Shareholder contributions without capital increase are a useful financial tool for companies, especially in situations where liquidity or solvency is required without changing the share capital structure.
This type of contribution has particular characteristics both from a commercial and tax point of view.
Below, we analyse its most relevant aspects.
What are shareholder contributions without capital increase?
Shareholders’ contributions without capital increase are assets provided by the shareholders, without consideration for services and without the nature of liabilities.
In contrast to a capital increase, these contributions do not change the nominal value of the share capital, which means that they are not reflected in the balance sheet under the share capital, but as a debt of the company towards the shareholder.
These types of contributions are usually used to improve the company’s liquidity, cover losses, or strengthen its financial structure without changing its share capital or tapping external sources of financing.
What are members’ contributions used for without a capital increase?
- No change in share capital: As the share capital is not increased, the shareholding structure of the shareholders in the company does not change. This feature is useful when the aim is to prevent a shareholder from losing decision-making power in the company.
- Formalisation: They must be made in proportion to the shareholding, and, although it is not a capital increase, the contributions must be formalised and documented by resolutions of the shareholders’ meeting.
- Accounting: In the company’s balance sheet, contributions are shown as a debt owed by the company to the shareholders and not as part of the share capital. Their accounting treatment is essential to maintain financial clarity.
Types of contributions
There are mainly two forms of shareholder contributions without capital increase:
- Contributions to offset losses: This type of contribution is used to offset the company’s accumulated losses, preventing them from having a negative impact on equity. In many cases, their purpose is to restore the company’s equity balance.
- Contributions to finance the company: These are contributions to strengthen the financial situation of the company, providing it with more liquidity or allowing it to meet operating expenses without resorting to external financing.
What are the tax implications of shareholder contributions without capital increase?
From a tax point of view, such contributions are not considered as taxable income for the company, as they are neither a non-refundable gift nor a donation.
However, treatment may vary depending on the nature of the contribution:
- No immediate taxation: Contributions do not generate an immediate tax liability for the company, but must be correctly reflected in the accounts as a liability.
- Return of contributions: If the company decides to return contributions to members, there are no tax implications as long as it is a return of principal and not remuneration in kind or interest.
Advantages and disadvantages
Advantages:
- It improves liquidity without changing the share capital structure or shareholder composition.
- There is no dilution of the power of the existing shareholders, as there is no issuance of new units or shares.
- Financial flexibility to cover cash needs or offset losses without recourse to external borrowing.
Disadvantages:
- It can be interpreted as a financial risk if the company fails to improve its situation and cannot repay the contributions.
- No additional rights for shareholders: As it is not a capital increase, the shareholders who make the contributions do not obtain additional rights, such as more votes or dividends.
Recommendations for formalisation
To avoid conflicts between partners and with the tax authorities, it is recommended to follow some key steps when making such contributions:
- Unanimous or majority agreement: Contributions must be agreed by the shareholders’ meeting and formalised in the minutes. Although they do not modify the share capital, it is important that all members agree on the conditions and deadlines for repayment.
- Clear accounting record: Contributions must be clearly shown in the accounts as a debt to the shareholders. This is essential to avoid misinterpretation by the tax authorities.
- Professional advice: Given the legal and fiscal complexity of this type of operation, it is advisable to seek the advice of specialised lawyers and tax advisors.
Conclusion
Shareholder contributions without capital increase are a valuable option to strengthen the financial structure of a company without altering its share capital and while maintaining corporate control. However, they must be properly managed from a legal and tax point of view to avoid future problems. It is important that these contributions are clearly documented and properly recorded in the accounts, thus ensuring transparency in the relationship between the company and the shareholders.
Such contributions can be particularly useful in times of financial need or to cover losses. In any case, appropriate advice is recommended to ensure that all applicable regulations are respected.
