When a limited liability company does not have sufficient cash to carry out its current business, it may require additional financing.
In order to improve the financial situation and achieve new investment goals, the owners of the company can acquire additional capital in various ways. The choice of financing method should be dictated by individual financial situation of the entity or the goal it wants to achieve. Tax issues needs also be considered.
The owners of the company have the following three options:
1. Shareholder loan;
2. Share capital increase;
3. Additional capital contributions.
A shareholder loan is the most flexible and simplest way of improving a financial condition of a company. The loan agreement should be concluded between the company and its shareholder in writing and the interest rate should be set at market value. The parties may freely agree on other terms of granting and repayment of the loan.
An unquestionable advantage of the loan granted by a shareholder is no obligation to pay tax on civil law transactions (pcc). The loan may also be granted by another entity, such as another company from the same capital group, but in this case it will be necessary to pay a 0.5% tax on civil law transactions and submit an appropriate pcc declaration to the tax office.
The share capital increase is the most formalized but at the same time very beneficial procedure for obtaining additional capital in the company, as it is non-refundable. It is effected by creating new shares in the company or by increasing the nominal value of the existing shares.
It requires passing the appropriate resolutions by the general meeting of shareholders, recorded in the form of a notarial deed, but it is possible to adopt resolutions of the shareholders in an ordinary written form without the need to amend the articles of association, providing the articles so allow. Then the shareholders must take up new shares in the increased share capital and the company must submit an appropriate application to the National Court Register.
If, during the capital increase, the shares are subscribed for above their nominal value, the resulting surplus (agio) is transferred to the company’s supplementary capital.
It is worth emphasizing that share capital increase is effective as of the date of registration in the National Court Register, therefore, this form of financing should be planned well in advance to allow time needed for registration.
It should also be remembered that by increasing the share capital, the company will be obliged to pay tax on civil law transactions (pcc) in the amount of 0.5% of the value of the increase and submit the appropriate pcc declaration to the tax office.
The shareholders’ obligation to make additional capital contributions must be set out in the articles of association, so it is worth considering the relevant provision when shaping the wording of the articles in the first place.
The procedure for contributing additional capital is not complicated and only requires the passing of a shareholders’ resolution and transfer of cash. Shareholders are obliged to contribute additional capital in proportion to their shareholding.
A resolution of the meeting of shareholders does not have to be filed with the registry court. After passing the resolutions, the shareholders transfer funds to the company’s account in the amount and time specified in the resolution. If the shareholder does not transfer the funds on time, he will have to pay statutory interest to the company for delay.
Additional capital contributions to a limited liability company may be returned in accordance with the provisions of the Commercial Companies Code if they are not required to cover losses shown in the financial statements.
Additional capital contributions do not constitute income under corporate income tax (CIT) if they are paid in accordance with the Commercial Companies Code. However, these contributions are subject to a 0.5% civil law transactions tax. The company has 14 days to pay this tax, counting from the date on which the tax obligation arises.
If you need to provide financing to your company and need related legal advice or support in the preparation of the required documents, we are ready to assist you.
We provide assistance tailored to the individual needs of the client. We are flexible and perfectly understand the different requirements of companies from various sectors. We also offer legal advice online.
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