How can a French SAS convert a shareholder loan into share capital?
A French SAS may issue new shares to a shareholder and discharge the subscription price by setting it off against a debt owed to that shareholder. No new payment is made for the amount set off. The transaction requires a valid capital increase, a subscription and evidence that the shareholder’s claim can be used for set-off.
The shareholder loan conversion
A credit balance on a shareholder current account represents a debt owed by the SAS. By subscribing for new shares, the shareholder owes the company the issue price. The two obligations may be extinguished up to the amount set off. Any excess claim remains payable unless a separate arrangement provides otherwise.
The conversion requires a corporate decision, an actual subscription and evidence of payment by set-off. It is more than an accounting reclassification. The issue price may comprise the nominal value of the shares and a share premium.
Conditions concerning the current account
The shareholder must personally hold an established claim for an ascertainable amount, due for payment when the set-off occurs. The current account agreement, breakdown of entries and repayment terms should be examined. A blocked account, a future due date or a dispute may prevent immediate set-off.
The existing share capital must be fully paid up before the contemplated issue of new shares. The articles of association and the rights of other shareholders should also be reviewed.
Corporate and accounting documents
The file normally contains the articles, resolutions or drafts, subscription forms, the account statement, agreements governing the advances and accounting evidence of the balance. The entries recording the set-off must match the subscriptions.
Where more than one person subscribes, only part of a claim is converted, or another subscriber pays cash, the amount and method of payment for each subscription must be identified separately.
The notarial certificate
French law provides for a certificate recording payment for new shares by set-off against a liquid and due claim on the company. A notary may issue it after examining the relevant documents. For the amount set off, it takes the place of the depositary’s certificate; it does not certify receipt of funds.
The company may instruct its existing legal and accounting advisers to prepare the resolutions and account statement. A notary’s assignment is agreed after examination of the file.
Further reading
See the conditions applicable to the claim and the documents needed for an initial review.
Discuss your proposed capital increase
Send the available corporate and accounting documents to the office for an initial review of the transaction and the scope of the requested notarial work.
Professionals & partners
Notarial assistance for adviser-led transactions
Lawyers and accountants advising a French SAS may send the current account documents and draft resolutions to the office. The scope of a notarial certificate assignment can then be agreed on the basis of the file.
