Loss of more than half of the share capital

Updated March 29, 2026 - The loss of more than half of the share capital is not just an accounting signal. It is a legal event which triggers specific obligations for the companies concerned, particularly in SARL and SA/SAS according to the applicable texts.

In practice, the situation appears when equity becomes less than half of the share capital following losses. The official Entreprendre.Service-Public sheet recalls that it is then necessary to organize a decision by the partners to rule on the continuation of the activity.

To keep an overview, also see Taxation and business taxes, Business tax audit and Deadline for filing the tax package 2026.

The formalism imposes in practice:

• to consult the partners within the time limits provided for by the texts;
• to publish the decision;
• then to reconstitute the equity within the legal period when the activity is continued.

This file concerns both:

• reading the accounts;
• the responsibility of managers;
• the relationship with financial partners;
• the ability to justify a recovery or recapitalization plan.

• discover the situation too late, after closure;
• forget the legal formalities;
• not aligning the recapitalization plan with actual cash flow;
• confuse accounting treatment and legal treatment.

Hayot Expertise Advice: when equity deteriorates, the best protection for the manager remains the speed of diagnosis and the quality of the documentation decided at the meeting.

We help to qualify the situation, prepare the formalities and articulate the legal, accounting and tax solution.

Quick link: Secure your legal and accounting formalities

Losing more than half of the share capital is often discussed from a legal-compliance angle. That matters, but it is not enough. For management, it is also a strong signal about financial structure, business-model profitability, the quality of any recapitalisation and the credibility of the company in the eyes of banks, suppliers and shareholders.

Questions to ask before taking action#

Before choosing between recapitalisation, capital reduction or another route, management should understand:

• where the deterioration came from;
• whether it is cyclical or structural;
• how much cash remains available;
• what recovery capacity exists in the short term;
• which reputational or banking consequences must be anticipated.

Treating only the legal consequence without diagnosing the business cause exposes the company to the same problem later. The right approach therefore links governance, financing, action plan and the readability of the recovery story.

In practice, the company needs more than a resolution. It needs a visible path back to healthier equity. The plan should explain what will change in the next months, who is responsible and which indicators will prove the turnaround.

The useful building blocks#

• a short diagnosis of the cause of the losses;
• a timeline for the next decision points;
• a financing or recapitalisation scenario if needed;
• a cash-flow view for the next quarter;
• a communication line for banks and key counterparties.

The point is not to dramatize the situation. The point is to show that the company has understood it and knows how to manage the next step.

The recovery story should be short and factual. Banks, suppliers and shareholders rarely need a long theory. They need to know what happened, what the company decided, and how the next checkpoint will be measured. That is why a simple written note is often more useful than a long oral explanation.

A useful communication frame#

• one sentence on the origin of the loss;
• one sentence on the decision taken;
• one sentence on the next deadline;
• one sentence on the indicator that will be monitored;
• one sentence on who is in charge of the follow-up.

This kind of communication does not hide the issue. It shows that the company can still manage it.

It also prevents the file from drifting over time, because the same facts are then repeated consistently at each follow-up stage.

That consistency matters if the company has to revisit the issue later with a bank or a new investor.

It also helps the manager keep later conversations anchored to facts rather than impressions.

It is also useful to keep a very concrete supporting file: interim accounts, draft minutes, evidence of notices, a timetable of formalities and a short recovery note. This is helpful not only for compliance, but also for discussions with banks, shareholders and key suppliers.

In practice, companies that keep this written trail answer questions faster and with more credibility, because the file shows what was observed, what was decided and what remains to be completed.

In 2026, the loss of more than half of the share capital must be dealt with quickly and cleanly. The major risk often comes less from the loss itself than from the delay in reaction.

The specific obligations differ slightly depending on the legal form:

For foreign-owned French entities: these are French corporate law requirements that apply regardless of the parent company's nationality or jurisdiction. A French subsidiary of a US or international group that breaches these thresholds must comply with French procedures — the parent cannot substitute its own governance processes. The board of the French entity must call the extraordinary general meeting, publish the decisions, and implement a recapitalisation or capital reduction plan within the statutory window.

Once the legal event is confirmed, the main paths to regularisation are:

1. Fresh capital injection (recapitalisation): existing shareholders inject new equity, directly rebuilding the equity base. Simplest solution if shareholders have liquidity and confidence in the business.

2. Capital reduction (reduction de capital): the share capital is formally reduced to absorb the accumulated losses. Does not bring cash into the company but regularises the equity position. Often combined with step 3.

3. Profit recovery over time: if losses are cyclical, shareholders may resolve to allow the company to rebuild equity through future profits — provided the shareholders' meeting formally votes on this resolution within the legal deadline.

4. Debt-to-equity conversion: outstanding partner current accounts (comptes courants d'associés) can be converted to equity, immediately increasing shareholders' equity without cash transfer.

Incorrect response to avoid: simply ignoring the threshold crossing and not convening the extraordinary shareholders' meeting. This exposes the managing director to personal liability for failure to comply with mandatory corporate formalities, and can complicate any future insolvency proceedings.

If the French entity is a subsidiary of a foreign parent group:

• The parent's annual report may need to disclose the going concern situation if material
• Group-level guarantees or intercompany support may be relevant to demonstrate viability
• A transfer pricing analysis should verify that intercompany transactions did not artificially worsen the loss position
• Upstreaming losses to the parent in a tax-consolidated group may require specific documentation

(Official sources: Entreprendre.Service-Public.fr — loss of half the share capital, Commercial Code art. L223-42 and L225-248)

This English section is written for international readers who need to apply the French guidance to a real management decision. The key point for loss of more than half of share capital is not to memorise every technical rule, but to connect the rule to documents, deadlines, cash impact and governance. For directors whose French company has accumulated losses, the right approach is to identify the decision to be made, collect reliable evidence, and only then choose the accounting, tax, payroll or legal treatment.

The practical decision is whether to recapitalise, restructure, continue activity or prepare a formal legal decision. That decision should be documented before the year-end close, financing discussion, payroll run, transaction signing or tax filing concerned by the topic. When the matter is material, the file should include who decided, which assumptions were used, and which professional advice was obtained.

Evidence to keep#

• latest accounts;
• equity calculation;
• shareholder minutes;
• recovery plan;
• registry formalities;

This is both a legal and finance signal: it should be linked to cash runway, debt, forecast and shareholder support. A clean file also helps the company answer questions from banks, investors, auditors, tax authorities, employees or buyers. It is usually cheaper to prepare that evidence during the process than to reconstruct it after a dispute, audit or urgent financing request.