Early distribution or dividend advance

Early Distribution or Dividend Advance

Entrepreneurs and Business Owners: Can You Distribute Dividends Before Closing the Financial Year?

If you have a project, face financial challenges, or need funds before the official closure of your company’s fiscal year, distributing dividends early is possible—under certain conditions.

The General Principle: Distribution Approved by the General Assembly

Dividends represent the share of distributable profits allocated to shareholders, as decided by the general assembly. They are the financial fruits of a company’s activity or the reward for shareholders’ investments.

All companies subject to corporate tax (IS) can distribute dividends.
Unless stated otherwise, dividends are allocated to the individuals holding shareholder status on the day of the general assembly approving the distribution. If shares are transferred between the fiscal year’s closing and the general assembly, the new shareholders will receive the dividends (Com. June 9, 2004, No. 01-02.356).

In cases of property division (usufruct and bare ownership), dividends are paid to the usufructuary, not the bare owner.

Conditions and Procedures for Dividend Distribution

By default, dividend distribution can only occur if three strict conditions from Article 232-12 of the French Commercial Code are met:

• Approval of the company’s financial statements for the relevant fiscal year.
• Availability of distributable profits, after setting aside legal and accounting reserves (a company that does not generate a profit cannot distribute dividends).
• A general assembly vote approving the distribution (the mere existence of a profit does not automatically lead to distribution; shareholders must vote in favor).

If these conditions are fulfilled, dividends can be legally distributed. If not, the distributed dividends are considered fictitious and can result in severe legal consequences, including up to five years in prison and a €375,000 fine.

Dividend payments must be made within nine months after the fiscal year closes, unless a legal extension is granted. For example, if a company closes its accounts on December 31, the payment must be completed by September 30 of the following year. This is why seeking advice from a business lawyer is crucial when planning a significant dividend distribution.

Exception: Distributing Dividends During the Fiscal Year

As an exception, shareholders may decide to distribute dividends before the end of the fiscal year and before the approval of the annual financial statements.

This is often the case when shareholders have personal financial needs (e.g., buying a home, purchasing a vehicle, making a donation, or financing a trip).

Requirements for an Advance Dividend Payment

Distributing advance dividends is allowed if the following conditions are met:

• A provisional balance sheet showing a distributable profit is prepared.
• An ad hoc statutory auditor is appointed to certify the provisional balance sheet.
• Shareholders approve the advance dividend payment.

These conditions must all be met and generally apply when distributing profits in advance, except for reserves, premiums, and retained earnings.

Can Advance Distributions Be Extended to Reserves, Premiums, and Retained Earnings?

A legal debate arose about whether reserves, premiums, or retained earnings could be distributed outside the annual general assembly for financial statement approval (AGOA).

A Paris Commercial Court ruling on September 23, 2022 (No. J2021000542) took a strict stance, stating that only the AGOA can distribute amounts from reserves and retained earnings.

However, a more recent ruling by the Paris Court of Appeal on January 30, 2025 (No. 22/17478) allowed the distribution of amounts drawn from reserves and retained earnings outside the AGOA.

This position was overturned by the French Supreme Court (Cour de Cassation) on February 12, 2025 (No. 23-11.410), which clarified:

"The retained earnings of one fiscal year are part of the distributable profit of the following fiscal year. As a result, only the assembly approving the financial statements for that fiscal year may decide on its allocation and, where applicable, its distribution. Any decision made by a general assembly other than the AGOA to distribute retained earnings is therefore null and void."

The Supreme Court firmly established that only an AGOA can decide on the allocation and distribution of retained earnings and reserves.

Conclusion: Proceed with Caution

Dividend distributions—including those from reserves, premiums, and retained earnings—can be legally complex. The rules are strict, and improper distributions can lead to serious legal risks.

For these reasons, seeking guidance from an experienced lawyer is strongly recommended. TF Associés is here to assist you in managing your dividend distribution strategy efficiently and securely.

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