Capital increase: procedure and pitfalls to avoid (SAS/SARL)

Increasing a startup’s capital is a strategic step: securing cash flow, bringing in investors, restoring equity or rebalancing share ownership. In France, the transaction is strictly governed by the Code de commerce and requires an extraordinary decision, validly paid-up contributions and formalities making it enforceable against third parties. Otherwise, invalidity and disputes are risks. This practical SAS/SARL guide details the procedure, documents and common pitfalls.

The substantive rules appear in the Code de commerce, particularly those on capital changes and increases (see Legifrance – Changes to capital and share ownership and Legifrance – Capital increases). Useful official summaries are available on Service Public and Service Public Pro.

The 4 legal routes to a capital increase

• Cash contributions (cash/transfers): subscription for new shares and deposit of funds with a depositary (bank, notary), with a certificate. In an SAS, SA rules generally apply by reference (art. L.227-1 and L.227-9, see Legifrance), including minimum payment on subscription and payment of the balance within the statutory period.
• Contributions in kind: valued assets (IP, equipment, securities), in principle through a contributions auditor (commissaire aux apports), strictly required in an SA and, by reference, an SAS (see Legifrance – Capital increases). For SARLs, exceptions exist subject to conditions in the Code de commerce.
• Capitalisation of reserves/premium: converting reserves, profits or share premium into capital (free for shareholders). No registration duties apply to this method, as confirmed by Service Public.
• Debt set-off: converting a debt that is certain, liquid and due into new shares. Take care over evidence of the debt and the sequence of accounting entries (references to the general capital-increase regime on Legifrance).

Step-by-step procedure (SAS/SARL)

1) Preliminary audit: articles, agreement, preferential rights

• Check the articles: competent body, quorum/majorities, preferential subscription rights (DPS) and conditions for disapplication/waiver, possible delegation to the president/manager. In an SAS, collective decisions are determined by the articles, but capital increases fall under the SA regime by reference (art. L.227-1, L.227-9 – see Legifrance).
• Shareholders’ agreement: pre-emption/anti-dilution clauses, approval, veto rights. Breaching them may lead to damages and, sometimes, consequences for validity between the parties.
• Timetable: meeting-notice periods, information rights (making the contributions auditor’s report available before the vote for contributions in kind), subscription period, dates from which shares carry entitlement.

2) First extraordinary decision: authorise the transaction

A first extraordinary decision (shareholders’ meeting or sole shareholder decision) authorises the increase and sets the terms: amount, number/type of shares, issue price and premium, retention/disapplication of DPS, persons authorised to subscribe, timetable, delegation, conditions precedent. The Code describes this stage (see Legifrance – Capital increases).

3) Subscription and payment of contributions

• Subscription forms signed by each subscriber, recording identity, number of shares, amount paid and contribution method.
• Deposit of funds (cash contributions) with a depositary (bank, notary) and deposit certificate. Without a deposit, the increase is irregular and open to challenge (Service Public).
• Contributions in kind: report by an appointed contributions auditor, filed before the vote authorising the increase. In an SA (and, by reference, an SAS), their involvement is generally mandatory and regulated (see Legifrance). In an SARL, a statutory exception allows the expert to be dispensed with below thresholds and with unanimity.

4) Second decision: record completion

After compliant subscription and payment, a second extraordinary decision records completion of the increase, updates the articles (new capital amount and allocation) and, where applicable, records the disapplication of DPS actually carried out. This standard two-stage approach safeguards enforceability (see ESLSCA – Key steps in a capital increase).

5) Mandatory subsequent formalities

• Tax registration (SIE): file the minutes (generally 3 copies), pay fixed duties of €375 or €500 depending on the capital level; capitalisation of reserves is exempt (Service Public).
• Legal notice (JAL) within one month: mandatory particulars (form, name, registered office, SIREN, old/new capital, dates of decisions). The legislation regulates this publicity to inform third parties (Service Public Pro).
• Court-registry filing through the single portal operated by INPI: M2 form, minutes, updated articles, funds deposit certificate, contributions auditor’s report if applicable, proof of publication in a legal announcements journal. The filing triggers the Kbis update and publication in BODACC (INPI – Single portal).
• Internal updates: share transfer register, beneficial ownership register (if thresholds are crossed), cap table.

Points to watch and pitfalls to avoid

• Unanimity in an SAS to increase commitments: an increase through raising nominal value that requires additional contributions increases shareholders’ commitments and requires unanimity (mandatory provision – see the SAS regime on Legifrance). Capitalisation of reserves is exempt from this rule because it requires no new contribution.
• DPS and disputes: disapplication of preferential rights must be reasoned and decided in the prescribed form. A defect can open the way to annulment/damages proceedings. Reference rules are available on Legifrance.
• Valuation of contributions in kind: undervaluation or overvaluation creates a risk of officer liability and challenge by the registry/tax authority. The contributions auditor’s report is a cornerstone.
• Incomplete payment: the statutory minimum payment must be observed according to the company form (SAS/SA versus SARL). Without a compliant deposit certificate, the registry may reject the filing (Service Public Pro).
• Publicity and deadlines: no legal notice or tax registration within one month creates a risk of irregularity and penalties (see Service Public).
• Public offering of securities: if subscription is open to the public, check any information and approval obligations with the AMF.
• European law: the principles of maintaining share capital and protecting shareholders/creditors fall within the consolidated directives (see EUR-Lex).

Indicative timetable and operational checklist

• Days –15 to –30: audit the articles/agreement, model scenarios (cash/in kind/reserves/debts), draft resolutions and letter to investors.
• Days –8 to –15: contributions auditor (if in kind), make reports and documents available.
• Day 0: extraordinary authorisation decision (amount, price, DPS, timetable, delegation).
• Days 0 to +15: subscriptions, deposit of funds, collect forms and KYC documents.
• Day +15: completion decision, updated articles.
• Day +20: SIE registration, legal notice.
• Day +25: file the M2 and supporting documents through the INPI single portal, follow up the Kbis/BODACC.

Legal Ops tip: document each step (signed minutes, certificates, receipts, subscribers’ identity evidence) in a legal data room to facilitate registry checks and future due diligence.

Resolution templates and mandatory particulars

Key resolutions (authorisation)

• Record reasons and the company’s interests; maximum amount; type of shares issued; issue price and premium; timetable.
• Retention/disapplication of DPS and target groups (investors, employees, etc.).
• Delegation to the president/manager to carry out the transaction and record partial subscriptions.

Completion

• Amount actually subscribed and paid; allocation; new capital; update of the articles.

Legal notice – usual particulars

• Company name, form, registered office, SIREN, RCS; decision dates; old and new capital; reference to filing with the court registry.

Alternatives and complements to consider

• Convertible instruments: convertible notes and BSA-AIR to defer valuation and accelerate fundraising.
• Equity incentive policies: BSPCE/BSA/AGA to align teams without immediate cash expenditure.
• Dilution strategy: anticipate the cap-table impact with our ways to limit dilution.
• Fundraising process: place the capital increase in the context of the legal steps in a seed round.
• Group structure: if a holding vehicle is involved, see holding companies and structuring.

For non-dilutive financing solutions and resources, also consult Bpifrance.

Short FAQ

Are two decisions needed to increase capital?

Yes, typically an authorisation decision followed by a completion decision. This sequence facilitates checks (see the legal framework on Legifrance).

What tax duties are payable?

€375 or €500 depending on the capital level, with an exemption for capitalisation of reserves. Details on Service Public.

Is a contributions auditor mandatory?

In an SA and, by reference, an SAS, one is generally required for contributions in kind. In an SARL, exemptions exist subject to conditions. References: Legifrance.

What formalities are required at the court registry?

M2, minutes, updated articles, deposit certificate, contributions auditor’s report where applicable, legal notice, through the single portal operated by INPI.

Key takeaways

A successful capital increase is a sequence of linked steps: a valid decision, properly paid-up/valued contributions, compliant publicity and filings. If in doubt, safeguard the process with an audit of the articles/agreement and a formalities timetable. Official references (Legifrance, Service Public, INPI) and, for a public offering, the AMF provide regulatory guidance.

If difficulties arise (shareholder challenge, potential invalidity, registry issues), consult an adviser and, if needed, explore the remedies described on justice.fr.