Opportunities of settling negative owner’s capital

If the company’s owner’s capital falls under the half of subscribed capital in two sequential financial years due to the data of financial statement, the company shall decide on a members’ meeting how to solve and cease it. This shall be performed within three months following the date of acceptance of second year’s financial statement. It is worthy of paying attention to the proportion of owner’s capital and subscribed capital, on the one hand because of the participation in public procurement procedures and EU tenders, and on the other hand it may also be significant form the point of view of taking a credit.

Due to the act on business associations, if the company’s capital becomes negative, then this kind of state shall be ceased. What can we do for the good of continuous legal operation of the Company?

I. Capital increase with cash

If the owner’s capital is negative and it is increased with cash, then the managing director is liable to immediately organise a members’ meeting to make the necessary actions if it comes to his/her knowledge that the company’s owner’s capital fell under the half of share capital because of the loss.

II. Capital increase with extant member’s loan as contribution in kind

The act on business association prescribes the form of member’s financial contribution, within the form of contribution in kind. A contribution in kind may be any marketable thing of value or intellectual work, any intangible property, or any claim that is recognized by the debtor or that has been granted by a final and definitive court decision. So, the member of the company may make his/her receivables from the loan provided for the company in the frame of capital increase available.
Its condition is to modify the articles of association, to make the contribution in kind available for the company, and to record the change of share capital in the company register. The receivable and the original liability might be removed opposite each other following the takeover.

III. Capital increase with premium

The previous solutions are effective but it is clear that relatively lot of money is needed for them. Less additionally payable capital is needed if together with the increase of subscribed capital, there is an amount of money put into the capital reserves, as well. In case of public limited companies, the issue of shares subscribed above the face value of share (capital subscription with premium) is generally applied in practice, while by other companies, e.g. by a Kft. the contribution in cash of business share (value of own capital contribution) above face value is less typical, but due to corporate law it is possible. According to the presented law, the only way to place financial asset to capital reserves if at the same time the company’s subscribed capital is also increased.
If the capital increase is performed higher than the face value (the extent of the increase of subscribed capital) and the business association places the difference between the face value and issue price – that is the premium –, the capital increase is defined as an onerous legal transaction, and considering that the provisions regarding to the duties on onerous transfer of property included in the Act on Duties regarding does not cover the money as movables, therefore the transaction is not under effect of the Act on Duties, so, no duty payment liability occurs.

IV. Supplementary capital contribution

Due to the law: the managing director is immediately liable to organise a members’ meeting if it comes to his/her knowledge that the owner’s capital of the company decreased to the half of share capital because of loss. The supplementary capital contribution is a temporary solution for the settlement of loss, from which it follows that the amount of supplementary capital contribution that is not necessary for the supply of loss and the remaining part shall be paid back for the members. According to the act, the highest amount shall be determined in the articles of association that a member is liable to pay in and furthermore the manner, frequency, schedule and the order of payback of supplementary capital contribution. The supplementary capital contribution liability – if the articles of association do not dispose otherwise – shall be determined and fulfilled due to the proportion of primary stakes, but the amount of supplementary capital contribution does not increase the member’s primary stake, its express function is to cover the loss. Supplementary capital contribution means fulfilment in cash.

The advantage of supplementary capital contribution is that by the cessation of management showing deficit, it can be paid back for the member fulfilling it.

V. Profitable management

There is another obvious opportunity: the Company succeeds in changing the activity showing deficit causing negative owner’s capital into profitable, and places the positive profit and loss after taxation into a profit reserve, until it does not meet the requirements of the prescriptions of owner’s capital.

Source: www.adozona.hu