File : Share capital

Part 3

Legal regime of share capital

Legal regime of share capital

The share capital must exist but no minimum amount is required for most types of company, apart from limited public companies.

To whom does share capital apply?

Share capital is a characteristic common to all companies; however not all are subject to a minimum amount.
The amount of contributions varies with the type of company. In the case of public limited companies, and real estate investment schemes companies (SCPCI), a minimum capital amount is required. This is not the case for the other types of companies in which, even though capital is legally required, no minimum is imposed, such that the total amount of the contributions can be freely set in the articles of association by the future partners or shareholders.

Obligations concerning reality, fixedly, and intangibility of the share capital

Share capital must not be fictitious, in other words it must not be inaccurate or deceptive. This means that the amounts that make up the share capital must themselves be real and accurate: they must belong to the contributor and not to someone else; they must be transferable, they must be of a non-negligible value; they must have direct or indirect benefits for the company; they must be released in their entirety for an amount exactly equal to that of the share capital.
Share capital in theory must be fixed, in other words its amount may not be varied upwards or downwards without the prescribed modification procedures being performed for modifying the articles (except for variable capital companies; it should be noted that variable capital is prohibited in public limited companies).
Share capital must also be intangible. Among other things this means that in theory it cannot be restored to the partners or shareholders until all the company's creditors have been paid; no profits may be paid out to partners or shareholders if assets are insufficient to guarantee the amount of share capital.

Publication and material presentation of the share capital

Companies' articles of association must specify the amount of share capital; this must also be stated at the time of registration on the Trade and Companies Register.
In addition, concerning mainly SARL type companies, and joint stock companies, statement of the amount of share capital must be made along with the company denomination and mention of the legal form, on all hardcopy media for the main deeds and documents generated by the companies and destined for third parties, (especially letters, invoices, announcements, miscellaneous publications and information provided on the company's website).

Modifying the share capital

Reductions in share capital are quite often the result of plans to temporary reduce losses, and therefore the desire to improve the company's financial health. However reductions can also be carried out for other reasons, and may be linked to plans for optimising the company's financial structure in order to improve its financial administration, or for example, to reduce the amount of subscribed capital in order to allow takeover of the company by another company.
In order not to harm the company's creditors, reduction in share capital is very strictly regulated by rules that may be resumed as follows:

  • it does not give rise to the formation of a new company;
  • the amount of share capital cannot be reduced below the legal minimum that may be required for certain types of companies;
  • reduction follows the same rules as modification of the articles, in other words it can only be decided through extraordinary decision on the part of the partners or the shareholders, under conditions specific to each legal type;
  • it can be technically performed in accordance with three main procedures:
    – either by reduction of the nominal value of the member shares or shares (in other words the value given by dividing the amount of share capital by the number of capital units, in other words the number of members shares or shares);
    – or by reduction of the number of members shares or shares;
    – or by the use of both procedures simultaneously.

The decision falls under rules of publication applicable to modifications of the articles of association, specific to each legal company form, mainly for purposes of informing third parties, including creditors, to whom such a reduction in the share capital could be harmful.

By contrast, even though they may be very detailed, especially in joint stock companies, the performance conditions for increases in share capital will be normally easier, because this type of modification rarely runs the risk of harming third-party creditors.
Increase in share capital is also subject to modification rules in the above-mentioned articles of association. It may be technically performed in accordance with the following modalities, for example in SARL type and SA companies: by cash contributions (sums of money), and/or contributions in kind, and/or by incorporation (among other possibilities) of the profits, of reserves (in other words any sum of money initially taken from the profits and usually kept at the disposal of the company).
For other types of company, and especially, commercial companies such as general partnerships, and limited partnerships as well as civil companies, since the notion of capital is a secondary consideration, conditions for increasing the capital can be freely decided in the articles of association.
In all cases, the decision to increase the capital also falls under the publication rules that apply to modifications of the articles, specific to each legal company form.

Perform modification formalities online
Access other forms