- October 5, 2018
- Posted by: Editorial
- Category: Glossary
Understanding current accounts
In France, current accounts (or “comptes courants d’associés”) are a means of funding for a company. Basically, it refers to associates lending money to the company by transferring money from their personal account to the account of the company. As a result, the company adds a category to its financial result that shows how much money the company owes to the associate.
Essentially, the company is “opening an account” in the name of the associate, hence the term.
What’s the point of current accounts?
This usually happens in two different situations:
- When the company is being created (it’s an alternative to the contribution in cash)
- When the company is in need of cash because of financial difficulties (it’s an alternative to raising the equity)
One of the main advantages for the associate is that instead of “giving” money to the company, like in the case of a contribution in cash, the company will pay you back at some point. It’s also easier on the paperwork.
What are the disadvantages?
This method of funding is inherently unstable. Indeed, the associates can be reimbursed either at a certain date, or whenever the company is doing better. Because of this, it’s not money that tends to stay in the company for a very long time, so it’s unfit to fund long-term investments.