Divided into several shares with equal nominal values, the share capital of an LLC or a PLC corresponds to the total amount of the contributions of goods and money made by the partners in exchange for social rights.
The share capital, which appears on all invoices and official correspondence, is essential when the company is created. This amount can vary according to the growth of the company.
We will see in detail how to constitute and modify a company's capital, why the share capital of a company is relevant, and the different types of contributions of share capital.
I. What is the share capital?
The share capital of a company corresponds to the amount of the contributions of goods and money mobilized by the associates and put at the company's disposal during its creation in return for social rights.
But this definition does not say everything about the share capital, which is materialized by shares, particularly for LLCs and shares for PLCs and SASs.
These shares of the company's capital are allocated to the partners according to the contribution they have made.
II. Why is the share capital of a company relevant?
The share capital has many uses. It is the sum of all the contributions made by the partners or shareholders. It allows the distribution of powers within a company according to its distribution among the partners.
The larger the capital shares of a partner, the more decision-making power he has within the company.
Indeed, the amount of capital held by each shareholder of the company defines his rights and his voting influence at the general meetings, particularly concerning the dividends he will receive afterward.
In addition to dividing up the partners' tasks, the share capital also constitutes a guarantee of security for each of them.
In other words, in case of bankruptcy of the company, the partners' assets are not exposed unless otherwise stated in the company's article of association. The partners will expose only their contributions to the bankruptcy of the company.
Indeed, in case of judicial liquidation of a company (or judicial safeguard), the amount of the company's share capital must in principle be returned to the partners, provided that the company's creditors are paid off.
In this respect, it is essential to underline that the higher the company's share capital, the more reassured the partners, namely the customers and suppliers, are.
However, high share capital is not only a guarantee of security for the associates. It also represents a guarantee for the partners since it also constitutes a means of long-term financing.
Still, in this order, the share capital plays an essential role in the company's financing: a significant share capital can be a reassuring element concerning banks and credit institutions, which are known to be very careful about personal contributions.
Low capital contribution often rhymes with low financing. When developing a new project, we recommend that you avoid small amounts. Indeed, it is better to bring between 10% and 40% of the total financing needs of your project. An entrepreneur who can finance himself, at least in part, is a committed adventurer and is more easily supported by the banks.
III. What are the different types of share capital contributions?
In detail, we distinguish between contributions in cash, in-kind, and industry.
For the contributions in industry, it is considered as know-how and knowledge. It does not contribute appropriately to the formation of the company's capital.
To this must be added the contributions in kind that can donate enjoyment or property to the company.
And finally, there are the contributions in cash made up of sums of money which the partners must deposit on a bank account opened for this purpose, not to be confused with the current bank account of an associate, which is often a loan granted by a third company to the company to allow this one to finance its activities.
V. What are the advantages of high share capital?
We can't tell you enough. The more importance you give to your project, the more your partners will trust you. And to do this, nothing is more effective than to have a substantial share capital adapted to the size and activity of your company to reassure banks, suppliers, and partners.
High share capital is a guarantee for both financial institutions and suppliers.
In addition, in the event of a judicial liquidation or if the company faces difficulties, the higher the capital is, the more likely creditors will be paid.
Therefore, if you have already started your activity with a low share capital, think about increasing it now. If you have not yet created your company, planning a high share capital could be helpful.
You should also note that in Morocco, depending on the legal form of your company, the amount of the share capital may be subject to minimum or maximum amounts, as is the case for the LLC, for example.
VI. Capital increase in Morocco: what you need to know
Tips for increasing the share capital of your company
Whether to reinforce its equity or integrate new partners or shareholders, a company needs to raise its capital more or less regularly during its life.
Moreover, this operation can be motivated by the need to face up to debts accumulated in the past or honor new investments either through a credit granted by a bank or through direct use of funds.
In any case, it brings new life and greater solidity and credibility with third parties when the share capital is more significant.
There are many tricks to use this financing tool used in many cases effectively.
Administrative steps
In Morocco, the operation follows several procedures and formalities.
The first step is to convene an extraordinary general meeting between all the partners or shareholders of the company to decide on the modalities and the size of the targeted capital increase.
Before doing anything, all the partners or shareholders should be on the same level of information about what you plan to do. This action will allow the shareholders to subscribe to the free shares.
If there are any shares left, they can be subscribed by investors outside the company.
After the proposal of increasing the share capital by the director of the company who fixes the modalities of realization in consultation with the company's shareholders, it is then necessary to establish the completion of the increase of the operation mentioned above that respects certain formalities.
Several formalities will then be required, namely the filing of a file with the clerk of the commercial court.
To this must be added the publication of a legal announcement. And that's not all because the capital increase is ratified by a new general meeting organized by the management delegated for this purpose.
You should note that the minutes of the general meeting that ratified the said operation must be registered with the company's tax authorities, which is the object of an increase in share capital.
The procedure is sanctioned by registering the new amount of the share capital on the company's records.
Different types of share capital increase
You should note that several options are available to the company wishing to increase its capital.
In addition to increasing the securities constituting its capital, it can also be done by recourse to new liquidities.
This process is part of the cash contributions.
There are also contributions in kind, consisting mainly of real estate, machinery, or other company shares.
Besides these, there is another way of increasing the capital. Called incorporation of reserves, as its name indicates, results in the integration of the profits, contribution or fusion, funds, or the premiums of emission of the company's capital.
Carried out by the creation of new shares, which are allotted in proportion to the participation of the shareholders, this operation, which is thus potentially beneficial to all the associates or shareholders, is decided by a majority of the shareholders unless the articles of association provide for a more significant majority.
Conclusion
Having a share capital is mandatory for each company, mainly since it guarantees partners and financial institutions.
The higher the share capital, the more creditors are reassured and the more beneficial it is for its brand image.
It is therefore recommended to opt for substantial capital or to increase it if it is weak.
This operation can be motivated by many reasons.
In any case, it brings a new breath of life and a greater solidity and credibility because social capital is more important.
However, its realization is delicate and requires specific preparation. It is, therefore, preferable to consult a chartered accountant who will be able to give you the right tips to succeed in such an approach.
WeCount Team
