The company’s share capital is not limited to legal definitions or marginal mentions in commercial documents. It is also a positioning and management tool. Whether it is for investment, recapitalisation, strengthening financial strength, reducing debt, or improving cash flow, it can be used to increase funding in a variety of circumstances.
Why increase share capital?
There are usually several reasons to increase the share capital of a company, which always happens following agreements between partners. Firstly, it improves the financial situation of the enterprise. In the case of downsizing and excessive losses, an increase in equity or a capital restructuring allows creditors to be repaid and the financial stability of the company to be strengthened so that it does not disappear. Secondly, it allows the introduction of new shareholders, the increase in the number of shareholders will create new contributions to the company and reinforce the strength of its assets. The risk must also be spread among the shareholders. However, the importance of voting rights should not be underestimated and should not disrupt the company’s strategy. And finally, increasing the share capital can enhance the company’s credibility, as it is an opportunity to show the attractiveness and strength of the company by attracting new investors. It is a great communication prospect, not only for financing and the arrival of shareholders!
How to go about increasing the share capital of a company?
It is necessary to draw up a contract and notify the capital increase to the court registry by sending the following means: M2 form, taxation at the meeting, provision of a cash deposit certificate, a copy of the revised articles of association of the company, and a legal announcement. This procedure involves mandatory registration and legal announcement fees, as well as other basic costs for drafting deeds and legal documents. The format is quite complex and should be carried out by an expert to avoid inefficiency and ensure the operation is correctly carried away from a control point of view.
Which solution should you choose?
Depending on the company’s strategy, there are generally 5 solutions you can implement. Firstly, when it comes ot the consolidated income or reserves, this is a transfer of the company’s own funds from the reserves and/or the income statement. The shareholders give up their rights to the part of the assets transferred and may receive free shares. Secondly, the contribution in kind consists of assets provided, such as patents, machinery, licences, etc. The value of the assets is transferred to the resources of the company. In addition, for bond conversions, the creditors become shareholders through the securities provided by the company. Furthermore, in the case of a merger with another company, the acquiring company increases the capital to pay the participation fees of the participating company. And finally, in the case of a cash contribution, the company can increase its shares by providing new cash.