Non-cash contributions

The capital stock of a Corporation or limited liability Company may be formed by contributions not necessarily in cash. The most common case is the monetary contribution of the Partners, with subscription of the corresponding participations or shares. However, when we incorporate a Company or increase its Capital, we can do so through non-monetary contributions.

They may consist of movable or immovable property, credit rights, industrial property or companies, among others. However, in no case may labor or services be used as non-monetary contributions.

Although the LSC (“Ley de Sociedades de Capital”as “Capital Companies Law”): allows assets other than money to be contributed, these must meet a series of requirements:

• The assets and rights susceptible of contribution must be of a patrimonial nature. In addition, they must be capable of being valued economically according to objective criteria.
• The deed of incorporation or Capital increase must describe the non-monetary contributions. Their registry data, their valuation in euros and the numbering of the shares attributed must be stated. As it is logical, for its full effectiveness, it will be necessary the accreditation of the ownership on the good.
• If the contribution consists of movable or immovable property or similar rights, the contributing Partner must comply with a series of obligations. The delivery and the reorganization of the asset, in the terms established in the Civil Code for the contract of sale. In addition, the rules of the Commercial Code on the same contract regarding the transfer of risks will apply.

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Non-monetary contributions in Limited Liability Companies

The valuation of the non-monetary contributions in the limited liability companies will be made by the Partners themselves. It will be sufficient to indicate to the Notary the assets or rights that are the object of the contribution and the value attributed to them. No report will be required, no third party will pronounce on the valuation made on these non-cash contributions.

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What happens when the valuation of the shares is not real and accurate based on objective criteria? Who is liable for the overvaluation of non-cash contributions?

For limited liability Companies, the regulations establish precautions based on the liability regime of the partners. Due to the unnecessary accreditation of the valuation of the non-monetary contributions in the SL, it can happen that these are overvalued.

This overvaluation will affect the Partners who make non-monetary contributions. But also those who already have the condition of Partners at the time of the capital increase. They will be jointly and severally liable for the reality of the contributions and the value attributed in the deed. They will be liable to the Company and to the  creditors.

The Partners who vote against the increase or the value attributed to the contributions will be exempt from liability. This liability regime does not affect the partners who make non-monetary contributions subject to an expert’s report.

Non-monetary contributions in a corporation.

Unlike limited liability companies, a report must be prepared for corporations. This, by virtue of Articles 67 and following of the Capital Companies Law. It will contain the valuation of the non-monetary contributions, of any nature, by one or several independent experts with professional competence. These shall be appointed by the mercantile registrar of the registered office in accordance with the procedure to be determined by regulation.

The report will contain the valuation of the contribution, in addition to the description of the contribution and its registration data. The criteria used for the valuation and whether it corresponds to the nominal value shall be expressed. And if applicable, with the issue premium of the shares issued.

The value stated in the deed of incorporation or increase must be equal to or less than that determined by the experts. This report is also required when the corporation is a sole proprietorship.

The expert will be liable to the Company, shareholders and creditors for the damages caused by the valuation. He will be exonerated if he proves that he has acted diligently and has applied the proper standards to the entrusted performance.

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