Loss of Half of Share Capital: Baisse Capitaux Propres

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The loss of half of the share capital (baisse capitaux propres)  reflects a critical financial situation for a company (SARL/EURL, SA, SAS/SASU). This scenario leads either to the dissolution of the company or obliges shareholders to restore the company’s equity capital.

What Does the Loss of Half of the Share Capital Mean?

Share capital represents the contributions made by shareholders when establishing the company.

Equity capital includes all of the company’s resources, reflecting its financial value. It consists of the initial contributions (share capital) plus the funds generated through business operations.

Equity capital is calculated by summing the following elements:

  • Share capital
  • Reserves: Profits from previous years that were not distributed and serve as a financial safety margin
  • Retained earnings
  • Share premium
  • Investment grants
  • Net income (profit or loss) of the year
  • Regulated provisions

The term “loss of half of the share capital” means that, due to recorded losses, a company’s equity capital has dropped below half of the share capital. This situation can also be referred to as a “baisse des capitaux propres”, highlighting the significant decline in the company’s net worth.

Example:

A SARL with share capital of €5,000 records a loss of €9,000 during its fiscal year.

  • Reserves amount to €3,000
  • Retained earnings amount to €2,000
  • Regulated provisions total €1,000

Thus, equity capital is calculated as follows:
(5,000 + 3,000 + 2,000 + 1,000) – 9,000 = 2,000 €

Since the equity capital (€2,000) is lower than half of the share capital (€2,500), the company must follow regulatory procedures to address this baisse capitaux propres situation.

Required Formalities for Companies Facing a Drop in Equity Capital(baisse capitaux propres)

If equity capital drops below half of the share capital, specific procedures must be followed:

  1. Consultation with Shareholders
  2. Shareholders’ Collective Decision: Vote on company dissolution or continuation
  3. Publication in a Legal Announcement Journal
  4. Filing with the Business Formalities Office
  5. Reconstitution of Equity Capital (if dissolution is avoided)
  6. Capital Reduction (if necessary)

1. Consultation with Shareholders

The company’s director must consult the shareholders (or sole owner in the case of an EURL) within four months of approving the financial statements that revealed the loss.

2. Shareholders’ Decision on Dissolution

A shareholders’ meeting must decide whether to dissolve the company or continue its operations. The majority required for this decision depends on the company’s legal structure:

  • SARL/EURL: Majority rules depend on whether the company was created before or after August 4, 2005.
  • SA, SAS/SASU: Voting requirements vary.

If the shareholders fail to decide within four months, any interested party (such as a competitor) can request the commercial court to force dissolution.

3. Publication in a Legal Announcement Journal

Whether dissolution occurs or not, the company must publish a notice in a legal announcement journal within one month to inform third parties of the company’s situation.

The notice must include:

  • Decision made (dissolution or continuation)
  • Company name
  • Legal form
  • Company address
  • Unique registration number (SIREN)
  • Share capital amount
  • Reference to the commercial register (RCS)

4. Filing with the Business Formalities Office

The decision must be officially registered with the Business Formalities Office, along with:

  • The signed resolution
  • Updated company statutes
  • Legal announcement publication receipt

If the company does not re-establish its equity capital, this process does not need to be repeated annually.

5. Restoring Equity Capital

If dissolution is avoided, the company has two years to restore its equity capital to at least half of the share capital. Solutions include:

  • Generating sufficient profits
  • Increasing share capital through new investments
  • Debt forgiveness from shareholders

Example:

A SARL with share capital of €5,000 records a loss of €7,000, leaving equity capital at €1,000 (below half of the share capital).

By increasing its share capital to €9,000, its equity capital rises to €5,000, resolving the issue of baisse capitaux propres.

6. Capital Reduction (if necessary)

If equity capital is not restored within two years, the company has another two years to reduce share capital below a legal threshold, which varies depending on company type.

For SA (public companies), the minimum required share capital is €37,000 or 1% of total assets, whichever is higher.

If the company fails to reduce capital within the required timeframe, dissolution may be legally enforced at the request of an interested party.

Sanctions for Non-Compliance

Failure to comply with the legal procedures in the event of a baisse des capitaux propres may result in:

  • Forced dissolution of the company
  • Liability of company directors
  • Court injunctions with financial penalties

1. Forced Dissolution

If shareholders do not deliberate within four months or fail to reconstitute equity capital within two years, the commercial court may dissolve the company. However, the court can grant an additional six-month extension if requested.

2. Directors’ Liability

If the director’s failure to act prevents compliance, they may be held personally liable for the company’s debts. In extreme cases, they may be required to cover all or part of the company’s liabilities.

3. Court Injunctions

A court can issue an injunction with penalties, requiring the company to fulfill legal publication requirements or other formalities. Delays may result in financial sanctions.

Conclusion

A baisse capitaux propres signals serious financial instability and must be addressed promptly to avoid dissolution or legal consequences. Companies must ensure compliance with legal procedures, restore equity capital within legal deadlines, and consider restructuring solutions such as capital increases or reductions to maintain financial stability.

For assistance, companies should consult legal and financial advisors to navigate the regulatory landscape and take the necessary corrective actions.