Capital increase in a company

The capital increase in a limited company is regulated by company law and is a type of financing operation for a business that allows its share capital to be increased. In this way, the own funds available for the business can be increased. In any case, it is necessary to analyse it on an individual basis. It is essential to ensure legal compatibility, which is established in Spanish legislation and also in the company’s own articles of association.

This additional capital injection allows a business to face new challenges for the future. These may include entering new markets or even reducing debts. When setting the price of the shares, several different methods can also be used. On the one hand, the price of the old shares can be maintained and, on the other, the price of these can be increased.

Capital increases can be classified according to the purpose they contribute to the share capital of a company. We present them below:

• Capital increase with cash contributions: money is contributed by new partners or partners who acquire more capital. In addition, a share premium can be established, which is common in practice.
• With non-cash contributions: movable or immovable assets are contributed that are not money but must be registered and valued in euros (Capital Companies Act, articles 61 and 63 respectively). It is worth highlighting the contribution of cryptocurrencies in companies in this classification. This form of capital increase is considered an intangible asset.
• By debt compensation: part of the company's liabilities or debt is converted into shares or stock to resolve cash flow and indebtedness difficulties.
• Capital increase charged to reserves: capital is increased with the profits obtained by the company. In theory, it offers guarantees to creditors and potential investors.
• With share premium: this is a financial operation with the issuance of new shares offered to the company's shareholders at a price higher than the nominal value of their existing shares. It is very common in practice and ensures that those who receive capital pay the true value of the company.
• By conversion of convertible bonds into shares: shares are issued in exchange for "bonds". The conversion of bonds into shares increases the share capital to finance projects, reduce debts or support other financial needs and eliminates the need to pay interest on these bonds. Among the advantages for bondholders is their conversion into shareholders, gaining ownership rights and obtaining profits through dividends or the value of the shares.

In accordance with article 64 of the Revised Text of the Capital Companies Act, the transferor of movable or immovable property or rights assimilated thereto is obliged to deliver and guarantee the item contributed, according to the terms established by the Civil Code for the contract of sale. Furthermore, the rules of the Royal Decree of 22 August 1885, which approves the Commercial Code, shall apply regarding the transfer of risks.

If the contribution is a good or right, the contributor shall be responsible for the reality of what is contributed and for its ownership.

If the contribution consists of a credit right, the contributor shall be responsible for its legitimacy and for the solvency of the debtor.

If a business or establishment is contributed, the contributor shall be obliged to guarantee the whole, if the defect or eviction affects the entirety or any of the essential elements for its normal operation.

In general terms, there are two ways to carry out this type of procedure. On the one hand, by increasing the number of shares; on the other, by increasing their nominal value. Both existing shareholders and any other individual have the right to acquire these new shares. However, previous shareholders will always have a preferential right to acquire the new social participations issued.

In this way, they can maintain their percentage of participations within the company itself or sell their rights. On the other hand, third parties who wish to enter the company's shareholding must first purchase their rights in order to be eligible to acquire the new shares.

Furthermore, when increasing the company's share capital, old shares can also be exchanged for others with a higher nominal value. When completing this procedure, credits can be paid to creditors or bonds converted into shares. Additionally, a greater share capital can be contributed, which will be converted into shares. We will explain later the different methods for increasing share capital.

The increase of share capital must be agreed upon by the general meeting before proceeding to amend the company’s bylaws.

Both the directors and the partners who are going to subscribe to participations or shares in the capital increase must go to a Notary to sign the capital increase, which will be reflected in the Commercial Registry.

In this type of company, more than half of the votes at the general meeting corresponding to the shares into which the capital is divided will be required to approve the capital increase.

In public limited companies, the regulation requires the attendance of shareholders representing 50% of the subscribed capital with voting rights at the General Shareholders' Meeting on the first call, while on the second call the attendance of 25% of such capital is sufficient. The resolution to increase or reduce capital must be voted on independently of others and will be adopted by an absolute majority if it exceeds 50% of the capital present at the first call. In the case of a second call, the favourable vote of two-thirds of the capital present at the meeting will be required.

The Notary is a legal professional with extensive training and considerable experience. Among their functions is advising and counselling impartially and free of charge.

Applying total impartiality, the Notary's mission is to inform all parties involved equally, providing greater assistance to the party that needs it most. Whatever the notarial procedure or act being considered, it is advisable that the interested party, when in doubt, does not hesitate to make the necessary enquiries, both on the day of signing and in the days prior.

In the capital increase of a company, the Notary certifies the authenticity of the agreement, as well as that all documents related to the capital increase comply with laws and regulations, authenticates the signatures of the parties involved, and helps to guarantee legal security and the validity of the procedure carried out.

To sign the increase of share capital before a Notary and to execute the deed of capital increase, the presentation of the following documents is required:

• Valid identification document of the administrator or representative of the company. This will be the DNI or residence card or passport plus NIE.
• Certification of the capital increase adopted by the company in its general meeting or by its partner, the stipulated amount and the method to proceed with its management. If necessary, the notary office can assist you in the preparation of this document prior to signing.
• Supporting documentation: if the capital is to be increased through cash contributions, a bank certificate of the payment of the contribution must be presented. In the case of non-cash contributions, a report with the valuation of the contributions made by the company’s administrative body must be presented.
• Documentation of the company and its representative: documentation relating to the company will be necessary, such as the authentic copy of the deed of incorporation of the company or those related to the amendment of the company bylaws. However, this requirement can be replaced by consulting the company information in the Mercantile Registry.
• Real ownership certificate: authentic copy of the notarial deed identifying the partners who hold more than 25% of the company’s share capital at that time. The act of increasing share capital modifies the capital percentages of the current partners or causes the entry of new partners, which may result in the creation of a new Real Ownership Certificate.