An increase in share capital through contributions in kind is a corporate transaction expressly provided for under the Commercial Companies Code (CSC), applicable to both private limited liability companies and public limited companies. This mechanism enables the financial structure of a company to be strengthened through the contribution of assets or rights capable of economic valuation, in lieu of cash contributions.
However, it is a technically demanding transaction, subject to strict compliance with the provisions of the Commercial Companies Code (CSC), particularly as regards the valuation of the assets, the adoption of corporate resolutions and registration with the commercial registry.
Contributions in kind may consist of various types of assets, including real estate, equipment, shareholdings, credit rights, trademarks, patents or other intangible assets. By their very nature, such contributions are particularly relevant in the context of corporate reorganisations, financial restructurings, business recapitalisations or the admission of new shareholders.
The principal advantages of a capital increase through contributions in kind include:
- strengthening the share capital without the need for immediate liquidity.
- facilitating corporate reorganisation transactions, such as mergers, demergers or recapitalisation processes.
- converting debt into equity, with a positive impact on the reduction of liabilities and the improvement of shareholders’ equity.
- incorporating strategic assets that are relevant to the company’s business activity.
- enhancing the company’s financial standing vis-à-vis financial institutions, investors and commercial partners.
Nevertheless, the admissibility of such transactions depends on compliance with stringent legal requirements, particularly regarding the valuation of the contributed assets and the safeguarding of the interests of the company, its shareholders and third parties.
Pursuant to Article 28 of the CSC, it is mandatory to:
- Prepare a report by an independent Statutory Auditor (ROC), describing the assets contributed, identifying their holders, explaining the valuation criteria applied and confirming that the value attributed is sufficient to cover the amount of the capital increase and the shares or quotas to be issued. This report must be made available to the shareholders at least fifteen days prior to the resolution approving the capital increase and must subsequently be filed with the commercial registry.
- The resolution approving the capital increase must expressly state the amount of the increase, the nature of the contributions, the identification of the shareholders making such contributions and the deadline for their completion. Depending on the type of company and the nature of the assets contributed, the resolution may need to be formalised by way of a public deed or an authenticated private document.
- Following the adoption of the resolution and the effective completion of the contributions, the capital increase must be registered with the commercial registry, with express reference to the filing of the statutory auditor’s report.
Attention must also be paid to the tax implications of the transaction, notably about Stamp Duty or Municipal Property Transfer Tax (IMT), where real estate assets are involved.
It is equally essential to ensure that the assets contributed are free from encumbrances or charges and are genuinely capable of economic valuation. The overvaluation of assets may give rise to liability on the part of the shareholder making the contribution, who may be required to cover the difference between the value attributed and the asset’s actual value.
Belzuz Abogados, S.L.P. – Portuguese Branch is an international law firm, headquartered in Madrid with offices in Lisbon and Porto, with extensive experience in providing legal advice to national and international clients in capital increase transactions, corporate reorganisations, financial restructurings and processes involving the entry of new shareholders, ensuring strict compliance with all applicable legal and tax requirements.