Love money and business angels: structuring a first round properly

Quick answer. A first round combining relatives (love money) and business angels must be framed legally and fiscally from the start. Individual investors can benefit from the IR-PME income-tax reduction of 18% (article 199 terdecies-0 A of the French tax code), within a limit of €50,000 of payments per year (€100,000 for a couple). A clear shareholder agreement (right of first refusal, tag-along, good/bad leaver) protects founders and investors, and the choice of legal form (preferably an SAS) determines the flexibility of later rounds.

We regularly meet founders who accepted informal seed contributions: transfers with no contract, oral promises, poorly allocated shares. Months later, a more serious round reveals the gray areas — who owns what, what voting rights, what dilution was planned. Cleanup is then costly, and a professional investor will refuse to enter on a fuzzy capitalization table.

Framing the first round is not a wasted expense: it is an investment that avoids friction later. This structuring connects to your broader financing strategy, from the honour loan to the Bpifrance guarantee, and prepares a future pre-seed then Series A round.

Love money refers to funds contributed by family and close friends. These people are not professional investors: they believe first in you and your project. A business angel is an individual, often experienced in your sector, who invests their own funds in young companies ahead of investment funds, with assumed risk.

Legally, these contributions can take two very different forms:

• a capital contribution: the contributor becomes a shareholder, with voting rights and a share in results;
• a loan: the contributor remains a creditor and expects repayment.

The distinction is essential, as it governs taxation, governance, and accounting treatment. In most growth-oriented first rounds, capital contribution is preferred: it opens the IR-PME relief and clarifies allocation.

1. Choose the legal form. The SAS (or single-member SAS) offers the greatest contractual freedom to organize investor entry and exit clauses. The SARL suits a simple structure, but its legal rules complicate scaling.
2. Build a forecast capitalization table. For each shareholder, track the number of securities, the percentage held, and expected dilution in later rounds. Provide a reserve to incentivize future employees (e.g. via BSPCE).
3. Formalize each contribution. A capital increase is documented by meeting minutes, the deposit of funds, the issuance of securities, and registration.
4. Draft a shareholder agreement sized to the round (see below).
5. Document each investor's tax position to secure their relief and avoid reclassification.

For a modest first round, we usually recommend the simple capital increase: each contributor receives securities pro rata, with no hybrid instrument clouding the cap table and tax eligibility.

Any individual subscribing in cash to the capital of an unlisted SME can benefit from an 18% income-tax reduction on the amount paid (article 199 terdecies-0 A), subject to conditions. An enhanced 25% rate applies to subscriptions to the capital of social-utility solidarity enterprises (ESUS) and solidarity property companies. A general increase to 25% has been voted, but for payments made from 1 October 2026 its entry into force remains subject to European Commission approval under State-aid rules and to a decree: until those conditions are met, the standard rate remains 18%.

Main conditions and limits:

• Payment ceilings: €50,000 per year for a single person, €100,000 for a couple taxed jointly; the excess can be carried over the following four years.
• Holding period: at least five years, on pain of clawback.
• Eligible company: active, unlisted SME meeting the article's criteria.
• No excessive prior shareholding by the investor before subscription.

On a €50,000 payment, the standard relief is therefore €9,000 (18%). As these conditions change regularly, have your company's eligibility validated before announcing a tax benefit to your investors.

The shareholder agreement is a contract separate from the bylaws that organizes relations between founders and investors. Key clauses for a first round:

• Right of first refusal: a shareholder wishing to sell must first offer securities to the others.
• Tag-along: if a founder sells, minority holders can sell on the same terms.
• Drag-along: in case of an offer on a large majority, minority holders are dragged in at the same price.
• Good leaver / bad leaver: governs the fate of a founder's securities if they leave before a term (vesting).
• Anti-dilution: protects an investor in a later down round (rare and to handle carefully at the first round).
• Information: access to accounts and dashboards.

• Family gift rather than contribution. A parent may prefer to gift cash rather than become a shareholder. A family gift of cash benefits from a specific allowance (article 790 G of the tax code), renewable every fifteen years, subject to age conditions of donor and donee. Gift and capital contribution follow distinct logics: document each flow separately.
• A relative who prefers to lend. A family loan remains a debt of the company (or director), repayable; it does not open IR-PME relief. Formalize it in writing.
• Investor already active in other companies. IR-PME remains available as long as holding conditions and ceilings are met for each subscription.

• Fund traceability. Prefer transfers and keep each supporting document: a round presented as capital must rest on proven flows.
• Do not confuse loan and contribution. Clarify the legal link type before any transfer; ambiguity exposes you to tax reclassification.
• Up-to-date cap table. Each shareholder must hold proof of their rights; an incomplete table weakens later rounds.
• Agreement from the first round. A simplified agreement costs far less than a late restructuring.
• Tax benefit not guaranteed in advance. Do not promise an IR-PME rate without verifying the company's eligibility.

Recently, three founders asked us to frame a first round combining personal contributions and love money, already received informally. We first regularized each transfer with a dated capital-increase minute, then drafted a shareholder agreement covering first refusal, tag-along, and a good-leaver clause with a vesting period. The cost of this support was negligible compared with the cleanup an institutional round would have required on a fuzzy cap table.

Our conviction: seed structuring is first a credibility tool. A serious business angel will not commit funds without documentation, and a professional investor will never sign on an uncertain allocation. Better to invest a few thousand euros from the start than ten to twenty times more at the next round. We repeat it on every file: a clean first round is the best argument for the next one, as it reassures both investors and the bank that will finance growth.

Hayot Expertise recommendation. Begin with three documents: a traceable cap table, a capital-increase minute signed by all, and a ten-page shareholder agreement. Have your company's IR-PME eligibility validated before discussing it with investors, and sequence contributions (love money, business angels, bank loan) so each approval eases the next. We can review your forecast and cap table before the first closing.