
Capital and contribution increases
At UR Global we advise on capital and contribution increases, in addition to carrying them out if necessary. We are backed by our experience, having been in charge of this type of processes in Spain, Mexico, Colombia, Peru, Brazil, Chile and Portugal since 2002. We have experts on tax legal advice for companies with extensive knowledge.
What are capital and contribution increases?
The capital stock of a company is made up by the contributions (in money or assets) made by the partners at the time of incorporation. Subsequent to incorporation, the partners may increase this stock through new capital contributions or through the capitalization of liabilities.
This will be necessary when the Company’s resources are insufficient to support its activities. Sometimes it will be necessary to increase the company’s share capital to avoid technical bankruptcy and to give solvency to the company, as well as to deduct this investment for tax purposes in Spain.
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 purpose, it is important to rely on the help of professionals in tax legal advice.
Why ask UR Global for advice and execution of capital and contribution increases?
Since our founding in 2002, we have been engaged in establishing and managing subsidiaries in the seven countries where we operate: Spain, Mexico, Portugal, Brazil, Colombia, Chile and Peru for the more than 400 Spanish companies we manage.
Services for subsidiaries and parent companies
That is why we can advise a company 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 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 at the stockholder meeting irrevocably authorizing such capital increase and as of the date agreed on.
This meeting must comply with 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 for future increases be made 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 indeed contribute money in future contributions but has neither rights nor obligations.
Harmonizing these contributions at the time of capitalization is usually 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 of a NON-PARTNER.
What is the process for carrying out a capital and contribution increase?
When we analyze a company that wants to make capital and contribution increases, we provide tax legal 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 advice to the client, knowledgeable of the regulations of the countries and of Spain based on our business consultancy experience.
Frequently asked questions on capital increases
There are two types of contributions at the time of the capital increase:
- Monetary contributions: they consist of cash contributions.
- Non-monetary contributions: they consist of contributions of assets or rights that are economically valued.
Our tax legal advice will make it clear to you that you can also make a loan between parent company and subsidiary to finance your activity or create a credit line 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 will, above all, prevent technical bankruptcy.
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