How to Finance a Company in France: Equity, Debt and Convertible Instruments

Financing a company in France involves combining equity (capital increases, BSA and BSPCE), debt (bank loans, bonds, venture debt) and hybrid instruments such as convertible bonds (OC) or bonds with share subscription warrants attached (OBSA). Each tool is chosen for its impact on dilution, cost and control, and for the risk of recharacterisation for tax and social security purposes.

French companies have a wide range of financing tools available, but each instrument has its own consequences for governance, taxation and dilution. Foreign founders and investors who default to a straightforward capital increase often miss cheaper or more suitable options. They also underestimate the risks clarified by a substantial body of recent case law, particularly on shareholder current account loans and the risk of gains on incentive instruments being recharacterised as employment income. This guide presents the main equity, debt and hybrid instruments, the situations in which each should be used, and the pitfalls our practice regularly helps clients address.

French financing instruments at a glance

What equity instruments can a French company issue?

Equity provides capital in exchange for securities, but France offers far more than ordinary shares alone.

• Ordinary shares: a standard capital increase, diluting existing shareholders in proportion to the amount raised.
• Preference shares: shares carrying tailored rights to dividends, voting or liquidation proceeds (Articles L. 228-11 et seq. of the French Commercial Code), widely used by investors to implement liquidation preference or ratchet mechanisms.
• BSA (bons de souscription d’actions, share subscription warrants): the right to subscribe for shares at a later date at a fixed price. Useful for investors and shareholders alike, they are also commonly used in management packages for executives and key managers.
• BSPCE (bons de souscription de parts de créateur d’entreprise): subscription warrants reserved for eligible start-ups, with their own tax and social security regime, designed to attract and retain key employees.

BSPCE: what the 2025 Finance Act changes

The 2025 Finance Act (Law No. 2025-127 of 14 February 2025, as amended by the 2026 Finance Act, Law No. 2026-103 of 19 February 2026) has not undermined the attractiveness of the BSPCE regime, but it has clarified and tightened certain aspects, particularly for BSPCE granted as part of a management package:

• Distinction between acquisition gain and net gain: the gain realised on exercise (the difference between the value of the shares and the exercise price) is now separated from the subsequent capital gain on disposal, with each subject to its own tax and social security treatment.
• Cap on the favourable regime: the gain taxed under the capital gains regime remains advantageous up to a cap based on the beneficiary’s financial performance (three times the “project multiple”). Above that cap, the gain is recharacterised as employment income and subject to a specific 10% employee contribution.
• Exclusion from the PEA: the law clarifies that shares acquired on the exercise of BSPCE are not eligible for the French equity savings plan (plan d’épargne en actions, PEA) where they are acquired in consideration for duties as an employee or executive.

In practice, this does not call into question the relevance of BSPCE for key employee incentive plans: the regime remains by far one of the most favourable in Europe. However, it requires more carefully drafted grant plans and closer monitoring of valuation at exercise, which now determines a taxable amount without guaranteeing the beneficiary immediate liquidity.

Key risk: recharacterisation as employment income

In three plenary decisions of 13 July 2021 (Nos. 428506, 435452 and 437498), the Conseil d’État (France’s highest administrative court) set out an analytical framework since confirmed on several occasions, notably in a decision of 17 November 2021 (No. 439609). The gain realised on the sale of shares, BSA or options granted to an executive or employee is taxed as employment income, rather than as a capital gain at the flat rate, where it derives essentially from the performance of their duties rather than from genuine investor risk. Three criteria are examined: subscription at a price reflecting the market value of the security at the time of acquisition, a genuine investment by the beneficiary, and an actual risk of loss that is not neutralised by an exit guarantee mechanism.

This framework applies to BSA and preference shares granted to executives or employees outside the specific BSPCE regime, which benefits from its own rules subject to the cap introduced by the 2025 Finance Act. It directly shapes the structuring of management packages: a poorly calibrated instrument, with a nominal exercise price, no genuine risk or a buy-back guarantee at a floor price, exposes the beneficiary to recharacterisation and the employer to a reassessment of social security contributions. However, the Paris Administrative Court of Appeal held on 7 February 2024 (No. 22PA02007) that the interposition of a holding company subject to corporate income tax prevents such recharacterisation, unless the tax authorities have first set aside the holding structure under the tax abuse of law procedure.

When should convertible or hybrid instruments be used?

Convertible securities make it possible to raise funds immediately and set the price later, which suits fast rounds and bridge financing. A convertible bond converts into shares upon the occurrence of agreed events, while an OBSA is a bond with subscription warrants attached. Both give investors the protection of a debt claim together with exposure to equity upside, and avoid the need to negotiate a full valuation straight away.

Formal requirements must be observed: a joint-stock company (société par actions) that has not yet drawn up two balance sheets duly approved by its shareholders must have its assets and liabilities verified by a specially appointed auditor before the issue, failing which the bonds issued are null and void. Its share capital must also be fully paid up (Article L. 228-39 of the French Commercial Code). This requirement only falls away if the issue is guaranteed by a company that has itself drawn up two approved balance sheets. Since an Ordinance of 10 May 2017, shareholders are no longer required to vote on the auditor’s report themselves; it is simply submitted to the body competent to decide on the issue.

In practice, the documentation for an OC or OBSA must also carefully specify the conversion trigger events (new round, change of control, maturity), the discount and valuation cap mechanism, and the ranking of the claim in the event of partial conversion or failure of the next round. Imprecise drafting of these clauses is the most frequent source of disputes between shareholders and investors at the time of conversion.

What debt options exist beyond bank loans?

Debt preserves the shareholding structure but must be serviced.

• Bank loans: standard term loans, often accompanied by security or financial covenants (leverage ratios, cross-default clauses).
• Bonds: debt securities placed with investors, ranging from simple to listed issues, subject to the issuance conditions applicable to joint-stock companies.
• Venture debt: loans for venture-backed companies, generally complementing equity and accompanied by warrants giving the lender a marginal stake in the capital. Covenants are often more flexible than for a standard bank loan, but the documentation frequently includes subordination clauses in favour of subsequent funding rounds, which should be negotiated upfront.

Shareholder current account loans: a flexible tool, but extensive litigation

In practice, the shareholder current account loan (compte courant d’associé) remains the fastest way to inject funds without going through a capital increase procedure. However, its regime, which is essentially derived from case law, gives rise to considerable litigation, with several landmark decisions handed down recently.

• Principle: repayable at any time. According to settled case law, a current account advance is an open-ended loan, repayable on the shareholder’s first demand, and the company cannot rely on its cash position to refuse repayment, unless otherwise agreed.
• French Supreme Court (Cour de cassation), Commercial Chamber, 12 February 2025, No. 23-17.483, published in the Bulletin: the Court reaffirmed this principle and held that the company’s obligation to pay the buy-back price of a shareholder’s shares is independent of its obligation to repay that same shareholder’s current account. Failure to repay the current account therefore does not, in itself, justify rescission of the share buy-back, unless an express contractual undertaking links the two transactions.
• Paris Court of Appeal, 15 May 2025, No. 24/05837: a lock-up agreement is enforceable against the shareholder where it is in writing, specifies an amount and is limited in time. This is a common scenario where a bank makes a loan conditional on the shareholders’ current accounts being maintained to secure the stability of quasi-equity.
• Key risk: a general meeting resolution passed after the repayment request, without the consent of the shareholder concerned, cannot be relied upon against them to defer payment. To secure tight cash flow, the lock-up agreement must be negotiated and signed upfront, ideally when the funds are advanced, rather than improvised once the repayment request is made.

From a tax perspective, interest paid on a shareholder current account is only deductible if the share capital is fully paid up and the rate applied does not exceed a ceiling rate published quarterly by the tax authorities (Article 39, 1-3° of the French Tax Code). Any excess portion is not deductible from the company’s taxable profit.

What are the main legal steps in a fundraising?

A capital increase in France follows an established procedure: the shareholders (or a body to which authority has been delegated) approve the issue, existing shareholders exercise or waive their preferential subscription rights, the funds are deposited, and the amendment to the articles of association is filed to update the share capital.

Preferential subscription rights (Articles L. 225-132 et seq. of the French Commercial Code) are proportional and transferable, and each shareholder may waive them individually. Disapplying them in favour of a named investor falls within the exclusive competence of the extraordinary general meeting deciding on the capital increase itself, by a two-thirds majority, on the basis of a special report from the statutory auditor. These formalities protect minority shareholders against unjustified dilution. If preferential subscription rights are disapplied solely to allow the majority to tighten its grip on the share capital, without a legitimate reason grounded in the company’s interest (such as bringing in a strategic investor or rescuing the company financially), the transaction may be challenged on grounds of abuse of majority.

The regime governing such challenges has recently changed. Ordinance No. 2025-229 of 12 March 2025 reforming nullity actions in company law, which came into force on 1 October 2025, reduces the general limitation period for actions seeking the annulment of corporate decisions from three years to two. Above all, for capital increases in unlisted companies, it introduces a specific three-month period, running from completion of the transaction, within which an annulment action must be brought. In listed companies, an annulment action is no longer possible at all once the capital increase has been completed, as the fungibility of the securities makes any annulment impracticable. A diluted shareholder who believes preferential subscription rights were wrongly disapplied therefore now has a much shorter window in which to seek annulment of the decision. This makes it all the more important to document the legitimate reason from the moment the general meeting is convened, rather than relying on time limits.

Securing the corporate approvals and consents required under the shareholders’ agreement is also essential to keep a clean cap table. Approval, pre-emption, anti-dilution or tag-along clauses may each affect the validity of the transaction vis-à-vis the parties to the agreement, regardless of whether the corporate procedure itself was properly followed.

Practical points to watch

• BSA / BSPCE granted to executives or employees: have the exercise price valued at market price and document the genuine risk taken by the beneficiary, to limit the risk of recharacterisation as employment income (Conseil d’État, 13 July 2021).
• Convertible bonds / OBSA issued before two approved balance sheets: never omit the verification of assets and liabilities by a dedicated auditor, failing which the issue may be declared null and void, and ensure that the share capital is fully paid up.
• Shareholder current account loans: document any lock-up agreement in writing, with a defined amount and a specific duration, before the funds are advanced. A general meeting resolution passed after the repayment request is not sufficient to make it enforceable against the shareholder.
• Disapplication of preferential subscription rights: document the legitimate reason grounded in the company’s interest in the report submitted to the general meeting. Since 1 October 2025, an action to annul a capital increase in an unlisted company must be brought within three months of completion, leaving little room for remedying defects after the event.

Equity, debt and convertibles compared