Current account of partner
Shareholder current accounts correspond to cash movements made between the shareholders and their company. These contributions can participate in the financing of the creation (or development) of an activity, or be a temporary aid to the company's cash flow[1].
These advances are considered short-term loans that may or may not bear interest.
The shareholder current account is therefore an account that appears in the company's accounting for each shareholder, and which records the financial evolution of their rights.
The shareholder current account (CCA) has no legal definition. It is an accounting account that records all financial movements between a shareholder and a company. In the company's general ledger, it is found under account 455. The CCA is the accounting entry of a short-term debt or receivable between a shareholder and the company. It is therefore a tacit contract between a shareholder and the company. Each shareholder has their own current account. The CCA is completely distinct from the company's shares. However, as the name indicates, one must be a shareholder of the structure to have a CCA. According to the company's statutory rules or its tax regime, it may be forbidden to have a debtor shareholder current account.
Different types of CCA
A creditor CCA
A shareholder current account is said to be creditor if the amount recorded in account 455 is positive. It is recorded as a liability on the company's balance sheet. The shareholder has made a cash contribution to the company or has not withdrawn all that was owed to them by the company. The company owes money to the shareholder. The shareholder holds a receivable against the company. They are a lender and part of the company's creditors.
This CCA situation is called "normal" and is the most common.
Origins
The creditor CCA can have several origins :
- Loan of money by the shareholder, especially at the company's creation.
- Sale of an asset to the company pending payment or with partial payment.
- Unwithdrawn remuneration.
- Undistributed share of profit, to keep cash in the company.
- Unwithdrawn rent or provision.
- Machines contributed personally at the company's formation (interesting for young people who will then withdraw from the operation).
Risks if it is too high
- Immediate repayment demand that can be required by a shareholder at any time, leading to the company's insolvency (inability to meet due liabilities with available assets).
- Inability to reduce the CCA by cash flow and operating result (insufficient result or EBITDA).
- Imbalance between shareholders.
- In case of contribution of real estate assets in CCA, an evaluation must be made regarding the tax on real estate wealth (IFI).
- Danger in case of death of the holder :
- The company has a debt towards the heirs, a short-term payable debt : the heirs can demand repayment.
- No tax allowance in terms of donation or inheritance.
How to prevent it from becoming too high?
- Keep the result in reserves (equity) rather than making taxable distributions that cannot be withdrawn (corporations subject to corporate tax (impôt sur les sociétés), but also to income tax (IR)).
- In the context of succession, favor increasing the value of shares (Dutreil pact) over the current account.
- Maintain a balance between loans and equity (including shareholder contributions).
What solutions when it is too high?
- Capital increase by integrating CCA :
- Refinancing by bank loan :
- Allows transforming a non-liquid receivable into available cash.
- Allows diversifying the operator's assets.
- Allows securing the operator's assets with a Death and Disability Insurance (ADI) on the loan.
- Allows securing the transmission of their assets through a life insurance investment.
- Allows financing future transmission projects : change of residence, new project…
- Diversifies the shareholder's income.
- Avoids the risk of joint ownership in case of succession.
- Limits :
- Company's capacity to repay the loan.
- Debt ratios.
- Allocation of an asset (stocks, movable or immovable property...).
- Abandonment of current account with a clause of return to better fortune (but beware of very strong tax implications).
A debtor CCA
A shareholder current account is said to be debtor if the amount recorded in account 455 is negative. It is recorded as an asset on the company's balance sheet. The shareholder owes money to the company. They have withdrawn from the company's cash more than their rights. They are a borrower and part of the company's debtors.
This CCA situation is forbidden in commercial companies and companies subject to corporate tax (IS). It could represent a potential danger for the company.
Origins
- Excessive withdrawals.
- No remuneration attributed to the shareholder (e.g., managing shareholder in agricultural companies).
- Land loan installment higher than the rent of the provision.
- Installments of private loans for buyout of shares from former shareholders.
- Consumption of farm products.
Risks for the company
Legal risk
- For limited liability companies (SA, SARL, SAS) and companies subject to corporate tax : a debtor CCA is forbidden because it constitutes an offense of misappropriation of company assets.
- For civil companies : there is joint liability of shareholders, no misappropriation of company assets.
- Judicial recovery procedure:
- Debt of the company that the shareholder will have to honor (-> extension of the procedure to private assets..).
- Beware of matrimonial regime....
Tax and social risk
- In a company subject to corporate tax, unjustified withdrawal is assimilated to wages :
- Taxation under income tax (IR).
- Subject to social contributions (URSSAF or RSI or MSA).
The succession inherits a debt towards the company, which implies a risk of family conflicts. If the debt is not assumed by the succession, there will be a latent loss that must be provisioned.
How to avoid it?
- Adjust the shareholder's remuneration according to withdrawals.
- Distribute dividends without actual withdrawal if equity allows.
- Reinject :
- By means of private financing.
- Through the sale of a private asset.
- Capital reduction by offsetting the receivable :
- May modify the capital distribution.
- Limit : Does equity allow it?
Why open a CCA?
The CCA has several advantages :
- Amounts recorded on the CCA are not taxable when they result from a consideration for the company.
- It allows taking into account in-kind withdrawals on the farm.
- It can be remunerated.
- It is an interesting tool for intergenerational financing.
But attention must be paid to certain aspects :
- Do not confuse shares in the structure and CCA.
- Regularly monitor its evolution to not forget it.
- Anticipate to avoid being without cash at repayment time.
- It is a virtual "burden". It is a constraint that must be managed.
- Monitoring is not necessarily simple.
For a better study of possible solutions, it is interesting to present the accounting elements of the CCA to the banker.
The stages of a CCA's life
The question arises as to how the shareholder enters the company : by capital or by current account?
- Capital contribution provides third-party guarantees and allows obtaining bank financing.
- Current account contribution has the advantage that the money remains available to the shareholder when the company can repay it. In reality, it is not a contribution, but a sale with deferred payment.
When an individual operator contributes their operating tools to a company, they can contribute them as share capital and in return have shares in the created company. Most often, the operator will not contribute all their tools or stocks as capital. Part will be "contributed" as a shareholder current account. It is actually a sale of these materials and stocks to the company which does not immediately pay the price. Accounting-wise, this debt is recorded from the creation in their CCA.
For example : If the individual operation has :
- €200,000 of equipment,
- €100,000 of livestock,
- €150,000 of outstanding loan capital,
- €50,000 of stock.
The net value of the operation to be contributed at the company's formation is €200,000 [(equipment + livestock) - loan + stocks].
The lawyer drafting the constitutive statutes will propose to contribute as share capital the €200,000 of equipment and corresponding loans for €150,000 and to contribute part of the livestock for €50,000. The amount of share capital recorded in the statutes will be €100,000 [(equipment - loans) + €50,000 remaining livestock]. The rest of the livestock will be sold to the company based on sales invoices and the amount of €100,000 [€50,000 remaining livestock + €50,000 stocks] will be credited to the shareholder's current account.
At the company's creation, the lawyer will declare to the tax authorities the opening of a shareholder current account by filing the cerfa form no. 2062 (the same as for registering a loan contract) with the tax registration service.
None. Legally, a minimum share capital is required, €7,500 for an EARL for example. The share capital in a company corresponds to the amount the shareholder invests in the company on a long-term basis, unlike the amount recorded in the shareholder current account. It therefore represents their commitment. If the company's liability is limited as in EARL or GAEC, the shareholder may seek to limit their commitments, but then the bank will require others. Tax-wise, it is sometimes advantageous to contribute a whole set of the working tools (equipment and livestock) as share capital to follow commitments and not have too much impact on the shareholder's cessation of activity, which is why in some structures there are sometimes large amounts in share capital. Similarly, sometimes it is necessary to contribute receivables for compensation for improvements to leased property as share capital when, for example, a building has been constructed on leased land or drainage carried out. In this case, it will necessarily be contributed as share capital and shares will be received in return, which can represent a high amount of share capital.
A shareholder in full business development may find it advantageous to have a large shareholder current account giving possibilities for bank refinancing.
A shareholder close to retirement wishing to transfer their company to their children will seek to reduce their CCA and convert it into share capital or have it repaid by the company if financially able.
Evolution of CCAs over time
Year after year
Throughout the year, movements can occur on the CCA :
- Increases :
- Monthly remuneration as a managing shareholder, set in general meeting, not withdrawn.
- Rent for owned lands leased to the company not withdrawn.
- Personal cash injected into the company.
- Share of previous year's result not withdrawn.
- …
- Decreases :
- Cash withdrawals as remuneration for work.
- Payment by the company of the shareholder's social contributions.
- Self-consumption of farm products.
- …
The ordinary general meeting closing the accounts allows to validate with the shareholders the evolution of their financial rights in the company and to anticipate breaking situations.
Continuing with the previous example, in our company formed with a capital of €100,000 and a shareholder current account of €100,000, if the operator partners with their young successor, this new shareholder will start with a current account at €0. The latter will have to withdraw from the company more than their work remuneration to repay personal loans, notably the loan for the buyout of 49% of the shares and for example for the restoration of their residence. At the end of the fiscal year, their shareholder current account will be debtor, while that of the first shareholder will have increased, as they do not withdraw all their rent to leave self-financing capacity to the company. The risk is the imbalance, year after year, between the shareholders' rights.
At the first shareholder's exit, the amount of their shareholder current account will ultimately be owed to them. The second shareholder may feel like financing twice the amount of their takeover, although it is only the delay in payment of the shareholder's rights and the increase in the company's value.
How to make this receivable more durable?
- Agree beforehand on a CCA blocking agreement, to make it less liquid.
- Agree on a loan contract for all or part of this receivable with a written agreement, a duration, an interest rate. Accounting-wise, it will no longer be an amount recorded in 455, but a medium-term loan.
- Carry out a capital increase by integrating part of the CCA amount. A revaluation of the share value will be necessary to know the amount of the shareholder current account to be contributed as share capital for the creation of new shares, or for increasing the nominal value of existing shares.
- Provide a remuneration of this receivable, by adding an interest.
Several reasons encourage remunerating CCAs :
- Remuneration restores equity between shareholders when the amounts left are not proportional to the shares in capital.
- Interest paid is deductible from agricultural profit and MSA base, which reduces social contribution base and lowers social charges. But these interests will be taxed at the shareholder level.
However, there are tax limitations on the deductibility of CCA interest :
- These interests are taxable under investment income category.
- Interest deduction is subject to full release of capital.
- The maximum deductible interest rate cannot exceed a certain amount, this rate is published quarterly (2.58% from February 28, 2023 to March 30, 2023 [2])).
If the decision is made to remunerate the CCA, a written agreement framing the rules of this remuneration, the rate, the duration,... must be made, registered and each year a unique tax form IFU (Imprimé Fiscal Unique) must be filed by the company and incorporate these interests in RCM (Investment Income) on your income tax return.
A debtor shareholder current account must be repaid by the shareholder to the company. A creditor CCA can be given, sold or converted into shares. Abandoning one's CCA is not a good idea tax-wise, as we will see why.
The CCA repayment is due at any time
Death, divorce, disagreement, dissolution will certainly lead to the shareholder or their successors demanding all or part of their shareholder current account. This short-term debt is therefore due upon the shareholder's request. If a shareholder claims the amount owed to them by the company, the company may take out a bank loan to pay it. Of course, this repayment in practice cannot occur if the company's cash flow is insufficient or if it does not have the necessary bank facilities (campaign loan, overdraft). In case of dissolution, shareholders' current accounts must be settled with the available cash before distributing the liquidation surplus.
Conventional provisions for repayment scheduling
It may be wise to set up agreements providing for staggered repayment within a schedule or a notice period before withdrawal giving the company the necessary time to find funds for repayment.
Blocking agreements
It is also possible to avoid the risk of immediate repayment of the CCA by setting up an agreement providing for the blocking of amounts made available to the company in the current account, until a defined date or until the occurrence of a defined event from the outset (/e.g., the last installment of a bank loan).
Bank refinancing
When the company's financial situation is flourishing, bankers often offer refinancing of CCAs. A bank loan, which allows repaying the CCA, then totally or partially replaces it. The interest on this loan is deductible from agricultural profit.
It is possible to give a shareholder current account. The amount recorded in the accounting will then be declared in the manual gift form.
To use the specific allowance for family gifts of sums of money (article 790 G of the General Tax Code), bank transfers must be made via the private accounts of the concerned shareholders to validate the amounts given. This is called the "Clip-Clap" operation. The parent shareholders withdraw cash from the company, transfer it to their child shareholder, who then injects this cash back into the company's accounts.
For example : The parents' shareholder current account is debited by €30,000, and the son's account is credited by €30,000, with the gift of €30,000 benefiting from the specific exemption for family gifts of sums of money up to €31,865 per parent and per child every 15 years[3].
Good to know: regarding intrafamily gifts, there are 2 mechanisms :
- On one hand, an exemption from tax on gifts of sums of money up to €31,865 per child. This amount can therefore be given without paying tax simply by making a declaration. This gift can be renewed every 15 years.
- On the other hand, each parent can give up to €100,000 to each child without having to pay tax on this donation. This is called an allowance, i.e., a reduction of the amount from which the gift tax applies. Amounts given beyond this allowance are taxable. This allowance is valid for a period of 15 years.
These 2 mechanisms are cumulative. In other words, it is possible to give up to €131,865 per child without having to pay gift tax.
Considering the above thresholds : if the parents give €150,000 to their child, taxation will apply on €150,000 - €131,865 = €18,135.
It is possible to sell a shareholder current account; this is then a transfer of receivable. [4]
Warning, the transfer of shares does not automatically trigger the repayment of the selling shareholder's current account, which means that if a shareholder sells their shares to someone else, the company still owes them their SCA. The shareholder's rights on the shares are not linked to the creditor shareholder's rights on the current account. Therefore, the transfer deed must specify the terms of transfer of the current account from the seller to the buyer. This transfer of receivable must be agreed upon in writing with the debtor company’s intervention to consent. The sale price of the shareholder current account can be negotiated downwards and thus be lower than the value of the SCA recorded in the accounting. Indeed, from an economic point of view, it is known that :
- The buyer will probably not be able to get paid immediately,
- There is uncertainty about payment in case of economic difficulties in the structure,
- Often the SCA is not remunerated and if there is inflation, money may be lost in the process.
Abandoning your SCA is a bad idea! For tax purposes, the waiver of receivable creates a taxable exceptional profit for the company. At the closing of the accounts, the present shareholders will be taxed on their share of this exceptional profit, and this profit will also be included in their social contribution base if they are operators.
Moreover, if the waiver of receivable is not justified by a particular financial difficulty of the company, the tax administration may impose a gift tax of 60% of the amount waived, as if it were a gift to a third party without family ties.
How to Be Sure to Be Compliant?
To be sure to be compliant, it is necessary to ensure that each of the following points is respected :
- In the company's general ledger, each shareholder has their own shareholder current account.
- A married shareholder under a community property regime has two SCAs to distinguish amounts that belong to them personally and those that belong jointly with their spouse.
- An ordinary general meeting to close the accounts is formalized each year.
- The ordinary general meeting :
- Reviews the amount of SCAs after allocation of the result and approves them.
- Approves the remuneration of the shareholders' work, remuneration for the provision of owned assets, regulated agreements.
- None of the shareholders has a debit current account if the company's legal regime does not allow it.
- The SCAs are all balanced, at the same level.
- If a shareholder requested immediate repayment of their current account, it would not jeopardize the operation.
- A declaration n°2062 opening a shareholder current account has been formalized with the tax registration service.
Risks in Case of Non-Compliance
Common Current Account in Case of Death or Divorce
If the equity has not been distinguished from the joint funds of a shareholder's SCA after marriage, upon its dissolution, archaeological digs in the accounting documents will be necessary. In case of death or divorce, the community property must be divided in two between spouses. If the shareholder's personal assets have not been marked in a specific shareholder current account, the spouse may claim half of everything.
Debit Current Account Prohibited in Commercial Companies and Corporate Tax Regime
The debit SCA is prohibited in commercial companies (SARL, SAS, SNC…). A shareholder withdrawing more cash than their rights recorded in the current account causes the nullity of acts making it debit, engages the manager's liability, and constitutes misuse of company assets. Misuse of company assets is a criminal offense punishable by five years imprisonment and a fine of €375,000.
The debit SCA is also prohibited in companies subject to corporate tax regime. It would be an undisclosed distribution of dividends. To remedy this, it is possible to formalize a loan agreement in writing from the company to the shareholder taking all usual precautions (not with the manager, economically justified, limited in time and amount).
Monitoring SCAs Even in GFA or SCI
In any company, there is an obligation to keep accounting records and hold an annual general meeting. When real estate companies such as SCI, GFA or GFR are formed, it is necessary to closely monitor the movements of SCAs. If the GFA takes out a loan to finance the purchase of land and the rents it collects do not cover the entire installment, the shareholders will bring the difference in cash. This annual cash contribution must be regularly accounted for to avoid unpleasant surprises at the time of the company's transfer.
Anticipating the Closure of an SCA Before Cessation of Activity
Closing an SCA can represent a large sum for the company, so it is important to anticipate the closure of the SCA upstream, i.e., generally several years before the desired closure of the SCA.
Different possibilities exist such as taking out a loan secured either by a real estate project or by the farmer opening a life insurance : the agricultural structure takes out a loan that allows repayment to the shareholder, who in return opens a life insurance or starts a project on which the bank can guarantee (pledge) its loan.
Ideally, this loan should mature before the farm transfer, hence the interest in anticipating. This money can also help anticipate retirement or launch a project (for example real estate) that will somewhat "extract" the farmer from their farm.
Most of these loans are limited in duration (often 7 to 10 years max).
Important point : banks generally do not have visibility on shareholder current accounts. It will therefore be necessary to meet first with the accountant to provide the bank advisor with all the elements needed to propose the best possible solutions.
Sources
- The shareholder current account : what is it?! - Aurélie Brunet. (Youtube)
- Operation of shareholder accounts - Agrilexia SAG.2.2. (PDF)
- The issue of Shareholder Current Accounts - AGIRAGRI. (PDF)
- Shareholder current accounts : user guide. Info Agricole with chartered accountants, n°158, September 2019. (PDF)
- Shareholder current accounts in agricultural companies - Group agriculture file GAEC and companies n° 443 – Sept / Oct 22.
- Shareholder current accounts in civil companies – AUREP Newsletter of March 10, 2023 - Henri LEYRAT, AUREP Scientific Manager
- Shareholder current account : operation and taxation - Entreprendre
La version initiale de cet article a été rédigée par Aurélie Brunet.
- ↑ https://ifi.fondationdefrance.org/faq/sci-et-ifi-les-comptes-courants-associes-sont-ils-deductibles
- ↑ https://entreprendre.service-public.fr/vosdroits/F32966
- ↑ https://www.impots.gouv.fr/particulier/questions/que-puis-je-donner-mes-enfants-petits-enfants-sans-avoir-payer-de-droits
- ↑ https://www.efl.fr/actualite/compte-courant-associe-cession_R-fba539be-50ce-4304-a99d-bcf55a62c945
