Equity less than half of the capital

Update April 2026 - When the shareholders' equity becomes less than half of the share capital, the company does not automatically disappear, but it enters a zone of legal and financial vigilance. The real subject is not only the accounting loss. It is the company's ability to decide quickly, to correctly formalize its position and to present a credible recovery plan.

Short answer: the company must have the situation noted by the partners or shareholders, vote on the dissolution or continuation of activity within the legal deadline, then either reconstitute its equity, or reduce its capital, or combine several levers. The exact timetable depends on the social form, but the principle remains the same: do not let the loss set in without a decision.

Social capital is only part of the equation. This threshold is reached when the losses have consumed a sufficient part of the company's own resources.

Equity includes in practice:

• social capital;
• reserves;
• retained earnings;
• the result of the exercise;
• share premiums;
• certain writings which reinforce or diminish the net structure.

In other words, a company can still have turnover, customers and normal activity while crossing this threshold. This is why temporary difficulty should not be confused with bankruptcy.

Mechanics is mainly known for commercial companies.

In a SARL or a EURL, the Commercial Code regulates the loss of half of the equity in article L223-42. In SA and, by reference, in several joint stock companies such as SAS, the logic is similar and article L225-248 is the reference to keep in mind.

The important point is therefore not to memorize an article by heart. It is to know that a capital company which passes below this threshold must deal with the subject without waiting for the next balance sheet.

The most dangerous reflex is to hope that "next year, we'll see". In reality, the procedure is based on the approval of accounts and specific deadlines.

In broad terms:

1. the accounts show the loss; 2. the partners or shareholders are consulted; 3. they decide either early dissolution or continuation of the activity; 4. the decision is published and formalized; 5. if the company continues, it must regularize the situation within the time limit provided for by the texts. In practice, the collective decision takes place within four months following approval of the accounts which revealed the loss. Then, the company has time to rebuild its equity or adjust its capital according to the applicable framework.

Most often, you must first answer three simple questions.

1. Is the loss one-off or structural?

A loss linked to an investment, an exceptional increase in costs or a year of transition does not call for the same response as a lastingly weakened economic model.

2. Does the company still have a credible trajectory?

A bank, an investor or a supplier does not only look at the balance sheet. It also looks at the manager's ability to present a realistic plan: resumption of activity, reduction of costs, recapitalization, debt renegotiation, debt waiver or reorganization of the scope.

3. Is the legal file ready?

In many societies, the difficulty is not understanding the text. It's about gathering the accounts, drafting the partners' decision, making the advertisements and filing the right documents at the right time.

There is no single cure. You must choose the combination that corresponds to the company, its partners and its cash flow needs.

• Return to profitability: this is the healthiest solution, but it takes time.
• Capital increase: useful if the partners can remit funds and restore confidence.
• Abandonment of current account: relevant when the partners agree to strengthen the structure without bringing in new capital.
• Conversion of receivables into capital: suitable when the partners make an effort to clean up the balance sheet.
• Capital reduction followed by an increase: often used to straighten out accounts.
• Cost reduction and reorganization: essential when the loss comes from a model that is too heavy.

In real life, the right solution is often mixed. We can, for example, secure the abandonment of a current account, support a capital reduction and prepare for a new phase of growth. What matters is that the plan is readable and defensible.

Difficulties rarely come from the accounting threshold alone. They come from the delay in processing it.

We often see:

• a company which is waiting for the next assessment to react;
• partners who do not understand the difference between dissolution and liquidation;
• a decision taken but never properly published;
• a recapitalization announced without timetable or evidence;
• a manager who focuses on the banking emergency and forgets the legal formality.

The danger is not just irregularity. It is also a loss of credibility. A company that knows how to explain its situation, its plan and its deadlines inspires much more confidence than a company that allows doubt to take hold.

When equity is weakened, partners look at three things:

• the consistency of the recovery plan;
• the ability of the partners to remit capital or support the company;
• the readability of accounts and governance.

A bank can accept a difficult file if it sees a clear direction. She is much more wary of a company that has neither a road map nor an up-to-date assembly. It is often at this level that accounting advice makes the difference: transforming an alert into a manageable file.

When we support a company in this situation, we generally proceed in five stages.

1. We reread the accounts and identify the exact tipping point. 2. We check the corporate form and the applicable text. 3. We prepare the decision of the partners or shareholders. 4. We choose the most consistent regularization lever. 5. We secure advertising, deposit and monitoring over time.

This method avoids treating the subject as a simple checkbox. Above all, it allows it to be integrated into the company's overall financial strategy.

A service SAS can cross the threshold after a year of strong hiring. In this case, the question is not necessarily that of a broken model, but of a cash flow gap linked to growth. A capital increase or partner financing may be enough to take the plunge.

Conversely, a society that accumulates losses, late payments and social debts needs deeper treatment. The debate no longer concerns only the regularization of capital, but the survival of the economic model, refinancing and sometimes the reduction of the scope of activity.

• wait for the next assessment;
• believe that an accounting loss has no legal consequences;
• confuse deposit of accounts and regularization of capital;
• make an assembly decision without checking the applicable text;
• neglect communication with financial partners;
• choose a facade solution that does not change the net structure.