A foreign group that has just incorporated a French subsidiary usually faces a practical question before it faces a tax question: should the parent inject cash as a loan, or should it subscribe for new shares? The answer affects repayment, voting rights, dilution, insolvency risk, interest deductibility, transfer-pricing evidence and the documents that must be kept in France. A payment described informally as \u201cgroup funding\u201d is not a complete legal analysis.<\/p>\n
This issue is distinct from choosing between a French SAS<\/em> (soci\u00e9t\u00e9 par actions simplifi\u00e9e, a simplified joint-stock company) and a SARL<\/em> (soci\u00e9t\u00e9 \u00e0 responsabilit\u00e9 limit\u00e9e, a limited liability company). It arises after the structure has been chosen, whether the parent owns all the shares or has minority investors alongside it. It is also distinct from a dividend: a dividend transfers distributable profit out of the French company, while the two techniques examined here bring resources into it.<\/p>\n For a foreign founder, the safest decision is made by matching the funding instrument to the company\u2019s business plan and its likely cash-flow pressure. A short-term launch facility may call for a carefully documented shareholder loan. Permanent funding, repeated losses or a lender requirement may point to equity. A hybrid may be possible, but it still needs a clear legal and accounting identity. The following two-part analysis gives a decision route, the principal French rules, the evidence file and the warning signs that should be addressed before the first transfer.<\/p>\n A shareholder loan is commonly documented through a compte courant d\u2019associ\u00e9<\/em>, meaning a shareholder current account. The foreign parent makes funds available to the French subsidiary, or leaves amounts due to it at the subsidiary\u2019s disposal, and records a receivable against the subsidiary. The French company records a debt. That accounting entry is not cosmetic: it separates a creditor\u2019s claim from the parent\u2019s ownership interest.<\/p>\n The French company becomes a legal person on registration. Article 1842 of the Civil Code states that companies \u201c The shareholder loan does not increase the share capital. It does not normally give the parent additional shares, additional votes or a larger percentage of the equity. The parent remains an owner under its existing subscription and a creditor under the loan. This can preserve the cap table where other investors have negotiated their percentages, and it can allow a future repayment without a formal reduction of capital. It can also give the parent contractual leverage through a maturity date, covenants, subordination provisions, events of default and restrictions on distributions.<\/p>\n That flexibility has a legal cost. Unless the parties have agreed a different arrangement, French case law treats the balance of a shareholder current account as repayable on demand. In its decision of 10 May 2011, no. 10-18.749, the Commercial Chamber described the account\u2019s essential characteristic, absent a special agreement or statutory provision, as being \u201c A foreign parent should not assume that a board resolution saying \u201cthe loan is for three years\u201d is enough. The loan agreement, the subsidiary\u2019s articles, any shareholder agreement and the board or shareholder decision must use consistent terms. The file should identify the lender, borrower, currency, principal, drawdown dates, interest rate or interest-free status, maturity, repayment schedule, early repayment rules, default consequences, subordination and governing law. If repayment is intended to be blocked until the subsidiary reaches a financial threshold, the restriction should be expressed precisely rather than left to an email exchange.<\/p>\n The 2020 decision of the Commercial Chamber, no. 19-12.258, is a useful warning for a parent that expects to control repayment informally. The decision records the principle that, without a contrary convention, shareholder current accounts are \u201c The group-law question must be separated from the contract question. French monetary law generally reserves credit operations carried out on a habitual basis to regulated actors. Article L. 511-5 of the Monetary and Financial Code prohibits a person other than a credit institution or financing company from carrying out credit operations habitually. The official text is available on L\u00e9gifrance<\/a>. Article L. 511-7 nevertheless provides a group exception for intra-group treasury operations where the companies have capital links giving one of the linked companies effective control. Its wording refers to \u201c The exception is not a licence for every payment between companies that happen to share a founder. The parent should be able to demonstrate the capital or control relationship, the commercial purpose, the flow of funds and the relationship between the loan terms and the subsidiary\u2019s needs. If a sister company lends without the required legal link, or if an individual routes funds through several entities without a coherent agreement, the group label may not cure the problem. In a criminal decision of 10 April 2013, no. 12-82.068, the Court of Cassation considered a case in which \u201c A loan also affects the company\u2019s balance sheet. It creates cash but creates a liability of the same principal. That may be appropriate for working capital, recruitment costs or a temporary launch period. It may be inappropriate where the business plan depends on recurring losses followed by a distant break-even point. A bank, landlord, commercial partner or future investor may ask why the French company has a large immediately repayable debt to its foreign parent. A subordinated or long-dated loan can improve the presentation, but only if its terms are real and are followed in practice.<\/p>\n Finally, a shareholder loan is not a substitute for a dividend policy. A French subsidiary cannot turn a financing inflow into a dividend merely because the parent needs cash in the other direction. Dividend distributions require distributable profits and the relevant corporate approvals. The separate question of remitting profits to a foreign parent should be considered only after the financing, distributable-profit, withholding-tax and treaty analysis has been completed. The existing guide on setting up a business in France as a foreign founder<\/a> provides the wider formation and compliance context.<\/p>\n A capital increase makes the French company\u2019s funding part of its equity rather than a debt repayable under a loan agreement. The parent subscribes for new shares or shares with a premium, pays the subscription price, and receives the rights attached to the new securities. The cash may be used for operations, but the company does not owe the subscription price back to the parent merely because cash flow becomes tight.<\/p>\n Article 1832 of the Civil Code states that shareholders \u201c Equity is not risk-free. If the French subsidiary fails, the parent can lose its contribution. A capital subscription does not create an ordinary repayment claim in the same way as a loan. The economic benefit is instead connected to future profits, a sale, a liquidation surplus or the value of the shares. That risk can be exactly what third-party lenders want to see: the parent is supporting the business with permanent capital rather than expecting to be repaid before other creditors.<\/p>\n The first consequence for the parent is dilution. If the parent owns 100 percent of the French subsidiary, dilution may not matter at the time of the increase, but it can matter if a management package, co-investor or French operating partner subscribes alongside it. If the parent owns 70 percent and a minority shareholder has pre-emption or approval rights, the price, allocation and waiver process must be reviewed before the resolution is adopted. A capital increase can change voting power, dividend entitlements, veto rights and exit economics even when the cash amount seems straightforward.<\/p>\n The second consequence is formal. Article L. 225-127 of the Commercial Code provides that capital is increased by issuing ordinary or preference shares, or by increasing the nominal value of existing shares. The text is available on L\u00e9gifrance<\/a>. Article L. 225-128 also permits new securities to be paid up by cash contribution, including by set-off against liquid and due claims on the company. The relevant wording refers to \u201c That set-off route can convert an existing shareholder loan into equity, but it is not an informal relabelling exercise. The claim must exist, be quantified and be due under the transaction documents. The corporate resolutions must identify the contribution, the number and class of securities, the nominal amount, any share premium and the resulting allocation. The accounts must then be updated. If the loan is not yet due, the parties need another legally coherent mechanism, such as a voluntary waiver followed by a contribution or a negotiated amendment that makes the claim due, subject to the corporate and tax consequences.<\/p>\n The capital increase may also be preferable when the parent is funding a business that will need the cash for several years. The company can use the money without creating a scheduled cash drain. A lender may take comfort from a higher share capital and stronger equity, although a nominal increase alone does not prove solvency. The parent should model post-transaction equity, working capital, fixed costs, tax liabilities, lease commitments and the expected first revenue date.<\/p>\n The formal route depends on the French form. A SAS usually offers flexible articles and governance rules, but the exact decision-maker, quorum, majority and subscription process come from the articles and any shareholder agreement. A SARL has statutory rules and manager powers that must be read with the articles and the proposed transaction. The company may need updated articles, a deposit or payment certificate, a corporate resolution, a legal notice and a filing through the French one-stop business portal operated by INPI. The official Service-Public guide to the business formalities portal<\/a> identifies capital increases among the formalities that can be completed there.<\/p>\n A foreign parent should also anticipate the evidence needed to prove who signed and why. The file may include a power of attorney, a certified corporate extract for the parent, a translation where required, proof of authority of the signatory, updated beneficial-owner information, a subscription form and the bank certificate. The INPI explains that acts are deposited through the Guichet unique and that the filing system is used for changes in the life of a company. Its guidance on depositing company acts<\/a> is a useful official checklist, but it does not replace the legal review of the resolution or the parent\u2019s authority.<\/p>\n The practical distinction is therefore clear. A loan gives the parent a creditor position, possible interest income and a repayment claim, subject to its terms and insolvency limits. Equity gives the parent a stronger permanent-funding profile but exposes the contribution to the company\u2019s business risk and can alter the cap table. Neither instrument should be selected solely because the bank transfer is easier.<\/p>\n The loan file should begin with a corporate-interest memo. It should explain why the French subsidiary needs the funds, why the parent is the appropriate lender, how the amount was calculated and how repayment is expected to occur. It should identify alternatives considered, such as equity, external bank debt or a staged subscription. For a foreign group, the memo should be written so that a French accountant, bank, auditor, tax inspector or insolvency practitioner can understand the transaction without relying on the parent\u2019s internal shorthand.<\/p>\n Approval of related-party arrangements must be checked before signature. In a SARL, Article L. 223-19 of the Commercial Code addresses agreements directly or indirectly involving the company and its manager or shareholders. The provision includes the rule that \u201c In a SAS, Article L. 227-10 covers agreements between the company and its president, another executive, a shareholder holding more than 10 percent of voting rights, or the controlling company where the shareholder is a company. The statute requires the relevant report and provides that \u201c The agreement should be signed before or at the time of the first drawdown. It should not attempt to disguise a permanent equity contribution as a loan. Key clauses include:<\/p>\n Repayment terms deserve particular care. In its decision of 20 April 2017, no. 15-25.664, the Commercial Chamber recalled that an associate may request repayment at any time absent a contrary contractual provision, while also holding that repayment during a suspect period may be annulled where the relevant knowledge of cessation of payments exists. The ruling is on L\u00e9gifrance<\/a>. The parent should therefore test repayment rights against French insolvency law before sending a demand or accepting a repayment from a distressed subsidiary. The fact that the payment follows a signed loan does not make every timing decision safe.<\/p>\n Pricing is the second major control. Article 212 of the General Tax Code now states that interest on sums made available by an associated or linked enterprise is deductible within the statutory framework. The current version applies from 21 February 2026 and provides, in part, that \u201c The French tax administration provides practical guidance on this evidence. Its official page on interest rates for loans from related companies<\/a> explains that the borrower may need to demonstrate why the chosen rate corresponds to what an independent financial institution would have offered in analogous conditions. The updated BOFiP guidance also discusses the market-rate evidence for associated companies. A parent should keep financing offers, benchmark data, credit assumptions, a rating analysis, the board memo and the actual payment history together.<\/p>\n Interest deductibility is not the only tax issue. Article 212 bis of the General Tax Code limits the deduction of net financial expenses under a separate mechanism, subject to its statutory thresholds and adjustments. The current provision is available on L\u00e9gifrance<\/a>. The group should calculate the result under both the interest-rate cap in Article 212 and the net-financial-expense limitation in Article 212 bis. A financing plan that works in the parent\u2019s spreadsheet may produce a different French tax result after these limits.<\/p>\n Cross-border pricing also needs an arm\u2019s-length analysis. Article 57 of the General Tax Code allows the French tax authority to include in French taxable results profits indirectly transferred to an enterprise dependent on or controlling the French enterprise. The provision refers to \u201c The accounting evidence must match the contract. Each drawdown should have a bank reference, a ledger entry, a calculation of accrued interest and a reconciliation with the loan balance. If the parent waives interest, postpones maturity or converts the balance into capital, the amendment should be signed and approved before the accounts are closed. If the parent sends funds in several currencies, the file should record the exchange-rate method and who bears the currency risk.<\/p>\n The right instrument can change during the company\u2019s life. A staged approach is often more reliable than a single large transfer. The parent can commit a modest equity base that reflects permanent operating needs, then use a documented loan for seasonal working capital or a defined launch programme. If the subsidiary\u2019s business plan changes, the parties can review the balance and consider a capital increase by set-off, but they should not leave a large loan balance without a decision on its long-term role.<\/p>\n A shareholder loan is usually the more responsive tool where the French subsidiary has predictable short-term receipts and the parent wants repayment flexibility. It can finance payroll before the first customer payments, a marketing launch, professional fees, inventory or an expansion that is expected to generate cash within a defined period. The parent should be comfortable with the company\u2019s ability to repay and with the possibility that French insolvency rules will restrict recovery if the company later stops paying its debts.<\/p>\n Capital is usually stronger where the subsidiary needs a stable balance sheet, has substantial start-up losses, is signing a long commercial lease, is hiring a team before revenue or must satisfy an external lender\u2019s equity requirement. It may also be the cleaner route where the parent does not expect repayment for several years. The board should nevertheless calculate whether the proposed capital is proportionate and whether a premium is needed to reflect the value or rights attached to the shares.<\/p>\n A loan becomes more sensitive when the French company is already under pressure. In a further decision of 20 April 2017, no. 15-25.664, the Court of Cassation examined repayments made after the date of cessation of payments and confirmed that a repayment can face annulment in the suspect period where the required knowledge is established. The parent should obtain an up-to-date cash-flow statement, aged payables, tax position and information on threatened claims before demanding repayment. The board minutes should record why the decision is in the company\u2019s interest and how other creditors are treated.<\/p>\n Equity also has risks in a distressed period. A capital increase must have a genuine corporate purpose, follow the company\u2019s governance rules and be priced and allocated consistently with the rights of existing shareholders. A hurried issue that unfairly excludes a minority investor may trigger a dispute even if the company desperately needs cash. The parent should review pre-emption rights, approval clauses, preferential shares, anti-dilution rights and any shareholder agreement before preparing the subscription documents.<\/p>\n The decision is not a choice between \u201ctax-free\u201d and \u201ctaxable\u201d money. Loan interest may be deductible for the French subsidiary within the limits of Articles 212 and 212 bis, but it is income for the parent and may involve withholding, treaty, beneficial-owner and reporting questions depending on the lender\u2019s residence and the payment route. Equity does not create deductible interest, but it avoids a scheduled interest expense and can improve the company\u2019s equity profile. A treaty analysis should be done before the first interest payment, not after a bank asks why the withholding rate was zero.<\/p>\n The distinction from dividends should remain visible in every document. A dividend is a distribution of profit after the accounts and the relevant approval process establish that a distributable amount exists. A loan is an advance that should be repayable under its terms. A capital increase is a contribution in exchange for securities. Mixing the three in the same intercompany transfer description can obscure the accounting, tax and corporate approval trail. The parent should use separate payment references, separate resolutions and separate ledger accounts.<\/p>\n A practical decision matrix can be expressed as follows:<\/p>\n Before signing, the parent and the French subsidiary should assemble a transaction pack containing the current Kbis<\/em> (the official extract evidencing registration in the French commercial register), the parent\u2019s equivalent corporate extract, articles, shareholder register, beneficial-owner information, board or shareholder approvals, the loan agreement or subscription documents, bank evidence, tax residence documents, the rate analysis and the accounting instructions. The French registration ecosystem now uses the RNE<\/em> (Registre national des entreprises, National Register of Enterprises), the RCS<\/em> (Registre du commerce et des soci\u00e9t\u00e9s, Trade and Companies Register), the greffe<\/em> (the registry office attached to the competent commercial court) and the INPI Guichet unique. These acronyms identify different parts of the formalities and evidence chain; they are not interchangeable labels for a funding instrument.<\/p>\n The parent should also check whether the transaction interacts with a branch, a permanent establishment, a cash-pooling arrangement, a guarantee, a French bank account or a future share sale. A French subsidiary is not the same as a branch: a branch does not create the same separate legal-person framework, while a subsidiary does. Funding a branch may require a different analysis of the foreign company\u2019s authority, French accounts and tax presence. The group should not reuse the subsidiary loan form without checking that distinction.<\/p>\n For a filing or a capital change, the INPI portal may request documents, signatures and corrections. If the formalities office requests a missing document, the parent should preserve the request, the response and the final registration evidence. An updated Kbis or RNE registration document should be stored with the financing pack. A bank\u2019s request for an official registration extract is not merely administrative: it helps establish which entity holds the account and whether the person signing the transfer has authority.<\/p>\n Finally, the financing should be reviewed when the company reaches a new stage: first employee, first external investor, bank debt, sustained losses, dividend proposal, sale of the subsidiary or threatened insolvency. The document that was adequate for a \u20ac50,000 launch advance may be inadequate for a \u20ac1 million revolving facility. A French lawyer and accountant can coordinate the corporate approvals, tax evidence, accounting treatment and cross-border reporting before the transaction becomes a dispute.<\/p>\n A foreign parent should use a shareholder loan when it needs a defined, documented and potentially repayable funding line, and it should use a capital increase when the French subsidiary needs permanent resources and a stronger equity base. The decisive factors are not the labels used in a bank transfer. They are the company\u2019s expected cash flow, the parent\u2019s repayment expectations, the rights of other shareholders, the intra-group legal relationship, the corporate approval route, the French tax limits and the evidence available to an independent reviewer.<\/p>\n The minimum safe process is to identify the instrument in a written corporate memo, approve it under the SAS or SARL rules, sign the agreement or subscription documents before the funds move, preserve the rate and solvency analysis, record every drawdown accurately and revisit the structure if the business plan changes. A loan that has become permanent should be examined for conversion or restructuring. An equity contribution that is intended to be repaid should be reconsidered before it is described as capital.<\/p>\n Our firm can arrange a phone consultation within 48 hours with a lawyer from the firm to review the funding route for your French subsidiary, the corporate documents and the cross-border evidence.<\/p>\n Call Ma\u00eetre Reda Kohen at +33 6 46 60 58 22<\/a>, or use the contact form<\/a> to send the essential facts of your project.<\/p>\n","protected":false},"excerpt":{"rendered":" A practical French-law guide for foreign parents choosing between a shareholder loan and a capital increase for their French subsidiary.<\/p>\n","protected":false},"author":251031309,"featured_media":16298,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_kj_source_type":"","_kj_official_id":"","_kj_official_url":"","_kj_judilibre_id":"","_kj_jur":"","_kj_lieu":"","_kj_chambre":"","_kj_rg":"","_kj_date":"","activitypub_content_warning":"","activitypub_content_visibility":"","activitypub_max_image_attachments":4,"activitypub_interaction_policy_quote":"anyone","activitypub_status":"federated","footnotes":""},"categories":[80314,80313],"tags":[],"class_list":["post-2098366","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-decryptage","category-doing-business-in-france"],"yoast_head":"\nI. Why a foreign parent should choose a shareholder loan or a capital increase<\/h2>\n
A. What a French shareholder loan changes: debt, repayment and control<\/h3>\n
jouissent de la personnalit\u00e9 morale \u00e0 compter de leur immatriculation.<\/q>\u201d An overseas parent should therefore transfer funds to the French company after identifying the registered entity, its bank account and its corporate authority. A transfer to a director personally, or an unexplained payment made before the subsidiary exists, creates a different evidential and corporate-risk problem.<\/p>\n
remboursable \u00e0 tout moment<\/q>\u201d. The decision is published in the Bulletin and is available on L\u00e9gifrance<\/a>.<\/p>\n
remboursables \u00e0 tout moment<\/q>\u201d. The Court of Cassation\u2019s ruling is accessible on L\u00e9gifrance<\/a>. The ruling concerned a procedural issue about a provision, but the practical lesson remains important: a company should not accept an immediately callable debt without testing whether it can pay that debt while meeting payroll, tax and supplier obligations.<\/p>\n
des op\u00e9rations de tr\u00e9sorerie avec des soci\u00e9t\u00e9s ayant avec elle<\/q>\u201d. The current text can be checked on L\u00e9gifrance<\/a>.<\/p>\n
aucun lien juridique n’existe entre les deux soci\u00e9t\u00e9s<\/q>\u201d to justify an advance of funds. The full decision is on L\u00e9gifrance<\/a>.<\/p>\n
B. What a capital increase changes: equity, dilution and creditor protection<\/h3>\n
s’engagent \u00e0 contribuer aux pertes<\/q>\u201d. In a SARL, Article L. 223-1 of the Commercial Code states that shareholders \u201c
ne supportent les pertes qu’\u00e0 concurrence de leurs apports<\/q>\u201d. In a SAS, Article L. 227-1 uses the corresponding rule that shareholders do not bear losses beyond their contribution. The official texts for the SARL and SAS forms are available through Article L. 223-1<\/a> and Article L. 227-1<\/a>.<\/p>\n
des cr\u00e9ances liquides et exigibles sur la soci\u00e9t\u00e9<\/q>\u201d and can be read on L\u00e9gifrance<\/a>.<\/p>\n
II. How to document and tax the funding of a French subsidiary<\/h2>\n
A. How to approve, price and evidence an intercompany loan in France<\/h3>\n
Les conventions non approuv\u00e9es produisent n\u00e9anmoins leurs effets<\/q>\u201d, but that does not mean approval is pointless: the interested person may not vote in the statutory approval process, and the consequences of an agreement harmful to the company can remain serious. The text is available on L\u00e9gifrance<\/a>.<\/p>\n
Les associ\u00e9s statuent sur ce rapport.<\/q>\u201d The current text is available on L\u00e9gifrance<\/a>. The company should confirm whether the transaction is an ordinary transaction on normal terms, whether a report is required, who must approve it and how it will be recorded. A parent\u2019s control does not eliminate the company\u2019s separate interest or the need to avoid a conflict of interest.<\/p>\n
\n
Les int\u00e9r\u00eats aff\u00e9rents aux sommes laiss\u00e9es ou mises \u00e0 disposition d’une entreprise par une entreprise qui est son associ\u00e9e<\/q>\u201d. The current official text is on L\u00e9gifrance<\/a>. The group should preserve a contemporaneous analysis of the rate a comparable independent borrower could have obtained, taking account of currency, maturity, security, subordination, credit profile and the subsidiary\u2019s stage of development.<\/p>\n
les b\u00e9n\u00e9fices indirectement transf\u00e9r\u00e9s \u00e0 ces derni\u00e8res<\/q>\u201d. The current article is accessible on L\u00e9gifrance<\/a>. A rate that is too high can reduce the French subsidiary\u2019s taxable profit and attract an adjustment; a rate that is too low can raise questions about whether the parent is making an economic contribution that should have been treated as equity or whether the subsidiary is receiving a non-commercial benefit.<\/p>\n
B. How to choose the right funding route when cash flow, tax or insolvency risk changes<\/h3>\n
\n
Conclusion<\/h2>\n
Need a quick opinion on your case<\/h2>\n