Equity below half of share capital: what happens next?

Updated March 2026 - When a company's equity falls below half of its share capital, the business enters a legal and financial warning zone. This does not automatically mean the company must be dissolved, but it does trigger a specific corporate procedure, formal shareholder decisions and a credible restoration strategy. The issue is therefore wider than a simple filing at the registry: it affects governance, accounting presentation and the confidence of lenders or partners.

In practical terms, equity generally includes:

• ▸share capital;
• ▸reserves;
• ▸retained earnings brought forward;
• ▸share premiums;
• ▸profit or loss for the year;
• ▸certain regulated provisions.

When accumulated losses push that whole amount below half of the share capital, the company crosses a legal threshold that requires action.

Under the rules applicable to the relevant company form, the company must notably:

1. ▸identify the situation from the approved accounts;
2. ▸convene the shareholders or stockholders;
3. ▸decide whether the company should continue or be dissolved;
4. ▸complete the required publication and filing formalities;
5. ▸restore equity or, failing that, consider a capital reduction within the legal framework.

The vote must take place within 4 months from the approval of the accounts that revealed the loss. Missing that timetable is exactly what turns a manageable issue into a procedural risk.

To frame the wider corporate consequences, you can also read convert a SARL into an SAS, tax audit anticipation and holding-company taxation.

In practice, the most common routes are:

• ▸a return to profitability over the following periods;
• ▸a capital increase;
• ▸a waiver of shareholder current-account debt, depending on the context;
• ▸a capital reduction followed or not by new capital, sometimes through an accordion transaction.

Each route has accounting, legal and sometimes tax consequences. The right choice depends on the financing capacity of the shareholders, the urgency of the situation and the company's realistic recovery trajectory.

Hayot Expertise insight: this topic should never be handled as a mere registry formality. The real challenge is to demonstrate a credible financial path and choose the right restoration mechanism for the business.

Beyond the legal deadline itself, this warning signal is closely watched by:

• ▸banks;
• ▸investors;
• ▸commercial partners;
• ▸the tax or social authorities if the file is reviewed more broadly.

The earlier the situation is addressed, the more strategic the solution can remain. If the company waits too long, recapitalisation or restructuring often becomes more constrained and more expensive.

We can help coordinate the accounts, the shareholders' meeting, the legal formalities and the restoration plan.

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Equity below half of share capital is a serious signal, but not a dead end. The key is to act within the required timeframe and connect corporate law, accounting logic and financing strategy. A well-managed response can restore confidence. A delayed one usually narrows the options.

Need to compare continuation, recapitalisation and restructuring options?
We can help frame the most suitable route for your company.

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