15.10.2021

Capital increase below par

Does your Country’s legislation allow for a capital increase below par? What do we mean by a capital increase below par? Does your Country’s legislation allow for the issuance of shares without par value?

To talk about contributions below par and without par value, we must first talk about “contribution”.

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What can be contributed or not to the Company?

The Capital Companies Law (LSC), in its Chapter III, refers to this question, indicating the following:

In capital companies, only assets or patrimonial rights susceptible of economic valuation may be contributed.
The economic contribution may be monetary or non-monetary.
Non-monetary contributions may consist of movable assets, Real Estate, credits or company contributions.
Work or services may not be the object of a contribution.
The issuance of participations or shares that do not correspond to an effective contribution of assets to the company will be null and void.

Having clarified the above, we can analyze the minimum value of such contribution.

Can the contributions be less than the nominal value of the shares/participations that are acquired in consideration?

Prohibition of issuance under par

Article 59 LSC is clear on this issue, stating that:

“No shares may be created or issued for less than their par value”.

In other words, a shareholder may not receive a share whose par value is €1 if his contribution to the Company is less than that amount.

Conversely, not only is the acquisition of participations/shares for a value higher than the nominal value (premium) permitted, but it is also common practice.

In this case, the premium will be added to the reserves and will be distributable to the shareholders in the form of dividends.

The prohibition of issuance under par is a creditor guarantee. It ensures that the Partners have contributed to the Company (at least) an amount equal to the amount of the share capital.

It also promotes equal treatment of subscribers. Although it is true that it could be justified to subscribe to different securities of the same volume of shares/units:

Due to the time of entry, the risk of the acquisition, the state of the Company, etc.

What if the Company is in loss?

In this case, it seems obvious that the value of the shares/shares will be lower than the nominal value.

In these situations and in order to balance nominal/actual value, the legally provided option is the reduction of Capital due to losses.

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Non-cash contributions

When we constitute a company or increase its capital, we can do so through non-monetary contributions. They can consist of movable or immovable property, credit rights, industrial property or companies, among others.

Shares without par value

Our legal system does not contemplate the existence of participations/shares without par value. That is to say, those that only represent a fraction of the capital or companies that do not have capital understood as a fraction of the equity.

As indicated, this scenario does not exist in Spanish law.

What happens outside Spain?

Let’s see some examples:

	Issuance of shares below par value	Shares without par value	Regulation
FRANCE	Prohibited (violates the equality of members). Until 1985 it even carried criminal penalties.	It does not exist. In France, a share always has a nominal value. This may or may not be stated in the articles of association. In any case, the shares will always have a nominal value and represent a portion of the share capital.	Commercial Code Article R.224-2
PORTUGAL	Prohibited	Permitted. In any case, they must have an emission value.	Article 298 of the Portuguese Companies Law
MEXICO	Prohibited Shares may not be issued for a sum less than their par value.	They do not exist. The nominal value of the shares must always be stated in the articles of incorporation.	General Law of Mercantile Corporations art. 91, 115, and 125
ECUADOR	Prohibited. Shares may not be issued for less than their par value or for an amount exceeding the contributed capital.	They do not exist. The capital will be formed by contributions of the partners and will not be less than the amount fixed by the Superintendent of Companies and Securities. These, as in Spain, may be monetary or non-monetary.	Article 102 and 161 of the Ecuadorian Companies Law.

In summary

In Spain, the issuance of shares/units below par value is strictly prohibited. The same rule applies (for example) in France, Portugal, Mexico and Ecuador.

Shares or holdings without par value are not legally permitted in Spain either. The same regulation applies in France, Mexico and Ecuador. This is not the case in Portugal, where shares without par value are possible, provided, however, that they have an issuement value.

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