You decided to start your company with a minimum investment and now that a certain period of time has passed you are wondering when to increase your capital? In this article we tell you how to increase your capital and the main reasons for doing so.
What is a capital increase?
Before discussing the situations that usually involve initiating a capital increase, we first want you to know what this term means in the business world.
In short, a capital increase refers to increasing your company’s own funds, i.e. carrying out financing operations either by issuing new shares or by increasing the par value of existing shares.
Modalities for carrying out a capital increase
In the same vein, capital increases occur in companies in four ways, and we will tell you what they are below:
It involves making cash contributions to the patrimony of the company in question. In this case, the contribution is accredited through the certification of the deposit of the amount indicated in the name of the company in a credit institution, and subsequently the notary will incorporate it to the deed.
On the other hand, non-monetary capital contributions are made through movable or immovable assets, credit rights, companies, among others, which must prove their ownership and economic valuation in the market, as well as the numbering of the shares or participations attributed.
Contributions by offsetting receivables
As its name indicates, this type of contribution implies the dissolution of an existing debt due to a credit in the company, as long as the other party involved is given a stake in the company in exchange.
Contributions charged to reserves
Also known as a charge to profit, these contributions are defined as the transformation of reserves into capital, through an accounting operation belonging to the company’s equity.
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What are the sources of financing?
In order to increase a company’s capital, it is necessary to obtain financing, and the main ways to do so are as follows:
Shareholders of the company
In this case, financing can be provided by the contribution of new capital or through shareholder remuneration. Therefore, we are not talking about the entry of new income into the company, but rather a transfer from the reserves or profit account to the capital stock account.
Creditors of the company
When it comes to business, the figure of the creditor corresponds to that person who is authorized to receive a payment and demand the same as an obligation previously established between both parties.
In this sense, this source of financing implies that creditors exchange their credits in exchange for shares in your company, which means that they would also be considered as shareholders.
For those people who have financial obligations with the company, in many cases they can become shareholders in the company, as long as they comply with the conditions and terms previously established by the organization.
Probably one of the best known ways for companies to raise new economic resources for the development of their activities is by obtaining new shareholders.
In other words, the new shareholders, in addition to increasing the company’s capital, will also have the right to control the company and will be able to act in the same way as the former shareholders.
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Reasons for a capital increase
Among the reasons that make an entrepreneur take the decision to increase the capital of his company, there are basically two aspects that drive him to act: the presence of a loss of money or the vision of growth.
With respect to the loss of money, the ideal solution to be able to capitalize and continue operating is to look for new partners who can contribute money to the company.
On the other hand, when talking about a vision of growth, it is common to make an investment in terms of infrastructure, for which it is also necessary to look for new partners to join the business project and share the same aspirations as the directors and the rest of the team.
However, if you want to know in which cases this process is usually carried out, here are the most frequent reasons:
Search for the acquisition of a new company
This is perhaps one of the best known reasons, since when a company plans to expand, one of the solutions envisaged by its partners is to increase capital in order to be able to create new branches.
Financing of new projects
During the entrepreneurial journey, it is common for companies to wish to carry out internal projects or external alliances that require extra capital to achieve. The most common projects include research activities, or community or environmental work.
Whether to enhance the activities within a specific department or to meet the business objectives set at the beginning, companies often require external investments that contribute to their growth.
Inability to obtain financing from credit institutions
When there is an impossibility of financing from banks, but at the same time a capital increase is sought in the companies, the directors resort to looking for corporate partners who can finance the company and become part of it.
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Making a capital increase and getting new partners for your company usually go hand in hand, and as we know that this decision can generate multiple doubts, in TAS Consultancy we offer you our experts in management and business accounting so they can advise you on every step you take. Do not wait any longer and click here to contact us!