Cash Capital Increases in a French SARL: How to Execute Them Correctly

Increasing share capital in cash (augmentation de capital en numéraire) is a high-stakes operation for a French SARL. Executed correctly, it strengthens equity, clarifies governance, and reassures creditors. Executed poorly, it invites nullity actions, manager liability, and shareholder disputes. This guide sets out, in clear terms, the two lawful execution paths, the content of the resolutions, the mandatory filings, and the fiscal consequences—without cross-references or digressions.

1. One-Step Route — Single Shareholders’ Decision When Funds Have Been Received Upfront

When all subscriptions are fully arranged and funds have already been paid into a compliant deposit account, the company may finalize the increase through one extraordinary decision (extraordinary general meeting, written consultation if authorized, or unanimous act).

> Required Majority and Quorum

• Majority: the threshold for amending the articles (typically two-thirds or three-quarters, depending on the company’s regime).

• Quorum: for SARLs formed after 3 August 2005, one quarter on first call and one fifth on second call.

> Mandatory Content of the Resolutions

The resolutions must be precise and comprehensive. They should state:

1. Decision to increase capital and the exact amount of the increase.

2. Identity of each subscriber and the amount paid by each.

3. Method of payment used by each subscriber (bank deposit, set-off where admissible, etc.).

4. Name and address of the depositary (bank, notary, or Caisse des dépôts) holding the funds on the dedicated “capital increase to be completed” account.

5. Number of new shares and their nominal value, allocated to each subscriber in consideration for the contribution.

6. Proof of payment of at least one quarter of the nominal value on subscription, with the remainder to be paid within five years.

7. Issue premium, if any, and its payment schedule.

8. Admission (agrément) of new shareholders, if third parties subscribe and approval is required.

9. Amendment of the articles to reflect the new capital and resulting distribution.

10. Powers to a mandated person to complete publicity (legal notice, RCS filing) and to withdraw deposited funds.

> Statutory Update and Publicity

The articles must be updated to record the new capital and share allocation. The company must publish a legal announcement and file the amended documentation with the registry so the RCS reflects the new capital. The depositary will release funds upon production of the increase documentation; in practice, banks request the certified minutes evidencing completion.

> Litigation Note

Even where a capital increase has been adopted by written consultation, shareholders may contest an irregular or abusive process. Courts will scrutinize the completeness and accuracy of the resolutions and the fairness of the procedure.

2. Two-Step Route — Staged Shareholders’ Decisions When Funds Will Be Deposited Later

Where subscriptions are to be collected after the principle is approved, the SARL proceeds with two extraordinary decisions:

Step 1 — Decision Authorising the Increase (Framework Decision)

This authorising decision should:

• Set the amount of the increase and terms of issue.

• Define the subscription mechanics (subscription period, minimum paid-up fraction, any preferential right decided for existing shareholders, subscription price and premium).

• Grant the manager (gérant) full powers to receive subscriptions, collect payments, and deposit funds with the appointed depositary.

The manager then organizes the subscription process within the authorized period, ensures the legal deposit of funds, and secures evidence of at least one-quarter paid up per new share.

Step 2 — Decision Recording Completion (Closing Decision)

Once funds are deposited:

• Admit new shareholders (if third-party subscribers participated and approval is required).

• Take note of the manager’s subscription and payment statements and recognize their accuracy.

• Formally record completion of the capital increase.

• Designate a mandatary to withdraw deposited funds.

• Amend the articles to state the new capital and share allocation.

• Grant powers for publicity and RCS filing.

This second decision confirms, documents, and publishes the new capital; it does not retroactively create the subscriptions but formally records their outcome and triggers the final corporate formalities.

> Majorities and Quorum

Both decisions require the majority (and, where applicable, quorum) for amending the articles. If the increase were to be effected by raising the nominal value of existing shares, unanimity would be required because shareholders’ obligations increase. In contrast, increases by incorporation of reserves may be adopted by simple majority.

> Payment Schedule

By law, at least one quarter of the nominal value must be paid on subscription; the remaining three quarters may be called and paid in one or more instalments within five years from the date the increase becomes definitive.

3. Operational Requirements Common to Both Routes

A. Full Payment of Existing Cash Contributions

Before any cash increase, all previously issued cash shares must be fully paid up. Failure to comply exposes the increase to nullity.

B. Deposit of Subscribed Funds

Within eight days of receipt, funds must be deposited with a bank, a notary, or the Caisse des dépôts under a dedicated label such as “augmentation de capital à réaliser”. If the increase is not completed within six months of the first deposit, subscribers may apply to the president of the Commercial Court to retrieve their funds.

C. Evidence and Internal Controls

Maintain a complete audit trail:

• Deposit certificates, bank attestations, subscriber lists, payment proofs.

• Detailed minutes describing the calculation of issue prices and any premium.

• If payment is made by set-off against a shareholder’s receivable, ensure the receivable is certain, liquid, and due; record this expressly in the minutes and, where applicable, support it with certified account statements.

D. Preferential Subscription Rights by Decision or by Statute

SARLs have no statutory automatic preferential right. If the company wishes to protect existing shareholders from dilution, it must provide a preferential allocation through the articles or by specific extraordinary decision for the increase at hand. The right may be transferable if the articles so provide.

E. Admission of New Shareholders (Agrément)

Admission rules in the articles apply to new subscribers. The closing decision must record their admission and their definitive allocation of shares.

F. Issue Premium

Where the company has reserves, latent gains, or a going-concern value exceeding nominal, an issue premium is advisable to protect existing shareholders’ interests and company equity. The premium may be paid in tranches, and forms part of equity.

4. Formalities After Completion of Cash Capital Increase

Once the capital increase has been lawfully approved and the funds deposited, the operation must be finalized through mandatory corporate and administrative formalities. These ensure legal effectiveness, opposability to third parties, and the ability to withdraw the funds. Proper completion of these steps confirms that the company’s share capital has been validly increased and duly registered.

• Legal announcement in an authorized journal.
• RCS filing (forms, certified minutes, updated articles, and, where required, the depositary’s certificate).
• Withdrawal of deposited funds by the authorized mandatary once completion has been verified.
• Accounting entries to reflect the operation: the cash received is allocated to subscribed capital and, if applicable, to share premium accounts; fees are either capitalized or expensed according to the company’s accounting and tax treatment.

5. Tax Treatment (Registration and Costs) of Cash Capital Increase

The registration and tax regime applicable to a capital increase depends on the nature of the operation. These obligations, often underestimated, are essential to ensure fiscal regularity and avoid penalties in the event of audit or control.

• Registration rules: Cash capital increases and increases by incorporation of profits or reserves are governed by specific provisions. Increases by incorporation of reserves or retained earnings are registered free of charge.

• Mandatory filing: Acts evidencing increases other than by cash or incorporation of reserves must be registered within one month with the competent tax office.

• Deduction of costs: Fees related to the increase (legal, publication, advisory, notarial, or banking) may be:

  • expensed in the financial year if the general conditions for deductibility are satisfied; or

  • amortized on a straight-line basis over a maximum of five years; or

  • charged to the issue premium, in accordance with commercial accounting standards.

The tax treatment always follows the accounting treatment chosen and consistently applied by the company.

6. Governance and Litigation Risk Management

A capital increase modifies corporate ownership and voting power, and as such, must be handled with transparency and procedural fairness. Proper governance mitigates the risk of future litigation, particularly claims of abuse of majority or irregular approval procedures.

• Prepare a detailed explanatory report setting out the justification for the amount, price, premium, and timing.

• Ensure procedural fairness by allowing reasonable subscription periods, avoiding holiday months, and providing all shareholders with the same financial information.

• Substantiate valuation methods if an issue premium is charged, preserving written evidence of the calculation.

• Apply admission rules strictly for new shareholders, as a defective agrément can nullify the increase.

• Monitor subsequent cash calls on the remaining three quarters of unpaid capital.

• Coordinate fund release with the bank only after completion and filing of all corporate documentation.

7. Practical Checklist for a SARL Cash Capital Increase

For practitioners, a structured checklist helps ensure that no step is omitted and that all legal, fiscal, and procedural obligations are met. The following sequence is recommended for any cash capital increase in a French SARL:

1. Structure the increase: determine the amount, nominal value, issue premium, preferential subscription rights, and subscription calendar.

2. Choose the appropriate route:

   • One-step procedure (funds already deposited); or

   • Two-step procedure (authorization first, completion later).

3. Convene or consult shareholders with valid notice and within the required timeframe.

4. Adopt resolutions with the proper majority and quorum, recording each statutory element precisely.

5. Collect subscriptions and deposit funds within eight days of receipt.

6. Admit new shareholders, if applicable, and formally record completion of the operation.

7. Amend the articles, publish legal notices, and file with the RCS.

8. Withdraw funds upon proof of deposit and completion.

9. Book accounting entries accurately and determine the appropriate tax treatment for associated costs.

10. Archive all records—minutes, subscription lists, deposit certificates, and proof of filings—for future audits and potential litigation defense.

FAQ — Increasing Share Capital by Cash Contributions in a French SARL

Q1. Can we complete a cash increase without paying up at least one quarter on each new share?
No. A minimum 25% must be paid on subscription; the balance is payable within five years.

Q2. Must existing cash shares be fully paid before any new cash increase?
Yes. Otherwise the increase is exposed to nullity.

Q3. Can a shareholder’s loan be converted into capital by set-off?
Yes, provided the receivable is certain, liquid, and due, and the minutes explicitly record the set-off; avoid this route if the meeting required “cash only” payment.

Q4. Are preferential subscription rights automatic in a SARL?
No. They apply only if the articles or an extraordinary decision create them for the operation.

Q5. Is a second decision always necessary?
No. If funds are already deposited and all conditions are satisfied, a single decision may both approve and complete the increase.

Q6. How do we protect existing shareholders against dilution where reserves or latent gains exist?
Use a preferential right and/or an issue premium calibrated to the company’s value to ensure equitable treatment.

Q7. What happens if the increase is not completed within six months after the first deposit?
Subscribers can petition the Commercial Court president to recover their funds.