{"id":12763,"date":"2023-09-29T13:43:51","date_gmt":"2023-09-29T13:43:51","guid":{"rendered":"https:\/\/vila.es\/?p=12763"},"modified":"2023-09-29T13:43:51","modified_gmt":"2023-09-29T13:43:51","slug":"capital-decreases-to-under-euro-3000-in-limited-companies","status":"publish","type":"post","link":"https:\/\/vila.es\/en\/corporate\/capital-decreases-to-under-euro-3000-in-limited-companies\/","title":{"rendered":"CAPITAL DECREASES TO UNDER EURO 3,000 IN LIMITED COMPANIES"},"content":{"rendered":"

Law 18\/2022 of 28th<\/sup> September provided that newly created limited companies could be incorporated with share capital of 1 Euro, compared with the requirement of 3,000 Euro of minimum capital established up until then by the Spanish Companies Act (Ley de Sociedades de Capital \u2013 LSC). Nevertheless, for such cases and while the share capital does not reach the figure of 3,000 Euro, article 4 of Law 18\/2022 established a system of personal responsibility of the partners and the obligation to allocate to legal reserves at least 20% of profit until this reserve, together with the share capital, amount to 3,000 Euros.<\/p>\n

The situation was clear enough for newly created companies, however doubts existed as to whether the minimum amount of share capital of 1 Euro operated only for newly created companies or whether it could be interpreted as applicable to companies already incorporated with share capital of 3,000 Euros (or more) for scenarios wherein the decision may be taken to reduce capital for the purpose of balancing accounts due to the existence of accumulated losses, for the amortisation of corporate contributions or in cases of an accordion operation, for example.<\/p>\n

The doubt was reasonable in so far as Law 18\/2022 did not establish a retroactive system or a specific reference relative to its application to existing companies. Neither did it modify those articles of the Spanish Companies Act which are connected with a reduction of capital, such as articles 317 or 343 thereof, thus it is worth considering whether, in the cases provided for in said articles, the reduction in capital in existing companies would continue to be subject to the quantitative limit of 3,000 Euro. The problem may have been resolved by the lawmaker with, for clarification purposes, a simple mention in article 5 of the Spanish Companies Act or in article 4 of Law 18\/2022 itself, but this did not take place.<\/p>\n

The resolution issued by the Directorate General of Legal Security and Public Trust \u2013 DGLSPT (Direcci\u00f3n General de Seguridad Jur\u00eddica y Fe P\u00fablica-DGSJFP) dated 13th<\/sup> June 2023 provided an answer to the doubt. The case concerned a limited liability company which reduced its share capital from 3,000 Euro to 2,115 Euro, as a consequence of the redemption of membership interests previously acquired by the company. The Registrar of the Commercial Registry considered that article 4 of Law 18\/2022, which allows share capital of below 3,000 Euros, only applies to newly created companies and that to reduce the capital of existing companies to below said figure, would harm the interests of creditors by degrading their expectations of solvency based upon the existing share capital and would seriously jeopardise the correct functioning\u00a0 of the preventive mechanism of the responsibility for creditors for serious capital losses.<\/p>\n

One of the arguments, fittingly used by the appellant notary, was the need to put the legislative change regarding the elimination of the minimum share capital in the current context. The notary refers to the serious erosion of the function of solvency of share capital, and a distinction must be made between share capital and \u201csufficient capital\u201d, the latter concept being contrary to \u201cunder-capitalisation\u201d. Indeed, nowadays, creditors do not take share capital as a benchmark for assessing the solvency of a company, but rather, from a practical point of view, other diverse and more tangible factors, such as cash flow. The argument fits well with the reality of a super-dynamic commercial traffic, given that, as reality consistently shows us, share capital constitutes a reliable reference as to the solvency of a company only in the moment of incorporation, which once passed, the amount thereof does not on its own determine the existence of a level of cashflow or the equivalent real level of solvency, and there are plenty of cases wherein the share capital, if anything, generates a distortional image of real solvency if other relevant indicators are not taken into account, such as financial indicators.<\/p>\n

From the point of view of the guarantees of the creditors, it should not be forgotten that Law 18\/2022 stipulated a guarantee system when share capital does not reach the amount of 3,000 Euros, which incidentally, does not differ much from the provisions existing in the former article 4 bis of the Spanish Companies Act in relation with sequential formation companies, which were incorporated without initial share capital. The current system has two rules for ensuring the retention of corporate assets as a guarantee for creditors: first, the obligation to allocate 20% of profits to reserves until such reserves reach 3,000 Euros; and secondly, to impose direct responsibility upon the partners, who will be jointly and severally responsible for the debts of the company in the event of liquidation, when corporate assets are insufficient for the payment of corporate obligations; in this case they will respond jointly and severally for the difference between the amount of 3,000 Euros and the amount of subscribed capital.<\/p>\n

In short, the resolution of the Directorate General determines that a capital decrease below the figure of 3,000 Euros for companies created before the entry into force of Law 18\/202 is possible, and not only for those incorporated subsequently, \u00a0which in our opinion is totally logical. To do otherwise would mean establishing a double standard of responsibility for either one with no final benefit for the creditors; likewise it would mean an unjustified detriment for the company incorporated beforehand, which would be deprived of this possibility to adjust to the unforeseeable shareholding or financial reality, despite the operation not harming the position of creditors, thanks to both mechanisms of responsibility established in Law 18\/2022.<\/p>\n

 <\/p>\n

 <\/p>\n

Eduardo Vil\u00e1<\/p>\n

Vil\u00e1 Abogados<\/p>\n

 <\/p>\n

For more information, please contact:<\/p>\n

va@vila.es<\/a><\/span><\/p>\n

 <\/p>\n

29th<\/sup> September 2023<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Law 18\/2022 of 28th September provided that newly created limited companies could be incorporated with share capital of 1 Euro, compared with the requirement of 3,000 Euro of minimum capital established up until then by the Spanish Companies Act (Ley de Sociedades de Capital \u2013 LSC). Nevertheless, for such cases and while the share capital […]<\/p>\n","protected":false},"author":4,"featured_media":5986,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[73],"tags":[],"class_list":["post-12763","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporate"],"yoast_head":"\nCAPITAL DECREASES TO UNDER EURO 3,000 IN LIMITED COMPANIES - Vil\u00e1 Abogados<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/vila.es\/ja\/?p=12767\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"CAPITAL DECREASES TO UNDER EURO 3,000 IN LIMITED COMPANIES - Vil\u00e1 Abogados\" \/>\n<meta property=\"og:description\" content=\"Law 18\/2022 of 28th September provided that newly created limited companies could be incorporated with share capital of 1 Euro, compared with the requirement of 3,000 Euro of minimum capital established up until then by the Spanish Companies Act (Ley de Sociedades de Capital \u2013 LSC). 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