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E-library Corporate Law Company loans (French corporate law)

Company loans (French corporate law)

06 Mar 2012

Banking monopoly

The right to lend money to individuals and corporations on a regular basis is reserved in France to financial insitutions. Money lending by any person other than a bank is therefore strictly prohibited, and constitutes a criminal offence. Similarly, companies are prohibited from borrowing money from any person other than a financial institution. Shareholder loans to a company in which the lending shareholder hold 5% or more of the share capital, as well as company borrowings in the form of bonds or convertible bonds, are legal and do not fall within the scope of the French banking monopoly.

Shareholder loans

Only shareholders who hold individually 5% or more of a company's share capital may grant shareholder loans to such company.

Intra-group upstream and downstream loans

A parent company may lend to, and borrow from, its subsidiaries. If the transaction does not comply with the corporate interests of the subsidiary, a risk of liability for mismanagement or abuse of corporate power exists. In addition, if the loan agreement is not entered into on arm’s length terms, a risk of tax reassessment on interest which should have been paid exists. Finally, such agreements constitute agreements between related parties and must follow the procedure applicable to the so-called “regulated agreements”.

"Prohibited agreements" ("Conventions interdites")

Subject to certain exceptions, loans or guarantees granted by a company to any of its corporate officers (such as CFO, president, directors, members of supervisory board, etc.), their family members or other persons acting indirectly on their behalf, are strictly forbidden. Any such loans or guarantees are null and void.

Financial assistance

Financial assistance, defined as the act, for a company, to advance funds, grant loans or guarantees (including collateral guarantees) to any person for the subscription or purchase of its own shares or those of its parent company, is strictly prohibited under French law and constitutes a criminal offence.

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