How to make a capital increase in a limited company?
In this post we are going to summarise how to carry out a capital increase in a limited company, focusing on the requirements demanded by the Capital Companies Act
What is a capital increase in a Sociedad Limitada?
As an introduction to understanding what a capital increase in a limited company is, we must define it correctly. A capital increase in an SL is the legal operation by which the amount of share capital stated in the articles of association is increased. Therefore, it must be formalised in a public deed at a notary's office for share capital increases.
Normally, the procedure of capital increase in an SL serves to obtain new resources so that the company can 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 in an SL 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 comply with the requirements of any amendment of the articles of association, being within the competence of the Shareholders' Meeting (article 160.d).
The notice convening the Shareholders' Meeting at which a capital increase is to be decided must expressly state this 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 required, unless the increase is made entirely with profits or reserves already shown in the last approved balance sheet.
Types of share capital increases in SL
To better understand what a capital increase in limited companies is, we must also take into account that capital increases can be classified according to the object contributed 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 limited companies it is required that the debts be completely 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 contributions. 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 that which they already held 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 in limited companies 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)
