How to increase the share capital of a company?
In this post we are going to summarise how to increase capital in commercial companies, focusing on the requirements demanded by the Capital Companies Act for capital increases, specifically in limited companies.
What is a capital increase in a Limited Company?
As an introduction to understanding what a capital increase in a limited company is, we must define it correctly. The capital increase in a limited company is that legal operation by which the amount of share capital stated in the articles of association is increased. Therefore, in limited companies, capital increases are notarised, as they must be formalised in a notarial public deed.
Normally, the procedure of capital increase in companies serves to obtain new resources for the company to grow and expand future profits. It can also be used to reduce debt (in the case of an increase by compensation of credits).
Capital increases can be made by creating new shares or by increasing the nominal value of the existing ones, as explained in article 295 of the Capital Companies Act.
What is a capital increase with share premium?
It consists of new partners entering a capital increase paying a premium based on the real value of the company, to pay the other partners a remuneration for the work already carried out by the company subject to the increase.
Requirements of the share capital increase agreement
According to articles 285 and following of the Revised Text of the Capital Companies Act, the resolution to increase the share capital must meet the requirements of any amendment to the articles of association, being the competence of the Shareholders' Meeting (article 160.d).
In the notice of the Shareholders' Meeting where a capital increase is to be decided, it must be expressly stated in the agenda of the notice, and the resolution must be adopted by 50% of the votes corresponding to the share capital. Furthermore, if the increase is made by raising the nominal value, the consent of all shareholders is necessary, unless the increase is made entirely with profits or reserves already shown in the last approved balance sheet.
Types of share capital increases
To better understand what a capital increase is, we must also take into account that capital increases can be classified according to the contribution made to the share capital, that is, by what those who receive the new shares pay. The types are as follows:
- Capital increase with cash contributions: money is contributed by the new partners, plus the share premium in cases where there is one.
- Capital increase with non-cash contributions: any asset other than money will be contributed.
- Capital increase by debt compensation: in SL companies, it is required that the debts be fully liquid and payable.
- Capital increase with reserves: in this case, the capital is increased with profits obtained by the company that have not yet been distributed.
- Capital increase through cryptocurrency contribution. This modality, which is gradually increasing, consists of the contribution of cryptocurrencies, whether Bitcoin, Ethereum, Ripple XRP, Litecoin or IOTA, among others. They have a special nature; although you might think it is money, it is legally considered an intangible asset. Therefore, the regime for non-cash contributions applies.
What is the pre-emptive subscription right in capital increases?
It is a limit in capital increases, as when there is a capital increase through cash contributions, the partners have the right to acquire new shares in a proportion equal to what they already had in the company. We may have the opportunity to address this topic in another post.
I hope this article has resolved some of the doubts that arise in our daily work at our notary office in Diagonal. Now that you know what a capital increase is, if you have any questions and are looking for a notary office in Barcelona, do not hesitate to contact us at JLA Notarios (bcn@jlanotarios.com)
