What is a shareholder loan?
A shareholder loan is a loan granted to a company by a shareholder. It takes the form of an account opened in the books of the company in the name of a shareholder.
The main advantages for a shareholder to finance a company by means of a shareholder loan (instead of share capital contributions) lies in the possibility to:
- obtain repayment of the loan at any time (unless the loan has a specific duration), and
- receive interest on the loan which, subject to not being usury, may be higher than the interest generally offered by banks on deposits.
The advantages for the company are as follows:
- the shareholder loan may be granted by contract and therefore is subject to very little formalities (contrary to a share capital increase, which requires a resolution of the general meeting of shareholders and the accomplishment of certain publication formalities),
- subject to certain conditions, the company may deduct the interest payable on the loan from its taxable benefits.
Who may a grant a shareholder loan?
French regulations regarding banking monopoly (art. L. 511-5 and seq. of the French Monetary and Financial Code (“Code Monétaire et Financier”) prohibit any person who is not a bank establishment from carrying out bank transactions in a habitual manner (“à titre habituel”).
The Code also prohibits any company which is not a bank establishment from receiving funds from the public for a period of less than two years.
Pursuant to article L. 312-2 of the Monetary and Financial Code, the opening of a shareholder account (i.e., the grant of a shareholder loan) does not fall within the banking monopoly prohibitions if the shareholder loan is granted by:
- a director of a French SARL (“gérant”)
- directors (“administrateurs”) of a French SA,
- members of the board of directors (“directoire”) or supervisory board of a French SA
- any shareholder who holds 5% or more of the share capital of a SAS, SARL or SA.
The derogations set forth by article L. 312-2 do not mention the directors (President or Director General) of a SAS or certain directors of a SA who may not be qualified as “administrateurs”. According to an opinion of the ANSA of 5 October 2005, such persons may not grant a shareholder loan unless they hold 5% or more of the share capital of the borrower.
Employees of a company may also grant a shareholder loan in an amount not exceeding 10% of the company’s equity (“capitaux propres“).
Subject to certain conditions, companies within the same group of companies may also proceed to cash management transactions (“opérations de trésorerie“) between them.
Interest on a shareholder loan
A shareholder loan may carry interest.
Such interest may be either calculated at the legal interest rate, or at a contractually agreed rate.
The contractually agreed interest rate may be higher than the interest rate generally offered by banks, however it must not be usury.
The amount of the legal interest rate is determined by law.
The amount of contractual interest rate must be set forth in writing. Indeed, according to article 1907 of the French Civil Code (“Code civil”) and French case law, the absence of a written agreement determining such contractual interest rate is sanctioned by the application of the legal interest rate (instead of the contractually agreed one).
