Distributable profit: what can we really distribute?

Updated March 30, 2026 - Before talking about dividends, we need to talk about distributable profit. It is he who sets the legal margin for maneuver before any distribution to the partners. In 2026, many errors come from confusion between accounting results, available cash flow and actually distributable profit.

The distributable profit is not:

• cash in the bank;
• turnover;
• the raw result read too quickly;
• an amount freely decided without legal constraints.

To complete, see Dividend distribution, Dividend distribution: rules, timing, taxation and evidence and Dividends SARL.

Distributable profit is a concept of corporate law defined by the French Commercial Code. It designates the sum that the general meeting of partners can legitimately distribute among them for a given financial year, without harming the company's assets or violating the rules protecting creditors.

The distinction is fundamental. A company may show a positive result and have no cash to distribute. Conversely, a company may have cash without distributable profit, for example after a capital increase. Confusing the two exposes the company to irregular distributions, or even the offense of distributing fictitious dividends provided for in Article L242-1 of the Commercial Code.

The calculation is based on a precise formula derived from Articles L232-11 and L232-12 of the Commercial Code:

Distributable profit = Net profit for the year + Brought forward profits + Distributable reserves - Previous losses - Mandatory allocations

Each component deserves particular attention:

• Net profit for the year corresponds to the accounting result after tax as it appears in the approved annual accounts. This is not the operating profit or the profit before tax.

• Brought forward profits are profits from previous years that have been neither distributed nor allocated to a réservé account. They remain indefinitely distributable as long as no contrary allocation decision has been made.

• Distributable reserves include optional reserves and statutory reserves whose statutes authorize distribution. Legal reserves, on the other hand, are not distributable.

• Previous losses must be deducted first from the profit for the year and from brought forward profits before any distribution.

• Mandatory allocations include in particular the allocation to the legal réservé and any other réservé required by law or the articles of association.

Before any distribution, the company must allocate 5% of the net profit for the year, reduced where applicable by previous losses, to an account entitled "legal réservé" (Article L232-10 of the Commercial Code).

This allocation ceases to be mandatory when the legal réservé reaches 10% of the share capital. This rule applies to all commercial companies, whether SARL, SAS, SA or any other corporate form.

Let's take a concrete example. A SAS with share capital of 50,000 euros makes a net profit of 30,000 euros for the 2025 financial year. Its legal réservé is already 4,500 euros. The mandatory allocation of 5% represents 1,500 euros. The legal réservé would then reach 6,000 euros, or 12% of the capital. The allocation remains due in full because the 10% threshold has not yet been reached before allocation. The distributable profit for this year is therefore 28,500 euros, subject to the absence of previous losses and non-distributable reserves.

When the profit for the year is insufficient or nil, the partners may nevertheless decide on a distribution from available reserves. This is commonly referred to as a superdividend.

This practice is perfectly legal. Article L232-11 of the Commercial Code authorizes the general meeting to draw on reserves any sum it wishes to distribute among the partners, provided that the annual accounts show a sufficient distributable profit, including reserves.

The distinction between a classic dividend and a superdividend is primarily accounting and tax. For an individual partner, the tax régime is identical: both sums are classified as income from movable capital and subject to the same treatment. For the company, the distribution of reserves does not constitute a déductible expense.

Companies may pay dividend advances before the approval of the annual accounts, under strict conditions regulated by the Commercial Code.

For SARLs, Article L232-12 authorizes the distribution of advances on the net profit for the current year, provided that the manager certifies, after examining the company's situation, that the company is able to distribute the profit without compromising its financial health. A certificate from the statutory auditor, where one exists, must confirm this certification.

For SASs, the conditions are similar but the statutory flexibility may vary. It is advisable to check the specific provisions of each company's articles of association.

The dividend advance provides a cash flow advantage for partners, but it carries a risk: if the final profit is lower than the advances paid, the partners must return the excess. In practice, a prudent provision is recommended before any advance payment.

The taxation of dividends distributed by French companies is governed by the General Tax Code. For individuals who are tax résidents of France, the default régime is the single flat-rate levy (PFU), commonly known as "flat tax", at a global rate of 30%.

This rate is broken down into two components:

• 12.8% for income tax;
• 17.2% for social contributions (CSG, CRDS and additional contributions).

Partners may, however, opt for the progressive scale of income tax. In this case, dividends benefit from a 40% allowance provided for in Article 158-3-2° of the CGI, before inclusion in taxable income. Social contributions of 17.2% remain due in both cases.

The withholding tax of 12.8% applies by default when dividends are paid. Taxpayers whose référence tax income for the year before last is less than 50,000 euros for a single person or 75,000 euros for a couple may request an exemption from this withholding from the tax authorities.

For companies subject to corporate income tax, dividends received benefit from the parent-subsidiary régime under conditions: holding at least 5% of the capital of the distributing company for two years, and securities admitted to trading on a regulated market or company actually subject to corporate income tax. This régime allows an exemption of 95% of dividends received, the remaining 5% corresponding to non-déductible expenses.

Distributing sums without sufficient distributable profit constitutes a distribution of fictitious dividends, an offense punishable under Article L242-1 of the Commercial Code. The sanctions are severe:

• imprisonment of up to five years;
• fine of 375,000 euros;
• restitution of sums unduly received by partners, even in good faith.

The liability of managers may also be engaged under Article L241-3 of the Commercial Code in the event of violation of the provisions relating to the distribution of profits. Partners who have received fictitious dividends are required to return them to the company, unless they can prove their good faith and lack of knowledge of the irregular nature of the distribution.

Beyond criminal sanctions, an irregular distribution may result in civil liability action against managers and tax reclassification by the administration, with penalties for deliberate failures.

Hayot Expertise Advice: a solid distribution begins with a legally clean calculation. Available cash comes next, but it never replaces the distributable profit rule.

To secure a distribution operation, several steps must be followed:

1. Close the annual accounts and have them certified by a statutory auditor if the company is subject to one.
2. Calculate the distributable profit by applying the legal formula and checking the status of reserves and brought forward amounts.
3. Check the legal réservé and make the 5% allocation if the 10% capital threshold has not been reached.
4. Prepare the draft resolution for the allocation of profit for the general meeting.
5. Hold the ordinary general meeting within six months of the end of the financial year, unless extended by court order.
6. Put dividends into payment within the time limits provided by law, no later than nine months after the end of the financial year.

We can help you make the calculation, documentation and articulation between annual accounts and decisions of the partners more reliable.

Quick link: Make your annual accounts and distributions more reliable