The amount of the capital may be changed during the existence of a company. The Commerce Act provides for the increase of the fixed (stock) capital – i.e., the registered (entered) in the Commercial Register capital.
The capital increase may be pursued in order both to expand the business activity of the company (by raising additional funds or other non-monetary resources) and to achieve greater trust among current and potential business partners (given the guarantee function of the capital), as well as in view of other legal and business reasons.
The amount of the capital is part of the mandatory minimum content of the statutes of the various types of companies (Articles of Association of a Limited Liability Company, Incorporation Deed of a single-person LLC, By-Laws of a Joint-Stock Company), which is why its increasing entails the necessity of making amendments to the respective statutes. In order to come into effect, the increase needs to be entered into the Commercial Register as required by the Commerce Act (the entry has constitutive effect).
The legal mechanisms for effecting the increase of the capital of limited liability companies (Art. 148 of the Commerce Act) and joint-stock companies (Art. 192 et seq. of the Commerce Act) are largely the same and that allows for the JSCo. regulation to be applied by analogy to the capital increase of an LLC as well. There are, however, certain differences between the two types of companies which give rise to the existence of corresponding differences in the legal regulation applicable to the increase of their capital (for example, in the case of joint-stock companies there is an option for bonds to be converted into stock, for capital increase to be effected by a resolution of the Managing Board or the Board of Directors, respectively, etc.).
The aforementioned provisions of the Commerce Act do not reveal different types of capital increase procedures but rather set out the available means for carrying an increase into effect – by increasing the value of shares (stocks), by issuing and subscribing new shares (stocks), etc. Depending on its source the increase may be either effective or nominal. In the case of effective increase shareholders (current or/and new shareholders) make contributions (monetary or in-kind) into the capital. In the case of nominal increase no contributions are made – the property of the company is the source for its capital increase (most often through capitalization of retained profits).
This article is not aimed at covering all details and specifics relating to the procedure for carrying the capital increase into effect in the various case scenarios – such discussion may be done in the form of questions and answers through using of the web form at the end of the page.
Application and Necessary Documents
A special application needs to be filed with the Commercial Register for the purposes of the increased capital to be registered. There is a standard form for the application – form A4 (in the case of a Limited Liability Company) or form A5 (in the case of a Joint-Stock Company). The application may be filed electronically (via the Internet) as well – by being signed with an electronic signature (filing applications electronically in the case of a joint-stock company is mandatory).
The application should be submitted by the company’s representative (director, executive officer). A lawyer may be authorized for such purposes as well – the power of attorney should be explicit but does not require any notarization of the signature.
Generally, the following documents need to be enclosed to the application:
Minutes with resolutions of the General Meeting (the sole capital owner, respectively);
Amended or new company statutes (Articles of Association, By-Laws);
Document evidencing the amount of the capital increase having been duly paid up (in the case of effective increase);
Declaration on the truthfulness of the stated for registration circumstances and acceptance of the submitted for announcement acts;
Document for paid state fee.
In the case of an LLC the provision of Art. 137, par. 4 of the Commerce Act should be taken into consideration – if applicable, the Minutes would need to be notarized (both signatures and content)1.
In numerous specific situations it will be necessary to present other documents as well, such as an application for being admitted as a new shareholder, balance sheet as of the date of the resolution for the capital increase (where converting profits into stock capital), list of the persons subscribing the newly-issued shares, certificate for a shareholder (legal entity from a foreign country), invitations and other documents evidencing the proper calling of the General Meeting, etc.
There are numerous specifics in other situations as well, such as where the company is a public one or where the increase is carried into effect through making in-kind contributions (real estate properties, receivables, etc.) – in the latter case it is required that three independent experts assess the value of the respective contributions, that contributors give their written consent, etc.2
Fees and Other Costs
Pursuant to Art. 16a, par. 3 of the Tariff on the State Fees Collected by the Registry Agency, the state fee for entering an increase of the capital into the Commercial Register is 30 Levs. Pursuant to par. 4, when the application is filed electronically, including by an authorized to that end lawyer, the due fee would be in the amount of 15 Levs.
Depending on the specifics of the particular situation the state fee might double (where one application is used for requesting entry of multiple circumstances). Additional costs might apply as well, such as notary fees for attestation of the signatures and content of the Minutes with resolutions in the case of a limited liability company.
Information about the due attorney fee may be found on page Fees. Please, note that the published information is for reference purposes only – I reserve the right to negotiate a different amount of the fee for each separate case, mostly where the capital increase procedure entails certain specifics (for example, if to be effected through in-kind contributions).
1 The article has been updated on 23.01.2017 in connection with amendments to the Commerce Act which you may find more information about in News article Legal protection against corporate hijacking.
2 You may find additional information on the topic in Blog article Is the deletion of an in-kind contribution from the Commercial Register permissible?