Contribution from partners to replace losses in a company
Patrick Gordinne Perez2024-12-30T02:09:03+00:00The contribution of partners is, despite the difficulties, to believe in what one does, to believe in a business idea.
Entrepreneurship is very complicated, difficult and hard.
If you create a company it means that you are a fighter and a brave man.
And since you are injecting money into an idea, into your company, you should make sure that it does not cost you money.
If your company is making losses and does not have sufficient reserves to offset them, you should know that the partners can contribute money without the need to increase capital.
What does this operation consist of and how is it taxed?
Shareholder contributions without capital increase
Proportional Contribution
The contribution of partners to make up losses is a quick and cheap way of regularising asset imbalances (for example, if your company has accumulated losses and the net worth is less than half of the capital, and you find yourself in legal grounds for dissolution).
It must be approved by all the shareholders, as each of them must contribute a share proportional to their participation.
The advantage of this operation over the capital increase is that, as the share capital figure is not touched, it is not necessary to sign a deed or register it in the Companies Register, which saves costs.
Justified
The minutes of the shareholders’ meeting at which the contribution is agreed constitute a sufficient document to justify the resolution.
In practice, the model minutes of the shareholders’ meeting without capital increase is a document that is signed at the notary’s office.
Shareholder contribution account 118
Thus, once the funds have been contributed:
- Post the offsetting entry for the inflow of funds to account 118 “Contributions from members”. This is an equity account of the company.
- At the same time, transfer this balance to the “Prior years’ losses” account, cancelling all or part of the losses.
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Example of partner contribution
Lower contribution
In many cases, moreover, acting in this way will allow you to regularise your losses with a smaller contribution than would be necessary if you were to increase your capital.
For example, if your company has a capital of 100,000 euros, reserves of 175,000 euros and accumulated losses of 240,000 euros (the net worth is 35,000 euros and less than half of the capital), in order to regularise the situation:
- If it opts for a capital increase, the partners would have to make a minimum increase of €30,000; in that case, the capital would become €130,000 and the net assets would reach €65,000, a figure that would be equal to half of the share capital (it would no longer be less).
- On the other hand, a shareholder contribution of €15,000 would be sufficient, which would directly reduce the loss figure. In this case, the capital would still be 100,000 euros and the net assets would be 50,000 euros.
Final situation of the net assets after the contribution
Item |
With enlargement
With contribution
Capital | 130.000 | 100.000 |
Reserves | 175.000 | 175.000 |
Losses | -240.000 | -225.000 |
Net worth | 65.000 | 50.000 |
Net worth/capital | 50% | 50% |
The contribution of partners to the partnership is a tax-neutral transaction.
For the company
The fact that the losses disappear from the balance sheet does not mean that your company loses the right to offset the Negative Taxable Income in the Corporate Income Tax (IS) when it comes out of the red.
The shareholder contribution is a tax-neutral transaction.
The contribution is accounted for as equity; it is not income and therefore does not have to be included in the tax base for tax purposes.
For the shareholder
For the shareholders, this cash contribution means a higher acquisition value of their shares, initially with no tax impact.
However, when they sell them, these shares will have a higher acquisition value (so the possible gains and taxation for personal income tax purposes will be lower).
The contribution of shareholders to make up for losses makes it possible to regularise the company’s asset situation without incurring notary and registration costs.
In addition, the contributions to be made are lower than those that would be required for a capital increase.