Contributions from shareholders that do not represent a capital increase

To provide liquidity to our Company beyond the capital increase, we have other equally valid options.

However, the contributions of the partners are not regulated in our legal system. They are assets and liabilities delivered by the shareholders acting as such, by virtue of transactions not described in other accounts. These contributions do not constitute consideration for the delivery of goods or the rendering of services, nor are they liabilities. This is the definition contained in the General Chart of Accounts, the only regulation that exists in this respect.

Purpose of contributions that do not entail a capital increase

By means of these contributions, the partners can increase the Company’s equity without changing their share of the capital. In this way, the partners can finance their own Company by means of contributions to the net assets. Normally, these contributions are intended to offset losses in order to restore the company’s equity balance. However, this requirement is not necessary for the partners to be able to make contributions to the company. They can make such contributions simply to provide the company with greater liquidity.

The making of contributions to the Company does not require the fulfillment of special formalities. Only a resolution of the General Meeting of Shareholders is required. It is not necessary to notarize the resolution or to register it in the Mercantile Registry. This is one of the benefits of this type of operation as opposed to the capital increase itself. These reasons may lead the partners to use this method because it involves less expenses.

Si te ha interesado este artículo no dudes en leer:

Imbalance as a cause of dissolution

An asset imbalance as cause of dissolution arises when, company’s losses within a financial year reduce equity below the company's share capital value.

Recognition by the General Directorate of Registries and Notaries of this type of contribution.

The Resolution of the General Directorate of Registries and Notaries of October 9, 2012 recognizes the validity of these contributions. It establishes that the partners can finance their own Company by means of contributions registered as part of the net assets. Also through the granting of participative loans, or by means of remittances that are instrumented as a current account with the partners. The contributions recorded as equity are precisely the contributions made by the partners to offset losses. Including those which, as non-recoverable losses, are charged to account 118 of the PGC for any reason.

For these contributions to be considered as equity, they must be made on a definitive basis. Non-refundable. And not giving right to consideration in favor of the partners. This is what is stated in the Binding Consultation of the General Directorate of Taxes of August 7, 2009. However, we also find consultations with different resolutions on this point, such as that of May 9, 2016. It establishes that the impossibility of refund is not absolute. The refund must be treated as a distribution of share premium via dividend.

As for share capital increases, the contributions of the shareholders may be monetary or in the form of in-kind contributions. There are no legal provisions requiring that members’ contributions must be of a specific nature.

It should be borne in mind that the contribution made by each partner must be proportional to their shares . If one of the partners contributes more than his ratio, the difference will be considered as income for the partnership. The partners who participate in a lower proportion will be taking advantage of the greater value generated by those partners who have contributed more than their ratio. In this case, the valuation of their contribution will be increased without their having allocated resources to the Company.

If this article has been of interest, we also suggest you to read the following article published on our website: The duty to abstain due to conflict of interest.