Partner contributions without capital increase
We address this study on the possibility of partners making contributions to the company without being considered as a capital increase. It is a practice that has become popular in recent times.
The main reason why the partner may be interested to the detriment of the regulated capital increase in the Capital Companies Law, is the immediacy that this figure allows, since it does not require the protocolization of the agreement before a notary and by public deed, nor does it require registration in the Mercantile Registry. Savings are achieved in procedures, in terms, and also economic savings in the operation.
Partner contributions are not regulated in the Capital Companies Act or in any other current regulations of a commercial nature. The norm that covers its application is the General Accounting Plan (PGC), which allows its entry in account 118 as “partner contributions”.
In this sense, the PGC approved by the Royal Decree 1514/2007, of November 16, defines in account 118 the “contributions of partners or owners” as “equity elements delivered by the partners or owners of the company when they act as such, by virtue of operations not described in other accounts“.
That is, as long as they do not constitute consideration for the delivery of goods or the provision of services performed by the company, nor do they have the nature of a liability. In particular, it includes the amounts delivered by the partners or owners to compensate for losses.”
Through the contributions of partners the companies will be able to compensate contracted debts and restore the patrimonial balance, but in view of the aforementioned content of the PGC reproduced in the paragraph above, the use of this account is not restricted to any specific need. Therefore, the partners may make contributions with the sole objective of providing the company with greater financing at a specific time.
Since this figure is not regulated in the Capital Companies Law, its adoption only requires approval by means of a resolution at the General Meeting, provided that the consent of a majority is obtained simple.
Once the contribution has been accounted for, the resources may be used to offset losses or to increase own funds. We must point out in this regard that the General Directorate of Taxes has resolved a binding consultation in its Decision V1863-09 declaring that these contributions may only be allocated to own funds when they are non-refundable to the partner. This is stated in the aforementioned Decision:
“In the case presented, the non-refundable amount made by the partner, assuming that he or she has the entire capital of the company, will be considered a partner’s contribution to the company, without any computable income being generated in said contribution in the income statement…”
Therefore, it seems unquestionable that partner contributions without carrying out a capital increase is a possible practice in accordance with our law.
However, there are greater doubts about the formula for reimbursing such contributions to partners. We saw that the aforementioned DGT Decision states that contributions will be considered the company’s own funds as long as they are granted under the condition of non-refundable and does not offer consideration to the contributing partner.
Precisely this particularity distinguishes the contribution of the loan, since it seems clear that if the partner received a consideration for the delivery of money, said contribution should be accounted for in the company’s liabilities.< /p>
This distinction can be transcendental if the purpose of the contribution is to balance the accounting situation of the company, increasing equity to prevent the balance from showing excessive losses.
We saw in our article “ Responsibility of administrators for losses” some of the consequences when own funds fall below half of the share capital (cause of dissolution, responsibility of administrators when they do not agree to the dissolution, etc.).
That is why the partner’s contribution with the purpose of avoiding this situation will only achieve its objective if it is accounted for as own funds, and not as liabilities.
Returning to the question posed by the non-refundable nature of partner contributions, it should be noted that there are contradictory doctrinal opinions. Among which, some point to the possibility of the reimbursement of contributions applying the same regulations for the distribution of dividends, without to date there being a jurisprudential position that endorses this position.
Other things to consider:
- There is no legal provision that requires that said contribution must be monetary, and therefore we see no objection to contributions of another nature.
- It must be taken into account, for tax purposes, that if the contribution is not made respecting the proportion that each partner has in the share capital, the contributions must be taxed under Corporation Tax.
Conclusions on partner contributions without capital increase
- Partner contributions allow the injection of capital into companies without the need to carry out a capital increase.
- This solution is accepted in our regulations, and therefore they are a valid option for members.
- These contributions entail a reduction in costs, bureaucratic efforts and deadlines with respect to what is legally established for capital increases.
- Through partner contributions, we can increase the amount of own funds, preventing the company from incurring causes of dissolution due to an excessive increase in liabilities.
- As determined by the DGT, in order for contributions to be incorporated into own funds, they must be free and non-refundable. Otherwise, they must be recorded as a loan and recorded in the company’s liabilities.