxable income for the parent, usually relieved under the treaty; dividends are paid from after-tax profit with their own withholding and treaty mechanics. The group’s effective rate, the parent’s home-country treatment of French interest versus French dividends, and the subsidiary’s need for distributable reserves all point in potentially different directions, which is why the finance director, the French accountant and counsel should align before the wire, not after. One structural point is settled by the texts quoted above: the deduction requires fully paid-up capital, respects the average-rate ceiling or a demonstrated independent rate, and survives only a rate that market evidence can defend under the Malakoff methodology.

Corporate approvals scale with the amounts and the company form. In a SAS, each new agreement with the controlling parent feeds the regulated-agreements report and the shareholders’ vote under Article L227-10 quoted in Part I. In a SARL, the manager documents the borrowing and the corporate shareholder stays outside the Article L223-21 prohibition, but family members and individual managers must keep their hands off the company’s cash. Minutes should record the business purpose of each round, market test, repayment, or investment milestone, because the first question of any inspector or auditor is why the company borrowed at this rate, and the minutes are where the answer lives.

The Paris and Ile-de-France setting changes nothing in the rules and everything in the logistics. The commercial court registry of Paris processes foreign-shareholder files continuously, French banks run non-resident shareholder files through centralised compliance teams, and statutory auditors in the capital region review intra-group agreements as routine. Founders operating from abroad should therefore appoint one French point of contact, typically the accountant or counsel, holding the full set of signed agreements, statements and approvals, so that a bank’s compliance request or an auditor’s query is answered in days rather than months. Distance is no excuse in the eyes of the administration; organisation is the substitute for presence.

Conclusion

A foreign parent can fund its French subsidiary by shareholder loan without a banking licence, because treasury operations within a controlled group are expressly permitted; the corporate shareholder sits outside the SARL borrowing prohibition; and in a SAS the loan follows the regulated-agreements procedure to a shareholder vote. The money comes back on demand unless a written lock-up says otherwise, exactly as the Cour de cassation confirmed in February 2025. The tax office accepts interest only within the average-rate ceiling on fully paid-up capital, or at a demonstrated independent-lender rate, and excessive rates face the abnormal-management test under the market-comparison method the Conseil d’Etat imposed in March 2025. Lend in writing, price against the market, approve through the right body, keep the statements reconcilable, and revisit debt against equity at every round: run this way, the humble compte courant becomes the foreign group’s most flexible French instrument rather than its most audited one.