The balance between net equity and social capital in the capital companies

The balance between net equity and social capital in the capital companies

The Capital Companies Law sets thresholds of imbalance between social capital and the net equity of the companies and requires that the administrative bodies of these companies fulfill certain obligations in order to safeguard the patrimony of the company.

When the share capital is established in the minimum required by law (the capital of the private limited company may not be less than three thousand euros and the share capital of the public limited company may not be less than sixty thousand euros), in order to comply with the obligation to maintain the balance between share capital and net equity, the companies will necessarily opt for raising own funds, and when the amount of the share capital allows it, they could opt to reduce it.

In the public limited company, the capital reduction is obligatory when losses have decreased the net equity below two-thirds of the amount of the capital and when a fiscal year has elapsed and net equity has not been recovered.

The capital society must be dissolved when losses reduce equity to an amount less than half of the share capital, unless this one is increased or reduced sufficiently, but only if it’s not necessary to ask for a declaration of insolvency. The administrators who fail to comply with the obligation to convene within two months a general council to take, in case, the dissolution agreement, as well as administrators who will not request a judicial dissolution or the society participation, will respond jointly and severally for the social obligations subsequent to the occurrence of the legal cause of dissolution.

In the case that the reduction of the capital is intended to compensate for losses or provide the legal reserve, the following requirements must be accomplished:

  • The voluntary reserves or the legal reserve after the reduction cannot exceed 10 per cent of the capital.
  • In the case of limited liability companies the capital by losses can’t be reduced insofar as society has any kind of reservations.

The balance that serves as a basis for the capital reduction operation because of the losses will have to refer to a date established within the six months immediately prior to the agreement, previous verification by the auditor of accounts of the society and approved by the general council. In the case the society is not obliged to submit to audit the annual accounts, the auditor will be appointed by the administrators of the company.

The creditors will not be able to object to the reduction when the capital reduction has the only goal of restoring the balance between the capital and net equity of the company, which had decreased as a consequence of losses.

Ivanova Tax and Law

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