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Shortage of share capital is not driven by losses

Social capital is not untouched by the uncertainties of society’s life. For a variety of reasons, the Partners may decide to proceed with its amendment, and in particular a reduction in share capital that is not driven by loss. This complex operation requires a relatively lengthy and precise formalization as well as analysis of its tax consequences. Find out why and how not to induce a loss in share capital without forgetting something.

Reduction in share capital not driven by loss: what are we talking about?

A reduction in share capital that is not driven by losses is an extraordinary act during the life of the company. Actually, it is a question of voluntarily proceeding to reduce the social capital of the company, while it does not record losses and does not present a problem of treasury. This operation can happen in several situations, for example:

  • in the event of the departure of a participant who had contributed a significant part of the capital who wishes to recover his money;
  • If the share capital is no longer commensurate with the activities of the company;
  • To change management and power strategy within the company;
  • or even with a view to opening up its capital more or less in the distant future;
  • e.t.c

The reasons are many, but whatever the situation, the reduction in capital is not deficit driven but responds to a highly regulated formality.

Capital reduction phases and formalities are not deficit driven

A time-consuming process, capital reduction can be implemented in different ways but always retains the same formality.

How to reduce share capital without being loss driven?

You have 3 solutions to reduce the share capital of your company:

  • A decrease in the face value of shares, that is, the number of shares in circulation, does not change, but their amount decreases. Example: You have 10 shares with a value of €100 each, or €1,000. After the reduction in capital, your shares are worth only €70, for a total of €700.
  • Reduce the number of shares in your company, i.e. the value of the shares does not change, but the number of shares in circulation decreases. This is especially the case when one partner leaves.
  • Redeem them to cancel the shares. This last option is theoretically prohibited. However, Articles of the Commercial Code L.225-206 to L.225-217 allow an exception in terms of reduction in share capital that is not driven by loss.

Once you have chosen the mode of reduction in the share capital of the company, you can start legal operations.

7 Stages of Capital Reduction Not Deficit Driven

Shortage of share capital not driven by losses is the subject of 7 steps. This is an extraordinary and relatively lengthy process, no part of which should be overlooked. In both SAS and SARL, you have to:

Convene partners to vote on the share capital reduction agenda and hold an Extraordinary General Meeting (AGE).

If an auditor is present, he should prepare a report on the causes and conditions of the shortfall.

Prepare minutes of the EGM substantiating the decision to reduce the share capital of the company without any significant loss. From January 1, 2019, you no longer need to file an AGE report with the tax office.

Proceed with the modification of the methods to update them.

Publish the notice of reduction in share capital in the Journal of Legal Announcements (JAL) or on the medium authorized to publish the Legal Announcement (SHAL).

Let the period of opposition from the creditors continue. Indeed, unlike loss-induced share capital reduction, this time the creditors can oppose your operation if their claim is prior to the date of the EGM report.

File a case in the registry.

The protest period is different for creditors for SAS and SARL: it is 1 month for SARL and 20 days for SAS.

Formalities in Registry

In the absence of opposition, you can eventually file with the registry of the commercial court you are dependent on or file a file for revision of share capital in the CFE (Centre de Formalités des Entreprises). It also includes:

  • Certified true copy of the AGE report;
  • A copy of the update methods;
  • One M2 form in 3 copies;
  • Certificate of Publication of JAL;
  • A power if you delegate these formalities to a third party.

Once your request is processed, the registry will send you your new Kbis extract. Don’t forget to update your legal and commercial documents, share capital is a mandatory mention!

What to do in case of opposition from creditors?

If one or more of your creditors oppose your capital reduction operation, don’t panic! You have 2 options:

  • settle your debt and continue the process;
  • Give enough guarantees to lift the opposition.

If that’s not enough, you’ll have to wait for a judge’s decision on whether or not to be able to continue reducing your capital.

Taxation of capital deduction not driven by deficit

A reduction in share capital has tax consequences in 2 situations: in the event of a decrease in the nominal value of the shares and in the event of redemption of securities.

Reduction in the face value of shares and taxation

To reduce the face value of its shares, the company “reimburses” the difference to the partners. And it is the latter that triggers taxation for the partner or shareholder. Applicable taxation depends on the composition of the company’s equity. Reimbursement is deemed to be as follows:

  • It is income from floating capital: either as income corresponding to undivided profits and reserves (excluding legal reserves);
  • or as a reimbursement of a non-taxable contribution to the surplus.

Redemption of shares by company and taxation

The purchase of securities from a partner has been subject to a capital gains arrangement since the adoption of Article 88 of the Law dated 29 December 2014. Capital gains are taxed under flat-tax or subject to scale income tax.

The deduction is applicable on the amount of capital gains for securities acquired or subscribed before January 1, 2018. It depends on the period of detention:

  • 50% for securities held for more than 2 years and less than 8 years;
  • 65% for securities held for more than 8 years.

Please note that the simplified allowance varies if the company was less than 10 years old at the time of subscription or acquisition of shares. Then:

  • 50% for securities held for more than one year and less than 4 years;
  • 65% for securities held for more than 4 years and less than 8 years;
  • 85% for securities held for more than 8 years.

Reduction of share capital is a lengthy and complex operation that requires the intervention of at least a chartered accountant, or even a lawyer or notary. Don’t hesitate to seek support to better measure the legal and financial consequences of this process.

questions to ask

How much of a capital shortfall is not driven by loss cost?


The Registry reviews its fees every year. In 2022, the cost of this formalization is €192.01.

Why not decrease in deficit driven capital?


This operation makes it possible to partially distribute the assets of a company.

What is the period of opposition to creditors in capital deduction?


It is 20 days for SAS and 1 month for SARL from the date of EGM.

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