It is no secret that the key to the successful development of any business is the availability of its own financial resources.
Olga Solotska explores the main aspects of the authorized capital formation of a company, paying special attention to its step-by-step increase guide.
Authorized capital is the very essence of a successful business.
So let’s take a closer look at the complex aspects of this topic in simple terms.
The concept of “authorized capital” means the amount of contributions that the participants agreed to give to the company upon its creation when forming the minimum amount of property of the company. These deposits are the working capital of the company.
The amount of the authorized capital must be fixed in the constituent documents (Charter) of the company along with an indication of the size of the share of each of the participants (which can additionally be determined as a percentage).
The formation of authorized capital is possible in three ways:
IMPORTANT! Today, there are no legal requirements regarding the size of the authorized capital for most companies, except for the exceptions provided for by law.
Article 14 of the Law of Ukraine “On Limited and Additional Liability Companies” dated 02/06/2018 No. 2275-VIII provides for the obligation of a company participant when forming the authorized capital “to make a full contribution within six months from the date of state registration of the company, unless otherwise provided by the charter”.
The above-mentioned Law also provides for measures that must be taken if a participant is late in making a contribution, in particular:
However, we are talking about building a successful business, so it is more appropriate to understand some aspects of the procedure for increasing the authorized capital.
The possibility of increasing the authorized capital of companies is provided for by the Law of Ukraine “On Limited and Additional Liability Companies” dated 02/06/2018 No. 2275-VIII.
But before planning to increase the size of the authorized capital, it is necessary to check the fulfillment of the main condition preceding the initiation of such a procedure – all participants making their contributions to the authorized capital. The authorized capital cannot be increased until it is fully formed.
As noted in Art. 16 of the Law of Ukraine “On Limited and Additional Liability Companies” dated 02/06/2018 No. 2275-VIII, “an increase in the authorized capital of a company that owns a share in its own authorized capital is not allowed.”
In all other cases, an increase in capital is permitted, and this can be done in the following two ways:
due to additional deposits;
at the expense of undistributed income of the association.
We propose to consider one of the most common ways to increase the authorized capital – through additional contributions.
It consists of several steps:
Now let’s take a closer look at each of them.
STEP 1: Planning to increase the size of the authorized capital
First of all, the General Meeting of Participants must make a preliminary decision on attracting additional contributions, in which it is necessary to determine:
The preliminary decision to attract additional deposits is an internal document of the company; it will not need to be submitted to the state registrar.
STEP II: Making additional contributions by participants or other persons
Each participant has the preferential right to make an additional contribution within the amount of increase in the authorized capital in proportion to his share in the authorized capital, unless otherwise established in the Charter and in the decision of the General Meeting of Participants, which is adopted SINGLELY.
IMPORTANT! The period for making additional contributions cannot exceed one year from the date of the decision to attract them, unless otherwise established by the Charter or a decision of the General Meeting of Participants adopted SINGLELY.
Third parties and members of the company may make additional contributions within six months after the expiration of the period for making additional contributions by participants who intend to exercise their preemptive right, unless a shorter period is established by the decision of the General Meeting of Participants on attracting additional contributions.
At this stage, society participants are usually interested in what needs to be done first: make additional contributions or make a final decision and carry out state registration of changes?
In fact, this question has a rather presumptive answer, because the adoption by the General Meeting of Participants of one of the decisions provided for in Art. 10 of the Law of Ukraine “On Limited and Additional Liability Companies” dated 02/06/2018 No. 2275-VIII already directly indicates the fact of additional contributions by participants, the amount of such additional contributions and the size of participants’ shares in the increased authorized capital.
However, it should be noted that the state registrar, when conducting state registration of an increase in the authorized capital of a company, cannot require the submission of payment instructions on the actual making of additional contributions to the company’s account, and therefore, state registration can occur without the actual making of additional contributions by the company’s participants.
However, the Law of Ukraine “On Limited and Additional Liability Companies” dated 02/06/2018 No. 2275-VIII does not provide for any instruments of influence on a participant who does not fulfill his obligation to make an additional contribution both before and after registration of an increase in the authorized capital. Accordingly, an effective tool for resolving such a situation is to go to court.
STEP III: Decision making by the General Meeting of Participants
Within one month from the date of expiration of the period for making additional contributions, the general meeting of company participants makes one of the following decisions:
In the letter of the Ministry of Justice dated 06/07/2018 No. 6623/8.4.3/32-18, the decision of the general meeting of participants of the company to determine the size of the authorized capital and the size of the shares of participants may be one of the above decisions.
IMPORTANT! Making additional contributions by company participants after the decision is made by the general meeting and by the date of state registration of changes in the size of the authorized capital does not affect the amount of income of the enterprise.
In general, we recommend that you follow the stages of increasing the authorized capital described above and, accordingly, carry out state registration of the increase in the authorized capital after all participants have made additional contributions to the company’s account.
STEP IV: State registration of changes to the authorized capital
According to Part 5 of Art. 17 of the Law of Ukraine “On state registration of legal entities, individual entrepreneurs and public formations” dated May 15, 2003 No. 755-IV, “for state registration of changes in information on the size of the authorized capital, the size of shares in the authorized capital or the composition of participants in a limited company liability companies with additional liability shall submit the following documents:
IMPORTANT! The authenticity of the signatures of the participants is certified by a notary with the mandatory use of special forms of notarial documents.
Finally, it should be noted that knowledge of the main aspects of the formation of authorized capital and its increase is an important step for setting up and developing a business. Therefore, before its formation begins, the company needs at least to: