Capital Increase by Conversion of Shareholder Loan: Mechanism, Formalities and Tax Treatment (France 2026)

Updated 25 May 2026 — Reviewed by Samuel Hayot, chartered accountant (expert-comptable) registered with the Ordre des Experts-Comptables de Paris.

A shareholder has injected €100,000 into their company through a compte courant d'associé (shareholder loan account). The company is profitable, but the balance sheet looks fragile to the bank. Should the loan be repaid, written off, or converted into share capital? Converting it into permanent capital is often the most effective answer: it strengthens the balance sheet without any cash movement, at a limited tax cost.

In brief: converting a shareholder loan (compte courant d'associé) into share capital in France works through a debt set-off mechanism — the shareholder's receivable against the company is offset against their subscription obligation under the capital increase. No capital gain arises. Registration duties are fixed (€375 or €500 depending on the resulting capital size). The procedure requires an Extraordinary General Meeting (EGM), an amendment to the articles of association, and a filing at the Registre du Commerce et des Sociétés (RCS).

The compte courant d'associé is a flexible financing tool, but it sits as a liability on the balance sheet. When the balance becomes material, several warning signs emerge:

• the equity-to-debt ratio deteriorates, undermining creditworthiness assessments;
• lenders or potential acquirers read the company as financially dependent on its director;
• the company risks crossing the statutory threshold for loss of half of share capital (art. L223-42 of the Code de commerce for SARLs (limited liability companies));
• a new investor or buyer is entering the picture and demands a cleaner capital structure.

Converting the loan turns internal debt into permanent, visible, robust equity. It does not inject new cash, but it immediately improves how the company reads to any external stakeholder.

Our view: in the files we work on, this operation is most commonly triggered by a bank financing requirement or the preparation of a business transfer. Addressing it proactively — before a loan renegotiation or a fundraising round — fundamentally changes the company's negotiating position.

The legal basis for a capital increase by shareholder loan conversion is the debt set-off (compensation de créances) mechanism provided for under article L225-127 of the Code de commerce (applicable by analogy to SARLs under articles L223-1 et seq.).

The principle is straightforward: the shareholder holds a certain, liquid and due receivable against the company (their loan account balance). The company resolves to increase its share capital. The shareholder subscribes to that increase by contributing their receivable rather than cash. The receivable is set off against the subscription payment obligation. The loan account is extinguished (or reduced); share capital increases by the same amount.

What this means in practice:

• no cash moves between the company and the shareholder;
• the liability towards the shareholder disappears (or decreases);
• equity increases by the corresponding amount;
• the shareholder loan balance (DSO in French accounting) is eliminated or reduced.

Before initiating the procedure, three verifications are essential.

1. The receivable must be certain, liquid and due. A poorly reconciled loan account, partially disputed or mixed with informal advances, cannot be converted without prior clean-up. If challenged during a tax audit, the tax administration may disallow a conversion based on a fictitious or overvalued receivable.

2. The articles of association and any shareholders' agreement must be compatible. Certain clauses require unanimous consent, or provide pre-emption rights on new shares. Documents must be reviewed before convening the EGM.

3. The impact on the shareholding structure must be anticipated. If only one shareholder converts their loan, their percentage holding in the company increases. Other shareholders face proportional dilution. This effect must be discussed and documented before the resolution is passed.

In practice: the RCS amendment file is submitted through the guichet unique (infogreffe.fr or guichet-entreprises.fr). Processing time typically ranges from 5 to 15 working days depending on the court registry.

Registration Duties#

Under articles 810 et seq. of the Code Général des Impôts (CGI), capital increases carried out by set-off of receivables are subject to a fixed registration duty:

• €375 when share capital after the increase is below €225,000;
• €500 when share capital after the increase is €225,000 or above.

These amounts should be verified at the time of filing, as the CGI may be amended by the annual Finance Act. Source: impots.gouv.fr — Augmentation de capital.

No Capital Gain for the Shareholder#

Converting a shareholder loan does not generate a taxable capital gain for the shareholder, provided the nominal value of the shares received corresponds to the value of the receivable converted. The shareholder receives shares in exchange for their receivable, without realising a gain.

If the shares include a share premium (prime d'émission), the tax treatment of that premium requires case-by-case analysis.

No VAT#

The operation falls outside the scope of VAT. It is subject only to the fixed registration duty described above.

The underestimated risk: some directors assume the conversion is completely free. The fixed duty is modest, but ancillary costs — legal gazette publication, deed drafting fees, court registry charges — add up and can reach €1,200 to €2,000 depending on the complexity of the file. A full cost estimate before the decision avoids unpleasant surprises.

Initial position — SARL with €10,000 share capital

After conversion of €100,000 shareholder loan

The ratio moves from 15% to 111%. Same company, same assets, same cash — but a radically different picture for any banker or buyer reviewing the accounts. Not a single euro has left the company.

These three operations have similar effects on equity, but involve very different mechanisms and consequences.

Our view: loan conversion is preferable to a waiver when the shareholder wishes to preserve or reinforce their rights in the company. A waiver is more appropriate in distressed situations where the company cannot absorb additional taxable income, or where the shareholder wants to reduce their exposure definitively without receiving a capital stake in return.

For a deeper analysis of the tools available, see our article Shareholder loan account: tax treatment and planning.

A consulting SARL (limited liability company) with two shareholders: one (the director), holding 70% of the shares, who has financed the company with €180,000 through a shareholder loan since 2019; and a second shareholder (30%) who has no loan account.

Context: the director plans to sell his shares within 24 months. A potential buyer has asked to see accounts with solid equity and a nil or clearly structured shareholder loan balance.

Solution adopted: conversion of €160,000 of the loan into share capital, with €20,000 retained in the loan account to preserve short-term cash flexibility.

Effect:

• the director's shareholding moves from 70% to approximately 82% (diluting the second shareholder);
• equity increases by €160,000;
• the shareholder loan liability falls from €180,000 to €20,000;
• the balance sheet presented to the buyer is immediately more readable.

Watch point: the dilution of the second shareholder (from approximately 30% to 18%) required prior discussion and an addendum to the shareholders' agreement. Without this upstream dialogue, the resolution could have been blocked at the EGM.

For transfer-related considerations, see also Business transfer and valuation.

During a tax audit or accounting review, several aspects of this type of operation attract scrutiny:

• Reality of the receivable: all loan account movements must be traceable in bank statements and accounting records. A loan account reconstructed after the fact will be challenged.
• Consistency between EGM minutes and accounting entries: the amount stated in the minutes must match exactly the debit to account 455 and the credit to account 101 in the French chart of accounts.
• Proportionality of shares received: if the company has negative net asset value and the shareholder converts a disproportionately large loan, the administration may question the valuation of the shares issued.
• Compliance with article L225-127 of the Code de commerce: the set-off must apply to receivables that are certain, liquid and due. Any dispute over whether the loan is due weakens the entire operation.

• The guichet unique reform (INPI) and the new RCS filing procedures are now in force. Verify that your legal provider files through the guichet unique rather than directly with the court registry.
• If the shareholder loan was interest-bearing, the tax treatment of accrued interest must be consistent — whether included in or excluded from the converted amount — particularly as the deductibility of interest at market rates may be examined in the same audit.
• If the company is subject to a statutory auditor (commissaire aux comptes), that auditor must be informed of the operation and may be required to certify the set-off. See Statutory auditor and high-growth companies.

• Exact loan account balance extracted and reconciled with the accounting records
• Receivable confirmed as certain, liquid and due (no statutory or contractual restriction on conversion)
• New shareholding percentages calculated after conversion
• Shareholders' agreement checked (unanimous consent or qualified majority in EGM)
• EGM minutes drafted with explicit reference to the set-off of receivables
• Articles of association updated with the new share capital amount
• Legal notice published in an authorised JAL
• M2 form and supporting documents prepared for the guichet unique
• Registration duty paid (€375 or €500)
• Share transfer register updated

This article provides general information only. It does not constitute personalised legal or tax advice. Any decision should be taken after reviewing your specific situation, articles of association, shareholders' agreement, and the applicable law at the date of the operation. Sources: art. L225-127 Code de commerce, art. 810 et seq. CGI, impots.gouv.fr, entreprendre.service-public.fr, infogreffe.fr.