Usefulness of corporate capital reductions in France

17-11-2010

In France, all companies can reduce their capital during lifetime, regardless of the type of companies. Your French business Attorney will lead you through those difficult steps.

However, in civil companies and partnerships having no minimum capital, the partners are liable indefinitely on their money; therefore it is rare that these companies have significant capital and operations that make heavy on their capital. The cuts are much more frequent in LLCs, even if the amount of capital is freely determined by the statutes, and more in commercial companies including public limited companies.

The law distinguishes between operations to reduce capital motivated by losses and reduction operations are not motivated by losses. Only two items, L 225-204 and L 225-205 of the Commercial Code, governing capital reductions Companies per share including stock companies, then it is a frequent operation and major life business.

First, reductions in capital losses are driven by accounting transactions that involve transfer losses from one year to the capital. A company may decide to pay off its losses by deducting the capital if it is an amount greater than the losses. These transactions to reduce capital by charging not accompanied by any distribution of assets between the shareholders, therefore, the creditors of the company may oppose the transaction because there is no distribution, the operation does not impair them. The capital reduction entailing a variation of association of the company, only an extraordinary general meeting can decide it. In LLCs and joint stock companies are required by law to effect a capital reduction because the net assets cannot be less than half the nominal capital. Thus, it should either vote to dissolve, which is an EGM, or to clear the situation of the company reducing its capital.
 

Secondly, the reduction in capital may not be motivated by losses but determined by a modification of the current status of social life. This opens the creditors of the company the right to object to the transaction within 20 days after the resolution of the EGM deciding on the capital reduction. Creditors have the right to object but not to interfere with the operation. Thus, if an opposition is filed, the judge may either receive opposition from creditors and have it right by ordering the immediate repayment of debt, or ask the company to provide additional collateral to the creditor. This right of objection is suspending the execution of capital operation. Moreover, Article L 221-205 of the Commercial Code provides for equal distribution of assets in connection with the portion of the share held by the shareholder in the company, under penalty of nullity. The shareholders may unanimously waive the benefit of distribution to the advantage of one or more of them. The reduction of capital may appear as a way to exclude one or more partners. Therefore to protect its rights, it is wise to surround himself with the advice of knowledgeable professionals, including French lawyers used to such transactions.

Picovschi Lawyers

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