Increasing the share capital of the business
Verified 01 January 2024 - Legal and Administrative Information Directorate (Prime Minister)
Social capital is not frozen. Whether it's to integrate new partners, improve your financial situation or enhance your credibility, a business can increase in share capital. The steps to be taken vary according to the legal form of the business (SARL/EURL, SA or SAS/SASU).
SARL/EURL
Social capital is the original assets business. It is composed of all the resources provided by the partners when the business is created.
Thus, the capital increase is an operation consisting in increase the amount of share capital business.
What's the point?
The aim pursued may be diverse:
- Welcoming new partners
- Financing future investments
- Gain credibility with partners (customers, suppliers)
Please note
A capital increase may also allowavoid dissolving the business when the equity becomes less than half of the share capital. This is called recapitalisation.
How does it work?
The capital increase may take, at the choice of the partners, 2 shapes different:
- Creation of new shares
- Increase in the nominal value of existing shares
Creation of new shares
The number of shares increase. The newly created shares may be subscribed either by the members or by third parties (new members).
Example :
A business has a share capital of €500,000 divided into 5,000 shares in €100 each.
The business emits 1,000 new shares to €100 each share capital shall be increased to €600,000 now divided into 6,000 shares.
New partners will be subject to theThe approval partners in place. A majority of members representing at least a majority of the shares is required.
The approval procedure is laid down in the statutes, which may provide for a higher majority.
Moreover, the integration of new partners alters the distribution of capital and may lead to the dilution of the holding partners in place.
Example :
The initial capital of the business is €1000 per 100 shares (i.e €10 share). A partner has 25% (25 shares) of the capital, i.e., 25% voting rights and dividends. If the business increases its capital by 100 shares and the partner does not subscribe to any of them, it has only 12.5% voting rights and dividends. Thus, its stake has been diluted.
To avoid this, the articles of association may grant the partners a preferential subscription right. This right allows existing shareholders to be given priority for the purchase of the new shares and thus to keep the same percentage of participation (and therefore of rights) in the share capital.
In addition, the partners can set a issue premium which is similar to a admission fee paid by new members.
On the day of a capital increase, business is normally better value only when it was created. Therefore, the real value of its securities (their value on the day of the capital increase) is greater than their nominal value (their initial value when the business was created).
It would appear ‘unfair’ for a new partner to be able to enter the capital at that time, by contributing an amount similar to what was contributed at the time of incorporation, when the value of the business has changed.
Thus, the issue premium allows the real value of the business to be taken into account on the day the new securities are issued. She's coming to compensate for this difference to put the new and older associates on an equal footing.
The issue premium is not not obligatory, this is an additional supplement left to the business. It can be distributed to partners.
Its amount is calculated from the following formula: (Real value - nominal value) x Number of securities = Issuance premium.
Example :
In 2020, 2 partners set up a SARL. The share capital of €1,000 is divided into 10 shares of €100 each (nominal value).
In 2022, the business is implementing a capital increase creating 6 new shares that a new partner wants to buy. To acquire the 6 shares, this investor must contribute to the business 6 × €100 (nominal value of the share) or €600.
However, in two years of activity, the business' shares have increased in value. Today, their real value is estimated at €150 each.
The former partners decide to match the capital increase with a issue premium equivalent to the difference between the nominal value of the shares and their real value. The emission premium is therefore (150-100) × 6 = €300.
In the end, to buy the 6 shares, the new partner must bring €600 in respect of the nominal value of the shares and €300 under the issue premium, or €900 in total.
Increase in the nominal value of existing shares
The number of members and shares remains unchanged. However, the commitment of the partners increases because their share in the capital stock is higher.
Example :
A business with a share capital is €500,000 divided into 5,000 shares in €100 each.
One increase in value from each social share to €130 brings the share capital to €650,000.
Associates have 3 ways to increase the capital of the business
- Cash contribution : partners provide liquidity (sums of money)
- Contribution in kind : partners bring movable property (e.g. machinery, computers, patents) or real estate (e.g. premises)
- Incorporation of reserves : the business shall incorporate its own capital reserves
FYI
Where the capital increase takes the form of an issue of new shares, the contributions may be subscribed by third parties who are not members of the business. Therefore, the latter become associates.
Cash contribution
Funds paid to the business by way of contribution shall be subject to a deposit, within 8 days of their receipt, at a notary or at a dedicated bank account.
FYI
Where the cash contribution is made by a person married under a community regime, the spouse must authorize the contribution and refrain from becoming personally associated. In this case, the status of partner shall be recognized only the spouse who makes the contribution. On the other hand, if the spouse of the rapporteur didn't give up, for half of the shares subscribed, he shall be accorded the status of member.
Contribution in kind
A capital increase may be constituted in whole or in part of contributions in kind.
Please note
Securities issued for consideration of a contribution in kind must be released in full upon issue. In other words, the rapporteur must to put his property back in the business as soon as he subscribes to the shares. However, the full release of the initial capital (at the time of creation) is not compulsory in order to achieve a capital increase in kind.
The goods which the partners intend to bring must be subject to a assessment by a commissioner for contributions. The latter shall be appointed by unanimous decision of the members or by the president of the commercial court at the request of a member or the manager. His report must be submitted in two copies to the Registry of the Commercial Court, at least 8 days before the date of the general meeting convened to decide on the capital increase.
Warning
The absence of a commissioner for contributions commits the joint and several liability of the manager and the providers for 5 years from the completion of the operation. In other words, all partners are responsible for the value attributed to the contributions, in relation to third parties who may turn against each of them. In addition, partners who assign a value to contributions in kind greater than their real value shall be liable to a penalty of 5 years imprisonment and €375,000 of fine.
However, his appointment is not mandatory when the 2 conditions the following are completed:
- The goods brought in each have a value less than or equal to €30,000.
- Total contributions in kind do not represent more than half of the share capital.
FYI
Where the contribution in kind is made by a person married under a community regime, the spouse must authorize the contribution and refrain from becoming personally associated. In this case, the status of partner shall be recognized only the spouse who makes the contribution. On the other hand, if the spouse of the rapporteur didn't give up, for half of the shares subscribed, he shall be accorded the status of member.
Incorporation of reserves
A capital increase by incorporation of reserves consists, for the business, in integrate its own reserves to share capital. It's a capital increase without contribution of funds. It is effected by a simple transfer from the "reserve" account to the "capital" account.
The subsequent reservations may be capitalized:
- Available reserves (optional reserves, extraordinary reserves, provident reserve)
- Provisions released
- Issue premiums and merger premiums
- Profits for the year or profits carried forward again from previous years.
The realization of an increase in the share capital requires next steps.
1. First collective decision of the members
The partners must meet in an extraordinary general meeting (AGE) to to decide on the capital increase and outline :
- Overall amount of the capital increase
- Number of new units issued or new value of existing units
- Preferential right granted to each member
- Time allowed to subscribe the shares (5 days minimum)
The majority conditions vary by type of intake.
FYI
In theEURL, all the powers normally vested in the shareholders’ meeting in the SARLs belong to thesole partner pronounced in the form of unilateral decisions. There are no rules to be applied with regard to calling, voting or quorum. On the other hand, each decision must be recorded on a special register held at the registered office. This register must be marked and initialed by the judge of the commercial court, by the judge of the judicial court, or by the mayor or deputy mayor of the commune of the registered office.
Cash contribution
The capital increase shall be voted in accordance with the majority conditions laid down for amendments to the Staff Regulations :
- SARL incorporated before 4 August 2005 : the decision must be adopted by the members representing at least 3/4 of the shares. There's no pitch of quorum required. A minimum number of participants present or represented at the AGE is not required.
- SARL incorporated after 4 August 2005 : the general meeting may validly deliberate only if the partners present or represented possess at least 1/4 shares (on first notice) and 1/5 of these (on second notice). If not, a new meeting must be convened within 2 months. If the quorum is respected, the amendments must then be decided by a majority of 2/3 of the shares held by the members present or represented.
On the other hand, when it consists in increasing the nominal value of the shares, the capital increase requires a unanimous decision associates.
The decision shall be recorded in minutes.
Warning
Before a capital increase in cash, the initial share capital must be fully released. In other words, the partners must have actually delivered all the contributions (assets and/or money) promised to the business when it was created.
Afterwards, management collect subscriptions of each within the time limit laid down. The new shares must be at least 1/4 released their nominal value. The release of the surplus (the remaining 3/4) must be acted upon, once or more, within 5 years from the day on which the capital increase becomes final.
FYI
The amount of the subscription may be released either by payment a sum of money (cash, check, transfer, etc.), or by compensation with a claim from the partner on the businesses.
Funds arising from the release of shares must be deposited with the notary or the bank within 8 days of receipt. The deposit is recorded by a depositary's certificate.
Contribution in kind
The capital increase shall be voted in accordance with the majority conditions laid down for amendments to the Staff Regulations :
- SARL incorporated before 4 August 2005 : the decision must be adopted by the members representing at least 3/4 of the shares. There's no pitch of quorum required. A minimum number of participants present or represented at the AGE is not required.
- SARL incorporated after 4 August 2005 : the general meeting may validly deliberate only if the partners present or represented possess at least 1/4 shares (on first notice) and 1/5 of these (on second notice). If not, a new meeting must be convened within 2 months. If the quorum is respected, the amendments must then be decided by a majority of 2/3 of the shares held by the members present or represented.
On the other hand, when it consists in increasing the nominal value of the shares, the capital increase requires a unanimous decision associates.
The decision shall be recorded in minutes.
Please note
The assessment report of the commissioner for contributions must be submitted in 2 copies to the registry of the commercial court, at least 8 days before the date of the general meeting.
Reserve Incorporation
The capital increase shall be voted on in the majority of shares making up the share capital.
2. Second collective decision of the partners
The second decision of the partners serves to to record final implementation of the capital increase. This decision shall be taken under the same conditions of majority as the first decision.
Warning
The second decision must be taken within 6 months from the first deposit of funds. Otherwise, the contributors may request (individually or collectively) that the funds or goods contributed be transferred to them returned.
In concrete terms, this decision makes it possible to record the completion of formalities following:
- Approval of new members if subscriptions have been made by third parties
- Appointment of an agent (if any) to withdraw funds deposited
- Amendment of the articles of association accordingly (new capital amount and redistribution of shares)
- Powers necessary for the completion of the formalities for publication in a legal listing support.
This decision shall be recorded in a report. Therefore, the business may proceed to withdrawal of funds.
As such, the notary (or the bank) may require that a copy of the minutes be given to it as proof of the realization of the capital increase.
3. Publish legal announcements in a media
Where an increase in share capital has been decided, the company’s legal representative must make a publishing legal announcements in a medium. This advertisement is used to to inform third parties the evolution of business.
The advertisement notice shall contain mandatory particulars following:
- Name of company followed, where appropriate, by the initials of the business
- Legal form, followed, where appropriate, by the words ‘open-ended’
- Amount of former share capital (before the planned increase)
- Postal address of the registered office
- SIREN number RCS endorsement, followed by the name of the city of the registry in which the business has registered
- Nature of the change capital (in cash, in kind or by the capitalization of reserves)
- Retained track to carry out the capital increase (creation of new securities or increase in the nominal value of existing securities)
- New Number of Titles or New Value in euro of each of them
- Amount of new share capital
- Article number of the amended articles of association
- Management body who took the decision on the capital increase
- Date of decision and effective date (which may be different).
The legal advertisement must be published in a 1-month period from the date of the decision. The business then receives a certificate of publication.
4. Declaration of amendment
The capital increase must also be declared on the website of the company formalities office :
Auto-insert at Bodacc: titleContent return the capital increase enforceable against third parties.
When reporting, you must submit the supporting documents following:
- Copy of the minutes of the capital increase (certified by the legal representative)
- Copy of the updated articles of association (certified by the legal representative)
- Certification of publication of the change notice in a legal advertisement medium
- Certificate of deposit of funds (in the case of a cash contribution)
- Receipt of the deposit of the report of the Capital Adequacy Commissioner (in case of contribution in kind)
FYI
If the capital increase results in a change in beneficial ownership, it must also be declared on the formalities window.
On the other hand, the capital increase by contribution in kind must be registered with the tax office (SIE).
The document recording the increase (the minutes of the general meeting) must be lodged on the spot or sent by post in the 1-month period from the date on which the increase was established. This formality is free of charge. No formality of registration is required for contributions in cash or by the incorporation of reserves.
Who shall I contact
SA
Social capital is the original assets business. It is composed of all resources contributed by shareholders when the business is created.
Thus, the capital increase is an operation consisting in increase the amount of share capital business.
What's the point?
The aim pursued may be diverse:
- Welcoming new shareholders
- Financing future investments
- Gain credibility with partners (customers, suppliers)
Please note
A capital increase may also allowavoid dissolving the business when equity becomes less than half of the share capital. This is called recapitalisation.
How does it work?
The capital increase may take, at the choice of the shareholders, 2 shapes different:
- Creating new actions
- Increase in the nominal value of existing shares
Creating new actions
The number of actions increase. Newly created shares can be subscribed either by shareholders or by third parties (new shareholders).
Example :
A business has a share capital of €500,000 divided into 5,000 actions of €100 each.
The business emits 1,000 new actions to €100 each share capital shall be increased to €600,000 now divided into 6,000 actions.
If the articles of association so provide, these new shareholders may be subject to theapproval existing shareholders.
In addition, the integration of new shareholders changes the distribution of capital and leads to the dilution of the holding existing shareholders.
Example :
The initial capital of the business is €1000 per 100 actions (i.e €10 the action). A shareholder has 25% (25 shares) of the capital, i.e. 25% voting rights and dividends. If the business increases its capital by 100 shares and the shareholder does not subscribe to any of them, it has only 12.5% voting rights and dividends. Thus, its stake has been diluted.
To avoid this, a preferential subscription right allows existing shareholders to be given priority for the purchase of new shares and thus to keep the same percentage of participation (and therefore rights) in the share capital.
In addition, shareholders may set a issue premium which is similar to a entry fee paid by new shareholders.
On the day of a capital increase, business is normally better value only when it was created. Therefore, the real value of its securities (their value on the day of the capital increase) is greater than their nominal value (their initial value when the business was created).
It would be “unfair” for a new shareholder to be able to enter the capital at that moment, providing an amount similar to what was provided at the time of incorporation, when the value of the business changed.
Thus, the issue premium allows the real value of the business to be taken into account on the day the new securities are issued. She's coming to compensate for this difference to put the new and old shareholders on an equal footing.
The issue premium is not not obligatory, this is an additional supplement left to the business. It can be distributed to shareholders.
Its amount is calculated from the following formula: (Real value - nominal value) x Number of securities = Issuance premium.
Example :
In 2020, 4 shareholders create a SA. The share capital of €40,000 is divided into 100 shares of €400 each (nominal value).
In 2022, the business is implementing a capital increase creating 30 new actions that a new shareholder wants to buy. To acquire the 30 shares, the investor must contribute 30 × to the business €400 (nominal value of the share) or €12,000.
However, in two years of activity, the business' shares have increased in value. Today, their real value is estimated at €500 each.
The former shareholders decide to match the capital increase with a issue premium equivalent to the difference between the nominal value of the shares and their real value. The emission premium is therefore (500-400) × 30 = €3,000.
In the end, to buy the 30 shares, the new shareholder must bring €12,000in respect of the nominal value of the shares and €3,000 under the issue premium, or €15,000 in total.
Increase in the nominal value of existing shares
The number of shareholders and shares remains unchanged. However, shareholder commitment increases because their share in the capital stock is higher.
Example :
A business with a share capital is €500,000 divided into 5,000 actions of €100 each.
One increase in value of each action to €130 brings the share capital to €650,000.
Shareholders have 3 ways to increase the capital of the business
- Cash contribution : Shareholders provide cash (sums of money)
- Contribution in kind : Shareholders contribute movable property (e.g. machinery, computers, patents) or real estate (e.g. local)
- Incorporation of reserves : the business shall incorporate its own capital reserves
FYI
Where the capital increase takes the form of an issue of new shares, the contributions may be subscribed by third parties who are not members of the business. Therefore, the latter obtain shareholder status.
Cash contribution
Funds paid as a contribution shall be subject to a deposit, within 8 days of their receipt, at a notary or at a dedicated bank account.
Moreover, when the business issues new shares, they may be subscribed by third parties who obtain shareholder status. However, the integration of new shareholders leads to to change the allocation of capital and therefore to dilute participation (voting rights and dividend rights) of existing shareholders.
In order to avoid this situation which is detrimental to them, shareholders shall be entitled, in the event of any capital increase in cash, to preferential subscription right new actions. In other words, this right allows them to have priority in the purchase of new shares and thus to maintain the same percentage of equity ownership.
In order to exercise their preferential right to subscribe, shareholders shall have a period which may not be less than ‘ 5 trading days ”. The general meeting (or the Management Board in the case of delegation) may provide for a longer period.
Warning
A capital increase made without taking into account the shareholders' preferential right is not valid. On the other hand, shareholders are not obliged to subscribe the new shares to which they are entitled. They may even sell or give up to their right preference.
Where the cash contribution is made by a person married under a community regime, the spouse must authorize the contribution and refrain from becoming personally a shareholder. In this case, the status of shareholder is recognized only the spouse who makes the contribution. On the other hand, if the spouse of the rapporteur didn't give up, for half of the shares subscribed, he shall be awarded shareholder status.
Contribution in kind
A capital increase may be constituted in whole or in part of contributions in kind.
Securities issued for consideration of a contribution in kind must be paid in full as soon as they are issued. In other words, the rapporteur must to put his property back in the business as soon as he subscribes to the shares.
The assets that the shareholders intend to contribute must be subject to a assessment by a commissioner for contributions. The director is appointed by unanimous decision of the shareholders or by the president of the commercial court on application by any interested party (e.g. managing director). Its report must be made available to shareholders at the registered office, at least 8 days before the date of the general meeting deciding on the capital increase. The report shall also be sent to the Registry within the same period.
Please note
It shall not be required that the initial share capital has been paid up in advance in order to realize a capital increase by contribution in kind.
The absence of a commissioner for contributions commits the joint and several liability of the manager and the providers for 5 years from the completion of the operation. In other words, all partners are responsible for the value attributed to the contributions, in relation to third parties who may turn against each of them.
In addition, partners who assign a value to contributions in kind greater than their real value shall be liable to a penalty of 5 years imprisonment and €375,000 of fine.
FYI
Where the contribution in kind is made by a person married under a community regime, the spouse must authorize the contribution and refrain from becoming personally a shareholder. In this case, the status of shareholder is recognized only the spouse who makes the contribution. On the other hand, if the spouse of the rapporteur didn't give up, for half of the shares subscribed, he shall be awarded shareholder status.
Incorporation of reserves
A capital increase by incorporation of reserves consists, for the business, in integrate its own reserves to share capital. It's a capital increase without contribution of funds. It is effected by a simple transfer from the "reserve" account to the "capital" account.
The subsequent reservations may be capitalized:
- Available reserves (optional reserves, extraordinary reserves, provident reserve)
- Provisions released
- Issue premiums and merger premiums
- Profits for the year or profits carried forward again from previous years.
The realization of a capital increase requires the completion of steps subsequent.
1. Shareholders' collective decision
The increase in share capital requires a collective decision of shareholders.
The majority conditions vary by type of intake.
Cash contribution
The capital increase must be voted at an extraordinary general meeting (AGE) on the qualified majority of 2/3 the votes of shareholders present or represented.
By contrast, when it consists in increasing the nominal value of the shares, the capital increase requires a unanimous decision shareholders.
The decision shall be recorded in minutes.
Warning
Before the capital increase in cash, the initial share capital must be fully released. In other words, the shareholders must have actually delivered all the promised contributions (assets and/or money) to the business when it was set up.
Afterwards, the business collect subscriptions of each within the time limit laid down. Actions must be at least 1/4 released their nominal value. The release of the surplus (the remaining 3/4) must be acted upon, once or more, within 5 years from the day on which the capital increase becomes final.
The amount of the subscription may be released either by payment a sum of money (cash, check, transfer, etc.), or by compensation with a claim from the shareholder on the businesses.
FYI
Where it has employees, the business may reserve the subscription of shares to employees members of a company Savings Plan (PEE). It has an obligation to consult shareholders on this matter. If the business does not yet have a savings plan, it may put it in place before the capital increase decision is implemented.
Funds from the release of shares must be deposited with the notary or the bank within 8 days of receipt. The deposit is recorded by a depositary's certificate.
Therefore, the capital increase is realized.
Contribution in kind
The capital increase must be voted at an extraordinary general meeting (AGE) on the qualified majority of 2/3 the votes of shareholders present or represented.
By contrast, when it consists in increasing the nominal value of the shares, the capital increase requires a unanimous decision shareholders.
At least 8 days before the date of the general meeting, the evaluation report of the commissioner for contributions must be submitted in 2 copies to the registry of the commercial court.
Reserve Incorporation
The capital increase shall be voted on in the majority of votes shareholders present or represented.
New actions are assigned for free to shareholders in proportion to their rights in old capital.
The assembly may delegate its powers to the board of directors (or Executive Board) to decide on a capital increase. In this case, the meeting shall fix only the overall ceiling of the increase and the duration of its delegation (maximum 26 months). The Management Board shall decide to the appropriateness of the increase of capital, it is free to do so or not. On the other hand, it cannot make an increase by contributions in kind.
2. Publishing legal announcements in a media
Where an increase in share capital has been decided, the company’s legal representative must make a publishing legal announcements in a medium. This advertisement is used to to inform third parties the evolution of business.
The advertisement notice shall contain mandatory particulars following:
- Name of company followed, where appropriate, by the initials of the business
- Legal form, followed, where appropriate, by the words ‘open-ended’
- Amount of former share capital, (before the planned increase)
- Postal address of the registered office
- SIREN number and RCS endorsement, followed by the name of the city of the Registry in which the business has registered.
- Nature of the change capital (in cash, in kind or by the capitalization of reserves)
- Retained track to carry out the capital increase (creation of new securities or increase in the nominal value of existing securities)
- New Number of Titles or New Value of each of them in euro
- Amount of new share capital
- Article number of the amended articles of association
- Management body who took the decision on the capital increase
- Date of decision and effective date (which may be different).
The legal advertisement must be published in a 1-month period from the date of the decision. The business then receives a certificate of publication.
3. Declaration of amendment
The capital increase must also be declared on the website of the company formalities office :
Auto-insert at Bodacc: titleContent return the capital increase enforceable against third parties.
When reporting, you must submit the supporting documents following:
- Copy of the minutes of the capital increase (certified by the legal representative)
- Copy of the updated articles of association (certified by the legal representative)
- Certification of publication of the notice of amendment in a legal announcements support
- Certificate of deposit of funds (in the case of a cash contribution)
- Receipt of the deposit of the report of the Capital Adequacy Commissioner (in case of contribution in kind)
FYI
If the capital increase results in a change in beneficial ownership, it must also be declared on the formalities window.
On the other hand, the capital increase by contribution in kind must be registered with the tax office (SIE). The document showing the increase (the minutes of the meeting) must be lodged on the spot or sent by post in the 1-month period from the date on which the increase was established. This formality is free of charge. No formality of registration is required for contributions in cash or by the incorporation of reserves.
Who shall I contact
SAS/SASU
Social capital is the original assets business. It is composed of all the resources provided by the partners when the business is created.
Thus, the capital increase is an operation consisting in increase the amount of share capital business.
What's the point?
The aim pursued may be diverse:
- Welcoming new partners
- Financing future investments
- Gain credibility with partners (customers, suppliers)
Please note
A capital increase may also allowavoid dissolving the business when equity becomes less than half of the share capital. This is called recapitalisation.
How does it work?
The capital increase may take, at the choice of the partners, 2 shapes different:
- Creating new actions
- Increase in the nominal value of existing shares
Creating new actions
The number of actions increase. Newly created shares may be subscribed either by members or by third parties (new members).
Example :
A business has a share capital of €500,000 divided into 5,000 actions of €100 each.
The business emits 1,000 new actions to €100 each share capital shall be increased to €600,000 now divided into 6,000 actions.
If the articles of association so provide, these new members may be subject to theapproval partners in place.
Moreover, the integration of new partners alters the distribution of capital and leads to the dilution of the holding partners in place.
Example :
The initial capital of the business is €1000 per 100 actions (i.e €10 the action). A partner has 25% (25 shares) of the capital, i.e. 25% voting rights and dividends. If the business increases its capital by 100 shares and the partner does not subscribe to any of them, it has only 12.5% voting rights and dividends. Thus, its stake has been diluted.
To avoid this, a preferential subscription right allows existing shareholders to be given priority for the purchase of new shares and thus to keep the same percentage of participation (and therefore rights) in the share capital.
In addition, the partners can set a issue premium which is similar to a admission fee paid by new members.
On the day of a capital increase, business is normally better value only when it was created. Therefore, the real value of its securities (their value on the day of the capital increase) is greater than their nominal value (their initial value when the business was created).
It would appear ‘unfair’ for a new partner to be able to enter the capital at that time, by contributing an amount similar to what was contributed at the time of incorporation, when the value of the business has changed.
Thus, the issue premium allows the real value of the business to be taken into account on the day the new securities are issued. She's coming to compensate for this difference to put the new and older associates on an equal footing.
The issue premium is not not obligatory, this is an additional supplement left to the business. It can be distributed to partners.
Its amount is calculated from the following formula: (Real value - nominal value) x Number of securities = Issuance premium.
Example :
In 2020, 2 partners set up a SAS. The share capital of €1,000 is divided into 10 actions of €100 each (nominal value).
In 2022, the business is implementing a capital increase by creating 6 new actions that a new partner wants to buy. To acquire the 6 shares, this investor must contribute to the business 6 × €100 (nominal value of the share) or €600.
However, in two years of activity, the business' shares have increased in value. Today, their real value is estimated at €150 each.
The former partners decide to match the capital increase with a issue premium equivalent to the difference between the nominal value of the shares and their real value. The emission premium is therefore (150-100) × 6 = €300.
In the end, to buy the 6 shares, the new partner must bring €600 in respect of the nominal value of the shares and €300 under the issue premium, or €900 in total.
Increase in the nominal value of existing shares
The number of partners and shares remains unchanged. However, the commitment of the partners increases because their share in the capital stock is higher.
Example :
A business with a share capital is €500,000 divided into 5,000 actions of €100 each.
One increase in value of each action to €130 brings the share capital to €650,000.
Shareholders have 3 ways to increase the capital of the business
- Cash contribution : partners provide liquidity (sums of money)
- Contribution in kind : partners bring movable property (e.g. machinery, computers, patents) or real estate (e.g. local)
- Incorporation of reserves : the business shall incorporate its own capital reserves
FYI
Where the capital increase takes the form of an issue of new shares, the contributions may be subscribed by third parties who are not members of the business. Therefore, the latter obtain associate status.
Cash contribution
Funds paid as a contribution shall be subject to a deposit, within 8 days of their receipt, at a notary or at a dedicated bank account.
Moreover, when the business issues new shares, they may be subscribed by third parties who obtain the status of partner. However, the integration of new associates leads to to change the allocation of capital and therefore to dilute participation (voting rights and dividend rights) of existing members.
In order to avoid this situation which is detrimental to them, the members shall be entitled, in the event of any capital increase in cash, to preferential subscription right new actions. In other words, this right allows them to have priority in the purchase of new shares and thus to maintain the same percentage of equity ownership.
In order to exercise their preferential right of subscription, members shall have a period which may not be less than ‘ 5 trading days ”. The general meeting (or the Management Board in the case of delegation) may provide for a longer period.
Warning
A capital increase made without taking into account the right of preference of shareholders is not valid. On the other hand, the partners are not obliged to subscribe the new shares to which they are entitled. They may even sell or give up to their right preference.
Where the cash contribution is made by a person married under a community regime, the spouse must authorize the contribution and refrain from becoming personally associated. In this case, the status of shareholder is recognized only the spouse who makes the contribution. On the other hand, if the spouse of the rapporteur didn't give up, for half of the shares subscribed, he shall be accorded associate status.
Contribution in kind
A capital increase may be constituted in whole or in part of contributions in kind.
Securities issued for consideration of a contribution in kind must be paid in full as soon as they are issued. In other words, the rapporteur must to put his property back in the business as soon as he subscribes to the shares.
The goods brought in must be subject to a assessment by a commissioner for contributions. The latter shall be appointed by unanimous decision of the members or by the President of the Commercial Court on application by any interested party. Its report shall be made available to the members at the registered office, at least 8 days before the date of the general meeting deciding on the capital increase. The report shall also be sent to the Registry within the same period.
Please note
It shall not be required that the initial share capital has been paid up in advance in order to realize a capital increase by contribution in kind.
The absence of a commissioner for contributions commits the joint and several liability of the manager and the providers for 5 years from the completion of the operation. In other words, all partners are responsible for the value attributed to the contributions, in relation to third parties who may turn against each of them.
In addition, partners who assign a value to contributions in kind greater than their real value shall be liable to a penalty of 5 years imprisonment and €375,000 of fine.
FYI
Where the contribution in kind is made by a person married under a community regime, the spouse must authorize the contribution and refrain from becoming personally associated. In this case, the status of partner is recognized only the spouse who makes the contribution. On the other hand, if the spouse of the rapporteur didn't give up, for half of the shares subscribed, he shall be accorded associate status.
Incorporation of reserves
A capital increase by incorporation of reserves consists, for the business, in integrate its own reserves to share capital. It's a capital increase without contribution of funds. It is effected by a simple transfer from the "reserve" account to the "capital" account.
The subsequent reservations may be capitalized:
- Available reserves (optional reserves, extraordinary reserves, provident reserve)
- Provisions released
- Issue premiums and merger premiums
- Profits for the year or profits carried forward again from previous years.
The realization of a capital increase requires the completion of steps subsequent.
1. Collective decision of the members
The increase in share capital requires a collective decision of the members.
The majority conditions vary by type of intake.
FYI
In the SASU, all the powers normally vested in the shareholders’ meeting in the SAS shall belong to thesole partner pronounced in the form of unilateral decisions. There are no rules to be applied with regard to calling, voting or quorum. On the other hand, each decision must be recorded on a special register held at the registered office. It is recommended that this register be marked and initialed by the judge of the commercial court, by the judge of the judicial court, or by the mayor or deputy mayor of the commune of the registered office.
Cash contribution
The capital increase shall be voted in the majority conditions laid down in the articles of association.
By contrast, when it consists in increasing the nominal value of the shares, the capital increase requires a unanimous decision associates.
The decision shall be recorded in minutes.
Warning
Before the capital increase in cash, the initial share capital must be fully released. In other words, the partners must have actually delivered all the contributions (assets and/or money) promised to the business when it was created.
Afterwards, the business collect subscriptions of each within the time limit laid down. Actions must be at least 1/4 released their nominal value. The release of the surplus (the remaining 3/4) must be acted upon, once or more, within 5 years from the day on which the capital increase becomes final.
The amount of the subscription may be released either by payment a sum of money (cash, check, transfer, etc.), or by compensation with a claim from the partner on the businesses.
FYI
Where it has employees, the business may reserve the subscription of shares to employees members of a company Savings Plan (PEE). It has an obligation to consult the partners on this matter. If the business does not yet have a savings plan, it may put it in place before the capital increase decision is implemented.
Funds from the release of shares must be deposited with the notary or the bank within 8 days of receipt. The deposit is recorded by a depositary's certificate.
Therefore, the capital increase is realized.
Contribution in kind
The capital increase is voted on under the conditions of majority laid down in the statutes.
By contrast, when it consists in increasing the nominal value of the shares, the capital increase requires a unanimous decision associates.
At least 8 days before the date of the general meeting, the assessment report of the commissioner for contributions must be submitted in 2 copies to the registry of the commercial court.
Reserve Incorporation
The capital increase is voted on under the conditions of majority laid down in the statutes.
New actions are assigned for free to members, in proportion to their rights in the old capital.
The assembly may delegate its powers to the president (or other competent body) to decide on a capital increase. In this case, the meeting shall fix only the overall ceiling of the increase and the duration of its delegation (maximum 26 months). The President shall decide the appropriateness of the increase of capital, it is free to do so or not.
2. Publishing legal announcements in a media
Where an increase in share capital has been decided, the company’s legal representative must make a publishing legal announcements in a medium. This advertisement is used to to inform third parties the evolution of business.
The advertisement notice shall contain mandatory particulars following:
- Name of company followed, where appropriate, by the initials of the business
- Legal form, followed, where appropriate, by the words ‘open-ended’
- Amount of former share capital, (before the planned increase)
- Postal address of the registered office
- Siren number and RCS endorsement, followed by the name of the city of the Registry in which the business has registered.
- Nature of the change capital (in cash, in kind or by the capitalization of reserves)
- Retained track to carry out the capital increase (creation of new securities or increase in the nominal value of existing securities)
- New Number of Titles or New Value of each of them in euro
- Amount of new share capital
- Article number of the amended articles of association
- Management body who took the decision on the capital increase
- Date of decision and effective date (which may be different).
The legal advertisement must be published in a 1-month period from the date of the decision. The business then receives a certificate of publication.
3. Declaration of amendment
The capital increase must also be declared on the website of the company formalities office :
Auto-insert at Bodacc: titleContent return the capital increase enforceable against third parties.
When reporting, you must submit the supporting documents following:
- Copy of the minutes of the capital increase (certified by the legal representative)
- Copy of the updated articles of association (certified by the legal representative)
- Certification of publication of the notice of amendment in a legal announcements support
- Certificate of deposit of funds (in the case of a cash contribution)
- Receipt of the deposit of the report of the Capital Adequacy Commissioner (in case of contribution in kind)
FYI
If the capital increase results in a change in beneficial ownership, it must also be declared on the formalities window.
On the other hand, the capital increase by contribution in kind must be registered with the tax office (SIE). The document recording the increase (the minutes of the general meeting) must be lodged on the spot or sent by post in the 1-month period from the date on which the increase was established. This formality is free of charge. No formality of registration is required for contributions in cash or by the incorporation of reserves.
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