Capital transactions
Debt-to-equity conversion in France
Instead of putting in new funds, a shareholder who is owed money by the company, usually through a shareholder current account (compte courant d'associé), can convert that debt into share capital. The operation is subject to precise conditions and, depending on the legal form of the company, to verification by the statutory auditor (commissaire aux comptes) or a notary.
The principle: capitalising a debt instead of contributing funds
A debt-to-equity conversion, in French an augmentation de capital par compensation de créance (literally, a capital increase by set-off against a receivable), works as follows. A shareholder holding a claim on the company, typically a shareholder current account, subscribes to the capital increase not in cash but by extinguishing the claim through set-off against the obligation to pay up the shares subscribed. The company strengthens its equity with no cash movement.
A liquid and due debt
Only a liquid and due debt (créance liquide et exigible) can be set off in this way: liquid, because its amount is fixed or can be determined; due, because its holder is entitled to demand immediate payment, with no term or condition precedent. A shareholder current account in principle meets both conditions, unless a blocking clause is in force.
In an SA, SCA or SAS: a certificate from the statutory auditor or a notary
In an SA (public limited company), article L.225-146 of the French Commercial Code (Code de commerce) requires the paying-up of shares by set-off against liquid and due debts to be recorded in a certificate issued by a notary or by the company's statutory auditor or, if no statutory auditor is in office, by an auditor appointed for that purpose in accordance with articles L.225-228 and L.22-10-66. This certificate replaces the depositary's certificate normally required for a cash subscription. The same rules apply to an SCA (partnership limited by shares) and, through the cross-reference in article L.227-1, to an SAS (simplified joint-stock company).
The role of the statement of account
Before the certificate is issued, the board of directors or management board (the president in an SAS) draws up a statement of account (arrêté de compte) showing the exact balance of the debt being set off at the date of the capital increase, which the statutory auditor certifies as accurate (article R.225-134 of the Commercial Code). Only a debt that is certain, liquid and due can be set off: certain, because its existence is not disputed; liquid, because its amount is determined; due, because the creditor can demand immediate payment. The courts require strict proof that the debt set off is real and of its amount: an insufficiently documented statement of account exposes the paying-up, and therefore the capital increase itself, to challenge.
In an SARL: no certificate required by law, but care is still needed
The formalities of article L.225-146 are specific to joint-stock companies (sociétés par actions). In an SARL (private limited company), no legal provision requires a certificate from the statutory auditor or a notary for this type of paying-up, unless the articles of association (statuts) provide otherwise. Prudence nevertheless calls for a precise statement of account and a written record of it, for the same reasons of proof.
Our approach at audit france
audit france acts on these transactions by certifying the statement of account and issuing the paying-up certificate, with rigorous checks on the reality and amount of the debt set off. The signing partner remains management's single point of contact throughout the engagement.
Why choose audit france
A 100% digital firm dedicated solely to statutory audit, registered with the Haute Autorité de l'Audit (H2A) and a member of the Compagnie Nationale des Commissaires aux Comptes (CNCC) and working across mainland France and the French overseas territories.
This page is a practical guide in English, for information only. It is not legal advice, and only the French texts have legal force. Check the version in force for your own situation.