Shareholder current account: definition and operation

The partner's current account is an often overlooked instrument, yet one that is extremely useful for your company's growth.

It enables partners to deposit the capital they need to create or develop the company.

For example, they can be a useful cash reserve in the event of a temporary downturn in business. They are also reserves that can be mobilized for investment purposes, and much more besides!

Let's find out everything you need to know about a partner's current account!

What is a partner's current account?

A partner's current account is a bank account into which the partners of a company can make cash advances. In other words, it is a loan granted to the company by a partner.

Funds deposited in a partner's current account are not legally considered as capital contributions, but as funds that must be repaid.

There are two ways of paying into a partner's current account:

1. Either the partner transfers funds directly to the partner's current account
2. Either the associate forgoes future cash flows, such as dividends for example

The company may use it to finance its activities (acquisition of fixed assets and other investments) or to overcome a temporary cash shortage.

What are the conditions for opening a partner's current account?

Opening a partner's current account is a simple formality to carry out. It has been made more flexible since May 2019, following the vote of the Pacte law.

Any individual or legal entity owning shares in a company can take part in an associate's current account.

How does a partner's current account work?

As an alternative source of financing for the company, the partner's current account must be in credit.

However, the company may also lend money to a partner. In this case, the partner's current account is in debit. This practice is subject to restrictions, and depends on the legal status of the company.

A partner who has lent money to the company may request repayment at any time. Repayment terms may be governed by specific clauses in the bylaws:

• Lock-in clause: funds cannot be reimbursed for a specific period of time
• Notice period: A notice period must be observed before repayment of an advance on a partner's current account.
• Prior claim assignment clause: the shareholder can only obtain repayment of his claim after another creditor has been paid in full.
• Better fortunes clause: a creditor temporarily waives its claim until the company's ability to repay has been restored.
• Retrogression clause: the partner agrees to be reimbursed only if certain other creditors are paid off.

What is the interest rate applicable to a partner's current account?

Associates' current accounts are remunerated by a fixed rate of interest determined by the associates. This rate must be stipulated in writing and must not be excessive.

Interest received by the company is deductible from taxable income if the company's share capital is fully paid up and if the interest rate does not exceed the interest deductibility rate set by the tax authorities.

Partners (individuals) receiving interest from a partner's current account must include it in their overall taxation as income from movable capital. They are subject to income tax, or to the PFU (Prélèvement forfaitaire unique, also known as flat tax at a rate of 30%, if this is more advantageous).

Partners (legal entities) are taxed according to their own tax regime, either corporate income tax or personal income tax.

What are the advantages and disadvantages of a partner's current account?

There are several advantages to a partner's current account:

• This is an alternative means of financing that is easier to mobilize than a capital increase. It is sometimes financially more advantageous than a bank loan.
• Itsimply increases the company'sequity (and not its share capital, which is a different concept).
• Associates are free to set the interest rate at which they wish to earn a return.
• Associates may demand repayment of their claim at any time.

Nevertheless, there are a number of disadvantages for the company to consider. Each receivable may be immediately due and payable, which may put the company's cash flow in difficulty. This measure can be regulated by means of specific clauses.

The partner's current account is therefore an effective means of contributing to the company's development. However, its operation is subject to strict rules that you should be aware of, in order to remain within the framework set by law.