The use of a partner’s current account is a simple way to help finance a company, whether for business development or to deal with occasional cash flow problems.
This financing solution, which is advantageousand flexible for both the company and its associates, is nevertheless regulated.
What is a partner’s current account?
This is an advance of funds made by the company’s partners. This can be done in two ways:
- The partner lends money directly to the company by transferring it to the company’s account.
- The partner leaves all or part of the sums due to the company: dividends, remuneration, advance on expenses, etc.
⚠️ Advances of funds made through a partner’s current account do not constitute a capital contribution. This is a loan that must be repaid to the partner concerned.
Who can open a partner’s current account?
The conditions have changed since the Loi Pacte of 2019, notably by lifting the requirement to hold at least 5% of the company’s shares to make a contribution to the associate current account.
Today, any partner can finance a company through a partner’s current account, with no restriction on the share of capital held.
This provision applies to both natural and legal persons.
Lastly, there are certain exceptional cases in which it is possible to open a partner’s current account without being a shareholder. This is the case for :
- SARL managers
- SAS Chairman
Special case of a debit current account?
In general, a partner’s account is in credit: in other words, the partner participates in financing the company by depositing funds.
However, in certain circumstances, a partner’s current account may be in debit: the company lends money to the partner. This practice is strictly regulated and can be envisaged in certain special cases:
- For SARLs, article L223-21 of the French Commercial Code defines the conditions under which
- In the case of SAS and SA, only the legal partners may hold a debit account.
⚠️ It is important to note that in the event of an overdraft on a shareholder’s current account, the shareholder or manager may be liable to prosecution for misuse of corporate assets.
How to use the partners’ current account
Simpler than a capital contribution, a partner’s current account is a means of financing that can be used at every stage of the company’s life:
- To get your business off the ground, without the need to tie up large sums of capital.
- To deal with a one-off cash-flow problem and avoid unpaid bills.
- To develop your business, without having to take out a bank loan.
Generally speaking, a partner’s current account is a preferred means of financing in all circumstances, because of the advantages it offers over a bank loan:
- Quick and easy access to funds.
- Great flexibility, as there is no repayment schedule. These depend on the company’s cash position and strategy (cost of capital).
- The cost of borrowed capital can also be attractive for companies with high debt levels.
- In addition, shareholders’ current accounts can be remunerated
Remuneration of partner’s current account
Advances of funds made on a partner’s current account entitle the holder to interest, provided that the company’s capital has already been fully paid up.
The tax-deductible interest rate is limited by law. This ceiling is reviewed regularly and published in the official gazette.
In Q2 2022, this rate stood at 1.96%, compared with 1.15% in Q1 2022.
⚠️ The company may apply an interest rate higher than the legal rate, but the higher fraction will be restated for tax purposes. It is therefore essential to describe the operation of the current account in a specific agreement.
Example : If the company applies a rate of 5% to a €100,000 shareholder current account, the interest payable to the shareholder over a full year would be €5,000. Based on a legal interest rate of 1.35% for a closing date of July 30, 2022, the portion to be added back to taxable income will be (5%-1.35%*100 K€), i.e. 3.65 K€.
👆 For the individual partner, this interest constitutes income from movable capital, which is therefore subject to income tax.
Current account operation and partner current account agreement
The operation of current accounts may be described in an agreement between the company and the associate(s) concerned.
Repayment of cash advances?
There are two possible scenarios, depending on the nature of the associated current account:
- Simple current account: loan repayments are made on demand.
- Blocked current account : repayment is subject to clauses and cannot take place before a given period.
The different repayment clauses?
There are various repayment clauses that can be specified when signing the agreement to open a partner’s current account.
- Clause de blocage de fond, stipulating a period during which repayment is prohibited.
- Notice clause, imposing a period of notice between the request and the actual repayment.
- Recovery clause, making repayment conditional on the company’s improved financial situation.
- Demotion clause, stipulating that the partner can only be reimbursed after other creditors.
Advantages and disadvantages of a partner’s current account
For the company, a current account is an easy, flexible and rapid financing solution, the cost of which can be advantageous depending on the company’s financial situation.
For the partner, the aim is to support the company’s development by earning interest without tying up cash in share capital. This type of structuring can be of interest to companies that do not generate profits, and therefore do not pay dividends.
How do you account for changes in shareholders’ current accounts?
Accounting for a partner’s current account is straightforward:
- The contributions are entered on the liabilities side of the balance sheet, in the “455 – Associates Current Accounts” account.
- Interest is charged to account “6615 Interest on current accounts and deposits in credit
- The repayment is debited from “Account 455 – Associates Current Accounts”.
🔍 Contacting the Altermès teams can help you analyze your situation and study the various options available to you.
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