The owner of a company can decide to sell by means of an increase in capital, which will allow them to withdraw from the capital little by little and therfore progressively give up control of the company.
The increase in capital is, from a financial point of view, a sale of shares, which benefit the company and which will lead to the splitting of the company’s different parameters between the partners: dividend, profit, liquidation surplus equity and voting entitlement.
For example, if you have 60% of the capital, your shares are worth 60% of the company. This does not mean 60% of the nominal value, but of the real value. It will therefore be necessary to evaluate this value then agree on the sale price.
The company’s capital can increase :
– Because of the issue of new social rights
– Or by increasing the value of existing social rights.
The following participate in the increase in capital:
– The target company’s partners.
– Third parties.
Presence of a pre-emptive subscription right
The articles of partnership can grant a pre-emptive subscription right to certain associates in the case of an increase in capital. This signifies that they can subscribe to shares proportionately to their rights. The buyer will therefore have to make sure that the associates have renounced this right, whether individually or collectively.
Agreement of the subscribing third parties (buyers)
As for the buyout of shares, the introduction of new associates must be agreed by the general meeting, according to terms specified in the articles of partnership.
The origin of provided funds
When the buyer finances their entry into the target company’s capital because of common funds, their spouse can claim the quality of associate for half of the shares.
The buyer must therefore inform their spouse as well as the associates of the target company, of the origin of provided funds.
On the other hand, if their spouse does not wish to become a company associate, they can renounce write an express waiver.
Decision to increase capital
The increase in capital, leading to a modification of articles of partnership, must be, in theory, decided in an extraordinary general meeting by associates representing at least 2/3 of shares.
On the other hand:
– If the increase in capital is achieved by incorporating reserves, the majority of associates can decide to carry out this process.
– When the increase in capital is achieved by the rise of the nominal value of social rights, unanimity is required.
– Increase in capital by cash contribution
In certain cases, the buyer will want to take control without unseating some or all of the associates. The increase in capital must be enough so that the new associate becomes the majority shareholder.
On the contrary, the buyer can choose to buy out all of the shares while reinjecting money into the company which they consider to be undercapitalised.
In order to conduct an increase in capital by contribution in cash, it is imperative that the company’s capital have previously been released. Also, the increase in capital must be completely released (partial release is forbidden).
The manager must call a first extraordinary general meeting (EGM) with the associates in order to decide to increase the capital.
If the EGM agrees, the funds must be deposited into a deposit account.
A deposit certificate is then sent to the company’s legal representative.
Share premium: An increase in capital leads to the Dilution of former associate’s power. This is why certain increases in capital are done with a share premium or a capital contribution premium. It consists of a sort of entry fee to the capital; it is done by a contributor to the company.
It consists of compensating the associates for the difference between the real value of social rights and the amount of share capital.
– Increase in capital by contributions in kind
This consists of the increase in capital resulting from the contribution of assets from the target company (sole proprietorship or company absent by Merger or partial asset contribution). In general, it consists of its intangible assets, its clientele, its buildings, its right to lease etc.
It is not necessary that the share capital have been previously released in order to achieve an increase in capital by contribution in kind.
It is obligatory to work with a sworn expert.
This expert makes a report, which must be duplicated and submitted at the latest 8 days before the general meeting is called, in which the associates decide on the increase in capital.
– Increase in capital by incorporating reserves or associates current accounts
In practice, it consists of a simple transfer from the reserve account to the capital account.
This term is often done with a share premium.
This type of increase in capital is a mere book entry therefore it does not allow the proprietor to sell their business.
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