In brief: When losses shown in the financial statements bring net equity below one quarter of the share capital, the company has three months after the approval of the accounts to decide on its early dissolution (Art. 357 Law 17-95 for the SA, public limited company, Art. 86 Law 5-96 for the SARL, limited liability company). If it continues, it must restore its equity or reduce its capital no later than the close of the second following financial year (SA) or of the following financial year (SARL). Failing that, any interested party may apply to the court for dissolution.
The warning sign usually appears when the accounts are closed: the year’s loss deepens an already negative retained earnings balance. For the CFO or the manager, the question is simple: who must decide what, and by what date.
The test: net equity compared with one quarter of the capital
What the law says
Both articles set the same condition: “as a result of losses shown in the financial statements (états de synthèse), the company’s net equity falls below one quarter of the share capital” (Art. 357 Law 17-95; Art. 86 Law 5-96). The trigger is therefore a loss, the source is the financial statements for the year, and the comparison is made with one quarter of the capital stated in the articles of association.
The texts do not define what net equity comprises. Elsewhere they use the terms “equity” (Art. 357, paragraph 2) and “own capital” (Art. 86, paragraph 2). In practice, start from total equity in the approved balance sheet. If quasi-equity items weigh in the calculation, settle their treatment with the statutory auditor before the meeting and document the choice.
Worked example (company X, assumption)
| Item at 31/12/2025 | Amount (MAD) |
|---|---|
| Share capital | 1,000,000 |
| Legal reserve | 20,000 |
| Retained earnings | − 300,000 |
| Net result for financial year 2025 | − 500,000 |
| Net equity | 220,000 |
| One quarter of share capital | 250,000 |
Net equity (MAD 220,000) is below one quarter of the capital (MAD 250,000). The mechanism is triggered as soon as these accounts are approved. Cumulative losses reach MAD 800,000; the legal reserve of MAD 20,000 can absorb part of them; the losses that cannot be charged against reserves therefore amount to MAD 780,000. This is the amount that will serve as the floor if the company chooses to reduce its capital.
SA and SARL: comparison of obligations
| Point | SA | SARL |
|---|---|---|
| Legal text | Art. 357, 359 and 360 Law 17-95 | Art. 86 and 46 Law 5-96 |
| Who acts | The board of directors or the management board convenes the extraordinary general meeting (Art. 357) | The shareholders decide; the manager or the statutory auditor initiates the decision (Art. 86) |
| What must happen within three months | The convening of the extraordinary general meeting (Art. 357) | The shareholders’ decision (Art. 86) |
| Starting point | Approval of the accounts that revealed the loss | Approval of the accounts that revealed the loss |
| Majority | That of the extraordinary general meeting: two thirds of the votes of shareholders present or represented; quorum of one half, then one quarter, of the shares carrying voting rights (Art. 110) | Majority required to amend the articles of association: three quarters of the share capital (Art. 86 and 75) |
| Regularisation deadline | Close of the second financial year following the one in which the losses were recorded (Art. 357) | Close of the financial year following the one in which the losses were recorded (Art. 86) |
| Publication of the decision | Legal announcements journal and Official Bulletin, filing with the court registry, entry in the commercial register (Art. 357) | Newspaper authorised to publish legal announcements, filing with the court registry, entry in the commercial register (Art. 86) |
| Dissolution action | Any interested party (Art. 357) | Any interested party (Art. 86) |
| Court grace period | Up to one year (Art. 359) | Up to six months (Art. 86) |
| Minimum capital caveat | Art. 360 (minimum of MAD 300,000, Art. 6) | Art. 46 (capital now freely set by the articles of association) |
| Company in judicial recovery | No exclusion in Art. 357 | Article not applicable (Art. 86, last paragraph) |
Two differences matter. The SA must convene within three months; the SARL must decide within that period. And the SARL has one financial year less to regularise.
In a single-shareholder SARL, paragraphs 2 and 3 of Art. 75 do not apply and the sole shareholder takes the decisions in place of the meeting (Art. 76). For the practical organisation of the meeting, see our article on the SARL general meeting; for the governing bodies of the SA, our overview of the public limited company in Morocco.
The timeline on an example: loss-making financial year 2025
Assumptions. Company X, financial year aligned with the calendar year, 2025 accounts approved on 30 June 2026, i.e. within six months of the year end (Art. 115 Law 17-95; Art. 70 Law 5-96).
| Step | Date | Calculation and basis |
|---|---|---|
| Close of the loss-making financial year | 31/12/2025 | Financial year 2025 |
| Approval of the 2025 accounts | 30/06/2026 | No later than six months after the year end (Art. 115 / Art. 70) |
| Deadline for convening the extraordinary general meeting (SA) or for the shareholders’ decision (SARL) | 30/09/2026 | Approval + three months (Art. 357 / Art. 86) |
| Financial year in which the losses were recorded | 2026 | Approval dated 30/06/2026 |
| SARL regularisation deadline | 31/12/2027 | Close of the financial year following 2026 (Art. 86) |
| SA regularisation deadline | 31/12/2028 | Close of the second financial year following 2026 (Art. 357) |
The text does not refer to the loss-making year but to the financial year “in which the losses were recorded”. Since the recording here results from the approval of the accounts in 2026, the reference year is 2026. This reading is not defined by the text. If you want to rule out any debate, take financial year 2025 as the reference: each deadline then moves forward by one year (31/12/2026 for the SARL, 31/12/2027 for the SA).
Two constraints narrow the real margin further:
- the 45-day period: if the decision taken within the three months includes a capital reduction, the proposal must be sent to the statutory auditor at least 45 days before the meeting (Art. 211 Law 17-95; Art. 79 Law 5-96, if there is a statutory auditor). For a meeting held on 30/09/2026, the proposal must reach the auditor no later than 16/08/2026;
- the interim accounts: at the deadline, it is the net equity at that date that counts. If financial year 2026 is still loss-making, the gap to close widens.
Ways to regularise
If the meeting does not declare dissolution, the text offers two ways out at the deadline: having restored equity to at least one quarter of the capital, or having reduced the capital by an amount at least equal to the losses that cannot be charged against reserves (Art. 357; Art. 86).
Restoring equity
Through profits. Positive results in the following financial years raise net equity. In the example, MAD 30,000 (250,000 − 220,000) is missing to reach one quarter of the capital, provided the loss has not grown.
Through a cash capital increase. It increases both the capital and equity. Watch the effect: one quarter of the capital also rises. With capital raised to MAD 1,100,000 by a contribution of MAD 100,000, net equity rises to MAD 320,000 against a threshold of MAD 275,000. The formalities on the SARL side are set out in our article on the SARL capital increase.
By capitalising a shareholder current account. The company’s debt to the shareholder becomes capital. In an SA, shares paid up by set-off against the company’s debts require a statement of account drawn up by the board of directors or the management board and certified as accurate by the statutory auditor or auditors (Art. 199 Law 17-95). In a SARL, the decision follows the three-quarters majority of the capital, without being able to oblige a shareholder to increase their commitment (Art. 75).
By waiving a current account. The shareholder gives up the receivable; the debt disappears and net equity increases. The operation has tax consequences for both parties, covered in our article on debt waivers. Only choose it after that costing.
Reducing capital to the extent of the losses
A reduction made because of losses brings the capital down to the level of equity. In the example, a reduction of at least MAD 780,000 brings the capital to MAD 220,000: net equity (MAD 220,000) is again equal to the capital. The reduction is decided by the extraordinary general meeting in an SA (Art. 209), and by the shareholders under the conditions for amending the articles of association in a SARL (Art. 79). The creditors’ right of objection under Art. 212 Law 17-95 and Art. 79 Law 5-96 covers reductions not made because of losses. The full procedure is described in our article on capital reduction.
The minimum capital trap. Art. 357 refers to Art. 360, and Art. 86 refers to Art. 46. In an SA, capital may not be less than MAD 300,000, or MAD 3,000,000 for a company making a public offering (Art. 6). A reduction to MAD 220,000 would therefore have to be followed, within one year, by an increase bringing the capital back to at least MAD 300,000, unless the company is converted into another form within the same period (Art. 360). Failing that, any interested party may apply for dissolution two months after a formal notice. For the SARL, Art. 86 likewise refers to Art. 46 on share capital. Since SARL capital is now freely set by the shareholders in the articles of association (reform under Law 24-10), this caveat no longer has the same scope as in the SA: simply check what your articles of association provide.
Combining a reduction followed by an increase
The company first reduces its capital to the extent of the losses, then increases it with a new contribution. The losses are cleared and equity is restored in a single meeting or two closely spaced meetings. This is also the natural answer to the minimum capital trap. The increase can open the door to a new shareholder; in a SARL, it is voted by three quarters of the capital (Art. 75).
The role of the statutory auditor
In the SARL, Art. 86 expressly refers to the manager and the statutory auditor: if neither of them initiates a decision, any interested party may bring the matter before the court. The statutory auditor is therefore not a mere observer. In the SA, the auditor may always, in an emergency, convene the general meeting (Art. 176 Law 17-95).
The auditor is also involved in the regularisation (Art. 199, 211; Art. 79). Finally, net equity below one quarter of the capital is one of the indicators that lead the auditor to examine going concern and, where appropriate, to trigger the alert procedure. Prepare a dated and quantified regularisation plan for the auditor, with the cash flow forecasts that support it. The general framework of the engagement is presented in our guide to statutory audit in Morocco; the stages of a statutory audit and auditing engagement are described on a dedicated page.
What happens if nothing is done
The dissolution action. Any interested party may apply to the court for the dissolution of the company in three cases: the meeting did not take place or could not validly deliberate; no decision was initiated (SARL); regularisation did not take place by the deadline (Art. 357; Art. 86). The court may grant a period of up to one year in an SA (Art. 359) and up to six months in a SARL (Art. 86). It may not declare dissolution if regularisation has taken place by the day it rules on the merits at first instance. The consequences of a dissolution are described in our article on SARL dissolution.
Criminal penalties provided by law.
| Breach | SA (Law 17-95) | SARL (Law 5-96) |
|---|---|---|
| Knowingly failing to convene the extraordinary general meeting (SA) or consult the shareholders (SARL) within three months | Imprisonment of one to six months and a fine of MAD 4,000 to 20,000, or either penalty (Art. 407) | Imprisonment of one to six months and a fine of MAD 2,000 to 20,000, or either penalty (Art. 115-1) |
| Failing to publish the decision, file it with the court registry and enter it in the commercial register | Fine of MAD 10,000 to 50,000 for failure to file or publish within the deadlines (Art. 420) | Same penalties as above (Art. 115-2); fine of MAD 10,000 to 50,000 for failure to file or publish (Art. 108) |
In the SARL, penalties are doubled for a repeat offence (Art. 101 Law 5-96).
Points to watch
- Run the test when the accounts are closed, not at the meeting: the three-month period runs from approval.
- SARL: decide, not just convene within three months (Art. 86).
- Allow for the 45 days of communication to the statutory auditor if a reduction is voted (Art. 211; Art. 79).
- Plan around the earliest deadline, since the financial year of recording is not defined.
- Check the minimum capital before any reduction in an SA (Art. 360 and 6).
- Publish the decision even if the company continues: “in all cases” (Art. 357), “in both cases” (Art. 86).
- Keep the evidence: notices of meeting, minutes, proof of publication, filing and registration.
Frequently asked questions
When does the three-month period start?
From the approval of the accounts that revealed the loss (Art. 357 Law 17-95; Art. 86 Law 5-96). In an SA, the board of directors or the management board must convene the extraordinary general meeting within this period. In a SARL, the shareholders must decide within this period.
Must the company be dissolved?
No. The meeting decides whether early dissolution should be declared. If it does not declare it, the company must restore its equity to at least one quarter of the capital or reduce its capital by the amount of losses not charged against reserves, no later than the close of the second following financial year (SA, Art. 357) or of the following financial year (SARL, Art. 86).
What majority is required in a SARL?
The majority required to amend the articles of association, i.e. shareholders representing at least three quarters of the share capital (Art. 86 and 75 Law 5-96). In a single-shareholder SARL, the sole shareholder decides alone (Art. 76).
What happens if the company does nothing?
Any interested party may apply to the court for dissolution. The court may grant a regularisation period of up to one year in an SA (Art. 359) and up to six months in a SARL (Art. 86). Managers who knowingly failed to convene or consult within three months face the penalties of Art. 407 Law 17-95 and Art. 115 Law 5-96.
Is a SARL in judicial recovery concerned?
No. The last paragraph of Art. 86 of Law 5-96 excludes its application to companies in judicial recovery. Art. 357 of Law 17-95 contains no equivalent exclusion for the SA.
READ ALSO:
- Capital reduction in Morocco: terms and procedure
- Preparing for the statutory auditor’s engagement
- Going concern in Moroccan accounting
