In the context of the future of capital companies, partner or shareholder contributions are an economic mechanism frequently used for a wide variety of purposes, especially to restore the company’s balance sheet equilibrium.
They constitute a simple, fast and flexible way of increasing a company’s net equity, avoiding the much longer and more formal procedure of capital increase.
Nonetheless, questions arise regarding the legality of certain corporate operations concerning those capital contributions, questions which are rooted in the legal nature and accounting status of the contributions. Among them is the capital increase operation by means of converting partners’ contributions into share capital through a capital increase transaction based on Article 301 of the Spanish Capital Companies Act (“Ley de Sociedades de Capital Social” (LSC)). (LINK)
Specifically, the legality of a decision made by the shareholders’ or partners’ assembly by which a capital increase through the conversion of the contributions of one or more shareholders or partners is approved, who in turn hold the majority in both the assembly and the management body, is questioned. The outcome of that capital increase would have the immediate and very significant consequence of diluting the stake of minority partners who did not take part in the operation or who opposed it.
Effectively, Article 301 of the LSC provides the possibility of carrying out capital increase through the set-off of credits, in which case, these should be entirely of a fixed amount and due. Thus, the successful completion of the operation requires three substantial elements to concur:
a) That the credits in question are credits against the company.
b) That the credit is of a fixed amount and due. That is, that the quantity is determined and also, that the term for payment to the partner-creditor has expired.
c )That a report from the management body is issued, expressly stating that the data relating to the credits is consistent with the company’s accounting records.
It only makes sense to analyse the second and third requirement if the first one is met, therefore what must be examined is whether that contribution, which constitutes the object of the capital increase, is truly a credit in the sense stipulated by Article 301 of the LSC.
The company’s accounts may reflect the entry of a partner’s contribution in ledger 118, it being the person who sustains that the capital increase operation is valid due to the conversion of the capital contribution who will argue that if there is consistency between the accounts and the credit, and with the corresponding report, the three requirements are met and the operation can be carried out.
In that case, it is necessary to meet the formal requirements of the contributions in order to include them in ledger 118:
(i) Certainty of the incorporation of the contribution into the company, or else the waiver of the corresponding debt.
(ii) The identity of the contributors and their ownership percentage in the company.
(iii) Determining the sum of the cash contribution, or the value of the transferred assets or of the waived debt.
(iv) The basis or the objective reason for the increase in net equity.
These requirements are recorded in the Resolution of the Spanish Accounting and Audit Institute (“Instituto de Contabilidad y Auditoría de Cuentas” (ICAC)) of the 5th of March 2019, that were already raised in a Supreme Court judgment of the 27th of February 2024 (LINK), and recently in a judgment of the Provincial Court of Barcelona (“Audiencia Provincial de Barcelona”) of the 18th of November 2025.
Said required information can be recorded in the minutes of the partners’ and shareholders’ assembly, which requires prior convening, the holding thereof, and approval of the decision. Nonetheless, since the contribution is voluntary and it does not bring with it any compensation in the form of stocks and company shares, the Spanish Companies’ Act does not mandate that the contribution has to necessarily be approved by the shareholders’ or partners’ assembly. This detail is substantial for what will be said later.
From the point of view of its nature, it is necessary to turn to accounting or taxation regulations that define what the contribution to ledger 118 of the company’s balance sheet consists of, and then analyse if that legal transaction confers a hypothetical credit or redemption right to the contributor.
The Spanish General Accounting Plan considers partners’ contributions to ledger 118 as “assets and liabilities contributed by the partners or owners of the company acting in that capacity, as operations that are not described in other ledgers. That is, provided they do not constitute compensation for the delivery of goods or performance of services carried out by the company, nor are they treated as liabilities (..)”. Beyond the legal imprecision of the term “company”, it is clear that they are voluntary contributions and that said contribution act neither responds to nor aims to receive renumeration or establish a credit right, like a loan would.
This is supplemented by the General Directorate of Taxes’ (“Dirección General de Tributos”) Binding Opinion of the 9th of May 2016, which defines it as “a legal deal transferring ownership by virtue of which one or more partners contribute money, goods or rights to the company’s own funds without compensation. It is a “definitive contribution” that follows the principle of irreversibility of non-repayable share capital, or “non-refundable”. The main points to highlight in this definition are the elements of transfer and irreversibility, which must translate into the unidirectional character of the act of contributing an asset or right to the company. This does not necessarily translate into a contributors’ loss, or destruction of the value of the assets made available to the company, rather it transforms it into an abstract right regarding its value, which could be monetised in the event of liquidation, for instance its sale.
From what has been said thus far, it follows that the contribution made to ledger 118 by the partner is voluntary and is included in the net equity of the company, involving a transfer of control from the contributor’s individual equity to that of the company. Said transfer involves a change of title, without triggering neither a right of return nor remuneration, for example, in the form of interests. In accounting terms, by transforming into net equity on the company’s balance sheet, and as it is not intended to be part of the share capital, it falls within subgroup 11 (reserves and other equity instruments, together with share premium accounts, reserves and net equity instruments), but it cannot be considered an instrument of the company’s outstanding debt (subgroups 15 to 19 of the balance sheet). In practical terms, if it is understood that the contribution is a credit, it would give way to perverse situations like those where majority partners inject capital contributions with the sole and hidden purpose of subsequently turning them into share capital and based on this, diluting the ownership interest of minority partners through further conversion into share capital. This would also be an attempt to avoid the finding of sufficient cause for exercising the action provided in Article 204 of the LSC for abuse of the majority, with the argument that the capital increase is justified by its shareholders’ and sponsors’ right to the “settlement” of money or other activities contributed at the time, precisely on the grounds that it is a credit against the company.
To sum it up, a contribution in ledger 118 cannot be viewed as a credit in favour of the contributor and as a liability for the company. As it is not a credit, it cannot be subject to capitalisation via capital increase as provided for in Article 301 of the LSC. In this sense, this is supported by the judgment of Section 15 of the Barcelona Provincial Court (Sección 15 de la Audiencia de Barcelona) of the 18th of November 2025, which reversed a decision of the Barcelona Commercial Court No. 7 (Juzgado de lo Mercantil nº 7 de Barcelona) nullifying the decision made by a partners’ assembly to increase capital through the conversion of monetary contributions by the majority partner and director of the company into share capital made in ledger 118.
Eduardo Vilá
Vilá Abogados
For more information, contact:
30th January 2026
