Capital Increase in an SAS

Introduction: Why Capital Increases Matter in an SAS

The Société par Actions Simplifiée (SAS) is now the most widely used corporate form in France, chosen by start-ups, family businesses, and joint ventures alike. Its success lies in its flexibility: shareholders enjoy wide autonomy in designing governance and management rules.

But when it comes to increasing share capital, this flexibility is coupled with strict rules to ensure transparency, legal certainty, and creditor protection. A capital increase can strengthen equity, attract new investors, allow debt restructuring, or simply restore financial health after losses.

For entrepreneurs and investors, understanding the process, legal requirements, and strategic impact of capital increases is essential.

1. Who Has Authority to Decide a Capital Increase?

Unlike the Société Anonyme (SA), where the decision-making process is tightly regulated by law, the SAS allows shareholders to define authority in the bylaws.

a. Shareholders’ collective authority

Article L. 227-9, para. 2 of the Commercial Code states that decisions on capital increases are taken collectively by the shareholders “under the conditions provided in the bylaws.”

This means:

• quorum and majority rules are freely set in the bylaws,

• notice procedures must also be drafted with precision,

• SA rules cannot be applied automatically (e.g., Article L. 225-130 on capital increases by incorporation of reserves refers to SA rules not suited to the SAS).

Practical tip: when drafting bylaws, always include clear procedures for capital increases to avoid uncertainty later.

b. Delegation to management

By analogy with Articles L. 225-129 et seq. (SA rules), the SAS may delegate authority to increase capital to the president or any other director expressly mentioned in the bylaws (Article L. 227-1, para. 3).

• Delegation may be general or limited.

• Maximum duration: 26 months.

• The resolution must expressly authorize the delegate to amend the bylaws after the increase.

In a single-shareholder SAS (SASU), delegation is forbidden: the sole shareholder cannot transfer their powers (Article L. 227-9, para. 3).

c. Sub-delegation: a unique SAS flexibility

In an SA, sub-delegation is strictly regulated (Article L. 225-129-4, especially for listed companies). In an SAS, thanks to the broad statutory freedom of Article L. 227-1, para. 2, sub-delegation is possible if provided for in the bylaws.

Example: shareholders authorize the president to increase capital, and the president may sub-delegate part of this power to a managing director — provided bylaws expressly allow it.

2. Prior Information for Shareholders: Transparency and Security

Even in a flexible framework, SAS capital increases require detailed pre-information for shareholders.

a. Mandatory reports

Before any decision, several reports are required:

• Management report: explaining purpose, methods, and financial impact (Articles L. 225-129 and L. 225-135).

• Auditor’s report: if a statutory auditor exists, or if one is specially appointed for the operation.

• Special auditors’ report: in case of contributions in kind or special benefits (Articles L. 225-8 and L. 225-147).

Deadlines:

• 8 days before the meeting for contributions in kind,

• 14 days before subscription closes for increases with preferential rights,

• 15 days after the decision if made under delegation.

Absence or irregularity of these reports may render the increase null and void.

b. Role of auditors and notaries

Special certifications are required when:

• Cash payments: verified by a bank certificate.

• Debt offset: certified by a statutory auditor or notary.

Even without a permanent auditor, an SAS must appoint one for this specific purpose.

3. Practical Modalities of Capital Increases

The Commercial Code recognizes multiple methods for increasing SAS capital.

a. Forms of increase

1. In cash: shareholders or third parties inject funds.

2. By offsetting debts: converting company debts into equity.

3. By incorporating reserves, profits, or premiums: moving funds from reserves into capital.

4. In kind: contribution of tangible or intangible assets (property, patents, brands).

5. By converting securities: bonds or other instruments converted into shares.

Each form requires specific documentation and compliance (valuation, certification, subscription forms, registry filing).

b. Preferential subscription rights (DPS)

In principle, a cash increase grants shareholders a preferential subscription right (DPS).

• Proportional to existing shareholding,

• Exercise period: minimum 5 business days, even for unlisted SAS,

• Rights can be exercised, transferred, or waived,

• DPS can be removed by decision of shareholders — often to allow entry of new investors.

Removal of DPS must be justified in a special management report and certified by an auditor (Articles L. 225-135 and L. 225-138).

Example: In a fundraising round, existing shareholders may waive or transfer DPS to make room for venture capital investors.

4. Special Cases: Employee Participation

The law requires that employees be considered in some capital increases.

a. Mandatory deliberation

Article L. 225-129-6 of the Commercial Code requires any SAS with employees to deliberate on the possibility of reserving part of the increase for employees under a company savings plan (PEE).

• Applies unless no employees are present, or if the increase results from earlier financial instruments.

• Deliberation is mandatory on pain of nullity — even if no employee shares are issued.

b. Legal framework

Governed by Article L. 225-138-1 and the Labor Code, these mechanisms let employees acquire shares under preferential conditions.

The 2019 PACTE Law simplified rules by abolishing the obligation to deliberate every three years, but the obligation remains for each actual capital increase.

5. A Flexible Yet Strictly Regulated Regime

Despite its flexibility, the SAS must respect substantial requirements for capital increases:

• The issue price is freely set by shareholders, but must be justified in the management report.

• Formalities remain mandatory: subscription forms, notarial certificates, registry filings, amendment of bylaws.

• Publication in the official journal and entry in the Trade and Companies Register are required for enforceability.

Practical Example: An SAS raising funds from angel investors must carefully draft shareholder resolutions, provide certified reports, issue subscription forms, and file registry updates before the capital increase is legally effective.

6. Risks, Sanctions, and Practical Pitfalls

• Nullity of the increase: if reports, certifications, or deliberations are omitted.

• Shareholder disputes: if DPS rights are removed without proper justification.

• Director liability: if deadlines are ignored or bylaws violated.

• Investor confidence: poorly structured increases may deter future investors.

7. Summary Table

Conclusion: Capital Increase in a SAS: a Strategic but Technical Operation

A capital increase in an SAS is far more than a simple administrative act. It is a complex legal and financial operation, requiring:

• rigorous compliance with reports and deadlines,

• careful drafting of shareholder resolutions and bylaws,

• legal and accounting expertise to ensure security.

When properly handled, it is a strategic lever:

• strengthening the company’s balance sheet,

• opening the door to new investors,

• consolidating financial structure for long-term growth.

When mishandled, however, it can lead to nullity, shareholder disputes, or even director liability.

For entrepreneurs, the message is clear: anticipate, prepare, and seek professional advice. The SAS offers flexibility — but this flexibility must be combined with legal rigor to unlock the full potential of capital increases.