Increase of capital stock: how and when to do it
An increase of capital stock is a corporate decision that can financially strengthen the company or reorganize the partners' ownership. Understand when it usually makes sense and how to formalize it.
What is an increase of capital stock
Capital stock represents the resources that the partners commit to the company. Increasing it means raising this amount, with the corresponding inflow of new resources or the incorporation of amounts already existing in the company. It is a change that, in general, must be resolved upon by the partners and formalized through an amendment to the articles of association or bylaws.
When it usually makes sense
There is no single rule, but some situations tend to motivate an increase of capital:
- Need for resources for expansion or working capital
- Entry of a new partner or investor
- Strengthening of assets for relationships with banks and suppliers
- Capitalization of profits or partners' credits
- Compliance with contractual or regulatory requirements
Forms of contribution
The increase may be paid in through different means, depending on the case. Contribution in cash is common, but it may also occur with assets, rights or through the conversion of credits that partners hold against the company. In general, the valuation of assets and the documentation of credits deserve special attention, as they tend to be sensitive points in audits and in future corporate disputes.
Corporate precautions
The increase tends to change the proportion of ownership among the partners. For this reason, it is customary to observe the right of first refusal, where applicable, and the form of resolution provided for in the articles of association. Properly documenting the decision, the amount and the origin of the resources may prevent future conflicts and challenges to the validity of the transaction.
Frequently asked questions
Does every partner need to participate in the capital increase?
It depends on the case and on what the articles of association provide. In many companies, partners are ensured a right of first refusal to follow the increase in proportion to their quotas. If a partner does not follow it, their percentage ownership tends to decrease. The specific rules vary according to the type of company and the constitutive instrument.
Is it possible to increase capital with assets instead of cash?
In general, yes. The contribution may occur with assets or rights, provided they are duly valued and described in the amendment instrument. This type of transaction usually requires attention to ownership, the value attributed and any tax implications, which depend on the specific circumstances.
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