Share capital
Share capital
- What it is
- Capital formed from members’ contributions in exchange for shares
- Why it is needed
- It is the company’s initial own funds and the basis for allocating shares
- How it is paid
- In money or property; the procedure and deadlines are set by the country’s law
- Minimum amount
- Set by law in some jurisdictions, absent in others
- A practical point
- Nominal capital with large turnover raises questions with banks
In plain words
Share capital is the funds that members contribute to a company in exchange for shares. It is the company’s initial own funds and at the same time the basis for allocating rights: as a rule, the size of the contribution determines the size of the stake, and hence the number of votes and the right to profits.
The requirements differ significantly. Some jurisdictions set a minimum amount that must be paid in on formation and evidenced with documents. Others have no minimum, and a company can be registered with a nominal sum. Payment may be made in money or property, and a contribution in kind often requires an independent valuation.
There is a practical point that is underestimated. Nominal share capital combined with significant turnover creates an imbalance that is noticeable to banks, counterparties and tax authorities: the company lives mainly on borrowed funds. This can complicate opening an account and raising finance, and can become grounds for applying thin capitalisation rules.
When it matters
What to take into account
- The legal minimum
- The business’s real needs
- Ratio to turnover
- In money
- In property, with a valuation
- Payment deadlines
- Allocation among members
- Voting rights
- Right to profits
- Banks and counterparties
- Thin capitalisation rules
- Programme requirements
How to determine the amount
- 01Find out the jurisdiction’s requirements
- 02Assess the business’s needs
- 03Agree the members’ stakes
- 04Pay in and evidence the payment
- 05Register the details
What you need to know
- A minimum amount is not set in every country
- A contribution in kind usually requires a valuation
- The size of the contribution determines a member’s stake and rights
- Nominal capital with large turnover raises questions
- Some programmes set requirements for a company’s capital
Common mistakes
- Registering a company with nominal capital without considering the consequences
- Not evidencing payment of the contribution with documents
- Financing the company only with loans from the owner
- Not agreeing the stakes before the company is formed
- Ignoring the programme’s capital requirements
What this means for a BRIDGES client
We look at the company’s capital structure from the bank’s point of view too: an imbalance between nominal capital and real turnover is a typical cause for questions. Such things are easier to put right in advance.
Frequently asked questions
01 /What is share capital?
The funds contributed by members to a company in exchange for shares. It is the company’s initial own funds.
02 /Is there a minimum amount?
It depends on the jurisdiction: in some countries a minimum is set by law, in others there is none and a nominal sum is enough.
03 /Can property be contributed?
As a rule, yes, but a contribution in kind often requires an independent valuation and compliance with the established procedure.
04 /Does the amount affect the stakes?
Usually, yes: the size of the contribution determines a member’s stake, and hence the number of votes and the right to distributed profits.
05 /Is nominal capital bad?
Not in itself, but with significant turnover it creates an imbalance that is noticeable to banks and tax authorities.
06 /Do programmes have requirements?
Business immigration routes may have requirements on the amount of capital and the company’s structure. They are checked before registration.
See also
Read next
This material has undergone editorial review by BRIDGES.
Setting up a company for a specific task?
We will help determine the capital structure so that it raises no questions with the bank or under the programme.