My Bank Refuses to Handle My Share Capital Increase in France: What Are the Alternatives?

You are planning a share capital increase in a French company, but your bank refuses to receive the subscription funds or issue the certificate required to complete the transaction.

This does not necessarily mean that the capital increase cannot proceed.

The funds for a share capital increase may also be deposited with a French notary, subject to review and acceptance of the transaction and completion of the required identification and compliance checks.

This alternative can be particularly relevant when the capital increase involves foreign shareholders, international investors or funds transferred from abroad.

Why Can a Bank Refuse to Handle a Share Capital Increase?

There are many possible reasons why a bank may decline to act as depositary for a capital increase.

A refusal does not necessarily mean that there is a legal problem with the transaction.

Some banks simply do not provide a deposit service for share capital increases. Others restrict the service to existing customers or to companies meeting specific internal criteria.

Banks also apply their own compliance and risk policies.

As a result, difficulties may arise when the transaction involves:

• a shareholder residing outside France;
• a foreign individual investor;
• a foreign company subscribing for shares;
• funds transferred from a bank account outside France;
• several investors located in different jurisdictions;
• or a complex international ownership structure.

The fact that a bank declines to handle such a transaction does not, by itself, mean that the proposed capital increase is prohibited under French law.

Can a French Notary Handle the Capital Increase if the Bank Refuses?

A French notary can act as depositary of the funds for a share capital increase where the applicable legal conditions are satisfied.

The notary carries out an independent review of the transaction and is not bound by the commercial decision made by the company’s bank.

A previous refusal by a bank therefore does not automatically prevent the notary from accepting the deposit.

However, using a notary does not provide a means of avoiding the identification, anti-money laundering or source-of-funds requirements applicable to the transaction.

The company and its investors must provide sufficient documentation for the notary to understand the transaction, identify the relevant parties and carry out the required checks.

Do We Need to Explain Why the Bank Refused?

Where the reason is known, it is useful to provide this information when submitting the file.

There is an important difference between, for example:

• a bank that simply does not provide a capital increase deposit service;
• a bank that provides the service only to certain customers;
• a refusal based on the investor’s country of residence;
• and a situation in which the bank was unable to establish the identity of the investor or the origin of the funds.

Providing this information from the outset helps identify any potential issue before funds are transferred.

A previous bank refusal should therefore be disclosed where relevant, together with the reason given by the bank if it is available.

What if the Shareholder or Investor Is Based Outside France?

The fact that an investor is a foreign national or resides outside France does not, in itself, prevent that person from participating in a capital increase of a French company.

A foreign company may also subscribe for shares issued by a French company.

International transactions nevertheless require appropriate documentation.

For an individual investor, the notary must be able to verify the person’s identity.

Where the subscriber is a foreign company, documentation may be required to establish:

• its legal existence and registration;
• its registered office;
• the identity and authority of its legal representative;
• its ownership structure;
• and its ultimate beneficial owners (UBOs).

The origin of the subscription funds must also be identifiable and, where necessary, supported by appropriate documentation.

Certain foreign investments in companies operating in sensitive sectors may also be subject to the French foreign investment control regime.

Can the Subscription Funds Be Transferred from Abroad?

Yes, subject to prior review and acceptance of the transaction.

The fact that the funds originate from a foreign bank account does not, by itself, prevent them from being deposited with a French notary.

However, the transfer must be consistent with the subscription documentation.

The notary must be able to identify the person or company making the payment and establish the connection between that payment and the relevant subscriber.

For this reason, investors should not transfer the funds before the documentation has been reviewed and payment instructions have been provided.

Where the funds are transferred from a country that applies foreign exchange controls or restrictions on outbound investments, the investor must also comply with the applicable local regulations.

Does the Foreign Investor Need a French Bank Account?

Not necessarily.

A foreign shareholder does not generally need to open a French bank account solely in order to subscribe to a share capital increase of a French company.

Subject to review and acceptance of the transaction, the subscription amount may be transferred directly from a foreign bank account.

This can be particularly useful where the French company’s bank has declined to handle the capital increase because the investor is based abroad.

The account used for the transfer should nevertheless be consistent with the identity of the subscriber.

Payments made by unrelated third parties may require additional explanations and documentation and should not be made without prior approval.

What Documents Should Be Provided to the French Notary?

The documents required depend on the French company, the terms of the capital increase and the identity of the subscribers.

The file will generally include documents relating to:

• the French company and its registration;
• its articles of association;
• the corporate resolutions or draft resolutions concerning the capital increase;
• the subscription documentation;
• the company’s legal representatives;
• the identity of individual subscribers;
• the corporate documentation of legal entity subscribers;
• the ultimate beneficial owners of corporate subscribers;
• and, where required, the origin of the subscription funds.

Additional documentation may be requested depending on the circumstances of the transaction.

For a foreign company, the required documents will depend on its country of incorporation and legal form.

Can the Procedure Be Handled Remotely?

In many cases, yes.

The documentation can be submitted electronically for preliminary review.

This is particularly useful where the capital increase involves investors located outside France.

Once the file has been reviewed and accepted, payment instructions can be provided and the subscribers can transfer their respective investment amounts.

Following receipt of the funds and completion of the required checks, the notary can issue the depositary’s certificate.

The foreign investor does not therefore generally need to travel to France solely for the purpose of depositing the subscription funds.

What Happens After the Funds Have Been Deposited?

Once the subscription funds have been received and the required checks completed, the notary can issue the depositary’s certificate.

The company can then proceed with the corporate and registration formalities required to complete the share capital increase.

Once the capital increase has been completed and the required supporting documents have been provided to the notary, the deposited funds can be released to the company.

The funds are therefore deposited for the purposes of the capital increase and are not immediately available to the company before the operation has been completed.

Can Our French Notary Office Assist After a Bank Refusal?

Chassaint & Cerclé Notaires, a French notary office based in Paris, handles deposits of funds for share capital increases of French companies.

Our office can review transactions involving foreign shareholders, foreign companies, international investors and subscription funds transferred from abroad.

A previous refusal by a bank does not, by itself, prevent the office from reviewing the transaction.

Each file is nevertheless examined individually and must satisfy the applicable identification, compliance and source-of-funds requirements.

Where the reason for the bank’s refusal is known, it should be communicated when the file is submitted so that any potential difficulty can be identified at an early stage.

Deposit Your Capital Increase Funds with a French Notary

Chassaint & Cerclé Notaires assists French companies with the deposit of funds for share capital increases and the issuance of the corresponding depositary’s certificate following receipt of the funds and approval of the file.

Requests can be submitted remotely, including where the transaction involves foreign shareholders or international investors.

For further information about the procedure, required documentation and submission of your file, please visit our dedicated share capital increase page, click here.