Capital increases and contributions
At UR Global we advise on capital increase and contribution processes, in addition to executing them if necessary. We are backed by our experience, having been in charge of this type of process since 2002 in Spain, Mexico, Colombia, Ecuador, Peru, Brazil, Chile and Portugal. We have experts in tax legal advice for companies with extensive knowledge.
What are capital increases and contributions?
The capital stock of a company is formed by the contributions (in money or goods) made by the partners at the time of incorporation. Subsequent to incorporation, the partners may increase it through new capital contributions or through the capitalization of liabilities.
This will be necessary when the Company’s resources are insufficient to support its activity. Sometimes it will be necessary to increase the capital stock of the company to avoid technical bankruptcy and to give solvency to the company, as well as to deduct this investment for tax purposes in Spain.
The new contributions may be made as “Contributions for future increases”. This capital contribution has a particular tax and accounting regime, so its accounting and formalization must be made in accordance with the applicable provisions. For this, it is important to count on the help of professionals in tax legal advice.
Why UR Global for advice and execution of capital increases and contributions?
Since our foundation in 2002, we have been dedicated to establishing and managing subsidiaries in the eight countries where we operate: Spain, Mexico, Portugal, Brazil, Ecuador, Colombia, Chile and Peru for the more than 400 Spanish companies we manage.
Services for subsidiaries and parent companies
That is why we can develop a company consultancy on the corporate scheme during the whole process of setting up a subsidiary, on the way of financing it and on the necessary capital increases. We also provide legal and tax advice to the parent company in Spain.
When do the contributions become part of the capital made for future increases?
Contributions for future capital increases will only become part of the capital stock when there is a resolution of the stockholders’ meeting irrevocably authorizing such capital increase and as of the date on which it was agreed.
This meeting must have certain formalities, including notarization. If the above is not complied with, the capital contributions must be considered as a liability of the company and therefore will not be considered as equity but as debt, with all the accounting and tax effects that this implies.
Can these contributions be made for future increases by an entity other than the founding partners who would become a partner when their future contribution accrues capital?
Strictly speaking, someone who is NOT a member can contribute money in future contributions, but has neither rights nor obligations.
Harmonizing these contributions at the time of capitalization is often a bit complicated when calculating the exchange loss that may have been incurred, the contributions with the participations, etc. Therefore, we usually recommend that this amount be in creditors or in a loan, if the case is a NON-PARTNER.
What is the process for a capital increase and contributions?
When we analyze a company that wants to make capital increases and contributions, we provide legal and tax advice and follow up on the entire process.
In general, it is necessary to receive the contributions to be made by the partners to the company and the details of these contributions in order to apply the correct accounting treatment, in accordance with the local regulations of each country in which we operate.
In a very agile way, we will give recommendations to the client, knowledgeable of the regulations of the countries and of Spain after consulting companies.
Frequently asked questions about capital increase
There are two types of contributions at the time of the capital increase:
- Monetary contributions: consist of cash contributions.
- Non-monetary contributions: which consist of contributions of assets or rights that are economically valued.
We will explain to you that you can also make a loan between parent company and subsidiary to finance your activity or create a line of credit with the parent company that the subsidiary will use in functions.
By using capital increases and contributions, the subsidiary will avoid recurring interest payments, which can help it in its initial operations and, above all, avoid technical bankruptcy.
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