The associate’s current account is one of the most flexible means available to shareholders to finance their business. Let’s see in detail in which situations it is recommended and how it works.
What Is An Associate Current Account?
The principle of the associate’s current account is quite simple. The shareholders deposit money in a registered account (in accounting jargon we speak of a contribution to a current account). This money advanced to the company can then be used to finance the activity.
What Is The Associate’s Current Account Used For?
Company shareholders can inject liquidity in 3 different ways:
- by increasing the capital
- by lending money to the company in the form of a private loan
- by advancing money on the partner’s current account
Increase capital
Benefits :
- strengthens equity, which reassures the company’s financial and commercial partners
- increases voting rights and the share of dividends received by shareholders who subscribe to them
Disadvantages:
- requires a certain formality in order to issue the new shares
- except in case of share buyback or sale of the company, the money is permanently blocked
Private loan
Benefits :
- reimbursement and remuneration (interest) known in advance
- position of creditor in bankruptcy offering better protection than shareholder status
Disadvantages:
- very cumbersome formalism making this type of financing difficult to set up for small structures, even if solutions are starting to appear via certain crowdfunding players in particular
Partner current account
The advantage of Associate Stream is that it is much more flexible than the other 2 methods. This is part of what is called quasi-equity, ie it can be adapted according to the situation to take either characteristics close to debt, or characteristics close to equity.
For example, if the company needs a cash advance over a few months, shareholders can contribute the money through the partner’s checking account and then collect their advance.
Another situation: if the company must finance an investment and the bank asks the shareholders to contribute to the financing by injecting additional equity before granting a loan. Shareholders can bring the funds into a partner’s current account blocked over the term of the loan. The bank is then guaranteed that the funds contributed by shareholders will remain in place until the loan is repaid, and the shareholders have the flexibility to get the money back immediately after the debt is repaid.
Here again, there is no tax friction for shareholders, while a repayment of their capital by repurchase of shares or payment of dividends would have tax consequences.
As you can see, the associate’s current account is an ideal solution to overcome a temporary cash flow deficit, or to allow shareholders to quickly monetize part of their investment and thus reduce their risk.
Although it is more flexible than a capital increase, the partner’s current account is nevertheless strictly regulated. Let’s see how it works in detail.