There are two reasons why a decline in capital is motivated by losses : restore the equity situation or precede a capital increase.
La decrease in share capital driven by losses is an operation that is often decided in two types of situations depending on whether it serves to restore the situation of equity or whether it is prior to a capital increase.
There are two reasons why a decline in share capital is driven by losses : restore the equity situation or precede a capital increase.
Memory of the reasons for the reduction of the share capital
When a company's balance sheet records deficits, the latter are reflected by shareholders' equity less than half of the share capital. The decrease in social capital can then restore the situation. A capital decrease can also precede a capital increase, to clean up existing losses before the arrival of new investors. We then speak of the famous “accordion blow”.
Share capital reduction operation motivated by losses
La modification of the articles of association of the company is necessary to achieve a capital reduction motivated by losses. This process is done in extraordinary general meeting (AGE).
Capital reduction procedure
There are two possible ways to reduce the share capital:
- Either by decrease in face value titles,
- Either by reduction in the number of shares.
Necessary Steps to Decrease Social Capital
Here are the steps to follow:
- Convening of an extraordinary general meeting,
- Preparation of a report by the auditor on the reasons for and conditions of the operation,
- Holding of an EGM to approve the plan to reduce the share capital,
- Registration of the deed with business taxes (free since 2020),
- Publication of a notice of capital reduction in a newspaper of legal announcements,
- Filing of a transformation file at the business formalities center (CFE).
Absence of creditors' right of opposition
Unlike the capital reduction not motivated by losses, creditors have no right of opposition when the reduction in share capital is motivated by losses.
Tax consequences of the transaction
The decline in share capital motivated by losses is intended to clean up the passive, so no distribution is made. Consequently, shareholders or partners are not taxed.
Explanation of reduction by accordion stroke
The "coup d'accordéon" is a method used by companies which have accounting deficits on the liabilities side of their balance sheet and which want to bring in new capital investors. It takes place in two phases:
- The first step is to perform a decrease in social capital to repay accounting debts,
- The second step is to perform a capital increase to recreate a treasury.
This operation gives the following advantages:
- De clean up equity, i.e. the top of the liabilities of the accounting balance sheet, because the accounting debts will disappear,
- De recapitalize the company thanks to contributions made by new partners or shareholders,
- And to transmit the company to a third party by excluding certain partners or shareholders already present.
This is a complicated operation that involves legal risks.
Administrative procedures relating to the reduction of the share capital
A request must be sent to the business formalities centre, either by post or online on the internet. The transformation file related to the decline in share capital due to losses must include:
- An M2 form in triplicate,
- A copy of the deed registered with the tax authorities which validates the reduction in share capital and the modification of the articles of association,
- A copy of the certificate of publication in a newspaper of legal announcements,
- A copy of the amended articles of association,
- A power of attorney signed by the manager if he has not signed the M2 form himself,
- And the payment of frais of graft.
