May 23, 2022

Company: What is the point of share capital?

The share capital of a company designates the sum contributed by each partner when the company is created. The share capital makes it possible to determine the share held by each partner in the company and to launch the activity. It is indeed this capital which is used to finance the first investments and the operating cycle of the company.

If it is legally possible to set the share capital at 0 euros, it should be noted that this testifies to the financial solidity of your company. The share capital therefore represents a guarantee for your customers as well as for your suppliers.

Find out more about the interest of a company’s share capital, and how it is possible to increase it.

The different interests of social capital

Distribute decision-making power

The main use of the company’s share capital is to distribute voting rights among partners. Logically, those who have contributed the most capital generally have the decision-making power.

Reassure partners

The share capital is the main pledge of creditors in companies where the liability of partners is limited to the amount of their contributions. This is the case for SASU/EURL, SAS, SARL, SA, etc.

In the event of bankruptcy, only the capital of the company allows creditors to recover part of their due. It is in this sense that capital makes it possible, to a certain extent, to reassure the partners of a society. The higher it is, the more they will be willing to work with the company.

Finance the operation of the activity

For the company, social capital is one of the main means of long-term financing. Capital then takes two forms: contributions of money or contributions of goods.

The funds provided by the partners then make it possible to finance the launch of the activity. The available cash can be used to invest in the necessary production tools, to finance marketing campaigns, etc.

Contributions in kind, for their part, are property owned by the partners and made available to the company. The latter then becomes the owner of property and will use it in the context of its activity (car, furniture, etc.).

Get a bank loan

This is the leverage effect: before granting a professional bank loan, credit institutions pay particular attention to the personal contribution. It is estimated that an entrepreneur must provide between 10% and 40% of the overall financing needs of his project.

Why increase the share capital of your company?

There are 4 main reasons which decide or oblige to increase its share capital

:

  • In order to improve the company’s financial situation (decline in activity, significant losses, etc.)
  • When new shareholders enter, it creates a new contribution and strengthens the company’s heritage
  • To strengthen its credibility by showing that the company is solid and attractive to new investors
  • During an IPO, opening up capital to new investors helps fund new projects and accelerate growth.

When deciding to increase the company’s share capital, an extraordinary general meeting is held. The decision to increase the capital implies a modification of the articles of association and the entry of new partners may require their approval by the partners already present.

This page of lextenso-service.fr details the administrative documents necessary to increase your share capital.

The partners, meeting in AGE (Extraordinary General Meeting), decide by vote on the capital increase. The choice of the solution is made according to the strategy adopted by the company. Generally, 5 solutions are possible:

  • Incorporate profits or reserves; it is then a question of supplying the social capital from the reserves and/or profits of the company
  • Constitute a contribution in kind; in other words, bring assets (patents, machines, license, etc.) whose value is transferred to the company’s share capital
  • Convert bonds into capital and make the company’s creditors shareholders of the company
  • Merge with another company so that the so-called acquiring company increases its capital in order to remunerate the participation of the so-called absorbed company
  • Provide new liquidity (cash contribution).

Specialized services such as L’Extenso exist to assist you in your administrative procedures: Constitution of SAS, SARL, Civil society, Capital increase, etc…