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The share capital of the S.A. is the sum of the value of the contributions (in money and in kind) of its shareholders. There is no S.A. without such contributions. In fact, it is required that they add up to a minimum amount: the legal minimum capital. The share capital of the SA is divided into shares. The sum of the nominal value of the shares equals this share capital. Share capital is particularly important in the operations of the SA. It is therefore worth looking into its key parameters.

 

Share capital vs Property of the SA

The concept of share capital is often confused with that of corporate property. But-as a rule, the only moment in time when the two concepts are identical, in terms of value, is at the time of the initial payment of the share capital; immediately, i.e., after the incorporation of the company.

However, these are two concepts that are clearly distinguishable from each other.

The share capital, on the one hand, “…constitutes an “unchangeable” mathematical quantity that is written in the company’s articles of association and which, at the time of its establishment, corresponds to the sum of the value of the contributions” (: Memorandum to the Law of S.A.s-4548/2018). This fixed sum can be changed as long as the strictly formal procedures for its reduction and/or increase are followed, according to the law. An amendment to the SA’s statute is always required in these cases.

Corporate property, on the other hand, includes all of the company’s assets (eg real estate, receivables, deposits, etc.). Corporate property is, as a rule, constantly changing, in contrast to the “invariant mathematical quantity” of the share capital.

 

The Purpose Of the Share Capital

The share capital of the SA contributes (sometimes decisively) to the achievement of the company’s objects. In any case: it is a means of financing its activity. Also: an important indication of its solvency.

The importance of the share capital is linked to the nature of the SA as a capital company. Precisely because of its specific nature, shareholders are not personally liable for its debts. The company itself remains liable to its creditors, exclusively – except in exceptional cases.

The share capital (Memorandum to the Law 4548/2018): “…has traditionally been reduced to a basic means of protection for creditors”. However, it is pointed out, then, that “… in recent decades it has been subjected to strong criticism, which focuses on the ineffectiveness of this protection and the costs of the mechanisms to ensure the payment and preservation of the capital. Other ways of protecting creditors are therefore proposed by legal science, in particular through a “solvency test”’. The conclusion is that: “… given that capital issues are still regulated by the “second” company directive (Directive (EU) 2017/1132), the scope for circumventing the capital rules is very narrow and definitely it is not appropriate to have double protection, both through the EU capital protection rules and through a solvency test”.

 

The Minimum Amount of Share Capital

One of the provisions which, as required by law, must be included in the articles of association of an SA, is the one concerning the amount of its share capital, which is defined as an absolute number (Article 5 §1 f. d’ Law 4548/2018). In fact, any omission of the above provision renders the company defective. This, in other words, means that it is possible, in this case, to declare its establishment invalid by a court decision (Article 11 §1 f. a’ Law 4548/2018).

The shareholders of the SA are not completely free to determine the amount of the share capital. They are bound, by the law – as already mentioned, in terms of its minimum limits. Any non-observance of the specific minimum limits also renders the SA defective.

The minimum capital of the SA is set (Art. 15 §2 Law 4548/2018) at the amount of €25,000 and must be paid in full upon the formation of the company. Special legislative regulations specify at higher levels the share capital of special categories of SAs (e.g. insurance, banking SAs, investment companies, etc.).

Under the previous regime, the minimum share capital was set at €24,000. The increase by €1,000 is for the compliance of the relevant national provision with the corresponding provision of Article 45 of Directive 2017/1132/EU.

Furthermore, the share capital of the SA must be expressed in euro (Article 15 §1 Law 4548/2018). As pointed out in the Memorandum to the Law, “any reference to the statute of another currency (subject to special provisions) is not permissible”.

 

The Type Of Contributions

The share capital of the SA is formed, as we have already mentioned, from the shareholders’ contributions, usually in cash and sometimes in kind.

Contributions in kind should be valued in money. The performance of work or the provision of services cannot constitute a contribution in kind, based on an express provision of the law (Article 17 §3 Law 4548/2018). However, it is possible to grant Common Founding Shares, during the establishment -only- of the SA, to those who undertake the provision of work or other services.

Contributions in kind (for which, in more detail, find our following article) are allowed, but they must be paid validly. They should also be assessed: (a) by two independent certified chartered accountants or (b) an auditing firm or, as the case may be, (c) by two independent Certified Appraisers, who carry the necessary guarantees of independence and reliability.

The law defines in detail the procedure to be followed for the valuation of contributions in kind (Article 17 of Law 4548/2018). Furthermore, however, it also provides for certain exceptions; that is, it lists some cases for which assessment of contributions in kind is not required (Article 18 of Law 4548/2018). When, e.g., the contributions consist of money market instruments or securities.

Finally, it is pointed out that, under the relevant provisions of the law, it is prohibited: on the one hand, any exemption from the obligation to pay contributions, on the other hand, the return of said contributions (Article 22 of Law 4548/2018).

 

The Coverage Of Share Capital

The coverage of share capital should not be confused with its payment. These are concepts that are related but different from each other. Specifically:

Coverage of the share capital means the assumption by the shareholders of the obligation towards the SA, for the contribution of property equal, at least, to the amount of the share capital (art. 16 of law 4548/2018). Coverage, specifically: either of the initial share capital, undertaken to be paid in full at the time of the company’s establishment, or of that determined in each subsequent increase.

The share capital can be covered by the founders of the SA (at the time of establishment) and/or by specific third parties or, in special cases, by a public offering (at the time of an increase).

The extraordinary importance of the coverage of the share capital is also shown by the following: the shareholder status is originally acquired by the assumption of the obligation to pay the share capital (subscription contract) (:4293/2006 Court of Appeal of Athens).

 

The Payment Of Share Capital

The payment of the share capital is directly linked to its coverage (Articles 20 & 21 Law 4548/2018).

The term payment of the share capital means the fulfillment of the obligation to pay the share capital, undertaken by the shareholder at the time of the assumption of the relevant obligation. It is even possible for it to take place, under conditions (for which see our following article) and with the offset of an equal amount of the company’s debt.

In any case, the actual (and timely) payment of the share capital is extremely important for the SA. Precisely for this reason, its determination takes place through the (strictly defined) certification process (art. 20 §§5-8, 10 law 4548/2018).

The payment of the share capital can be either immediate or total or partial. Especially in terms of immediate or full payment:

During the establishment of the SA, the payment of the share capital should take place “…upon the establishment of the company” (Article 21 §1 Law 4548/2018). The wording of this provision is problematic.

Until the completion of the establishment process of the SA (ie: its registration in the Business Registry), the latter does not have legal personality. Therefore, it is not possible to pay contributions to it (e.g. the transfer of property ownership to it, in the case of a contribution in kind).

Therefore, it is supported by part of the legal theory (correctly in our view) that the payment in this case can take place after the formation of the SA and until the expiry of the two-month period for its certification.

After the decision to increase the share capital, the payment deadline is set by the body that decided on the increase. However, the law sets minimum and maximum limits on the competent body. Specifically, this deadline “…cannot be less than fourteen (14) days nor more than four (4) months from the day this decision was registered in the Business Registry ” (Art. 20 §2 Law 4548/2018).

The certification of payment, in this case, must take place within one month of the expiry of the deadline for payment of the amount of the increase. We will also deal with certification in our following article.

 

The share capital of the S.A. constitutes one of the key parameters for achieving its corporate purpose. It is governed, therefore, by a series of regulations regarding, among other things, the coverage, payment and type of the relevant contributions, the proof of their processing and also the assurance of certain minimum limits.

Common ground of the regulations related to the capital: Ensuring the legal minimum limits, the smooth operation of the SA and, as far as possible, securing its creditors. This is where the interest of the shareholders, the managers, the statutory bodies of the SA, the State (and all of us) in the relevant regulations is found, for which we refer you to our following article.

Stavros Koumentakis
Managing Partner

 

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 20th, 2022).

 

Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.

Société Anonyme – its Capital (Part 1: amount, coverage, payment and certification)

1. Preamble

“I wish my beloved Karl could spend some time acquiring capital, not spend it all just it writing about it”, Johanna Bertha Julie Jenny von Westphalen allegedly wrote.

The “beloved Karl” is her childhood love and then husband Karl Heinrich Marx – the founder of communism and (of course) one of capital’s greatest enemies.

“Beloved Kar” seems to have faced arguments against his ideas (complaints and the unavoidable nagging) from early on, with them literally coming from “within his own house”. Because all is well when contemplating on theories and having a love lasting through the years with Jenny, but their big family needed, among others, shelter, food and clothing.

The need for the “hated by the masses” capital was inevitable, initially (19^th century) in the house of capital’s main opponent and, later on (20^th century), globally.

It is impressive, though, that the majority of the people who are self-characterized as leftists (more than half of Greece’s population) are expecting the achievement of the much-desired development to come from the capital.

Respectively, SAs base their plans for accomplishing their corporate goals and development on their own capital.

The writer of this article of course in no way has the skills to write a work of similar value as the “Capital” by Karl Marx. He will only write about issues relevant to the coverage, payment and certification of the SA’s share capital and stop at that.

 

2. The share capital and the minimum (paid) SA’s share capital

The fact that SAs are capital companies means that they need capital not only when they are established, but also throughout the time they operate. The SA’s capital is defined as the sum of the value of the shareholders contributions, which is readjusted with time, according to the needs of the company and the choices made by its shareholders.  There is no relation between the company’s capital (which is a fixed amount and can be modified only after its statute is amended) and the company’s assets (an amount that varies during the whole time the company operates).

The minimum share capital is 25,000€ (certain particular cases excluded) (Act 4548/2019, article 15, par. 2).

For the SA’s whose capital is below that amount, there is an obligation to decide on its increase (such an increase can be passed by a simple quorum and majority; if not, the shareholders must convert the SA into another type of company, no later than 31.12.2019). If none of the above has been chosen before the deadline passes, the SA cannot register anything with the Hellenic Business Registry until it increases its capital (Article 183, par. 2).

The minimum capital of 25,000€ must be paid in full. In cases where partial payment of the SA’s share capital has been provided for, the paid amount can’t be less than 25,000€.

 

3. The coverage of the share capital

The payment of share capital can be done either in cash or in kind. The share capital is practically “covered” by the mere acceptance of the obligation to pay for it (promissory contract – Art. 16, par. 1).

At the stage of establishment, the SA’s initial share capital is covered (art.16, par.2) by one or more founding members, according to the statute. When the SA’s share capital is increased, the additional amount is covered (art. 16, par.2) by its shareholders or third parties. Those who have undertaken the obligation to cover the initial share capital or the amount for the capital’s increase, have to make the payment to a, specifically allocated for that purpose, company’s bank account (art. 20, par. 3). The payment can be made for the whole sum owed or it can be partial – when the conditions of the law (art. 21) and the statute are met.

The SA can always, under certain conditions, have its capital (initial or its increased amount) covered, totally or partially, by the public. The same goes for the coverage of a bonded loan issued, convertible to shares. In that case, a different procedure is followed, the one provided in the legislation regulating the offer of securities to the public (article 16, par. 3). Violating the relevant provisions carries significant administrative and criminal penalties.

 

4. Payment of the share capital

The SA’s initial share capital is paid (and must be paid) when the company is established (art. 20, par.1), immediately after the establishment procedures are completed and the relevant bank account has been opened (art. 20, par. 3, see above, under 3).

Non-payment of the initial share capital does not affect, not anymore, the status of the company, but makes it possible for anyone who has a legitimate interest to apply for the company’s dissolution before the relevant court. The dissolution of the SA will be ordered in case the (initial) share capital has not been paid for at the time the relevant application is filed (art. 165, par.1). In any case, delaying the payment of the share capital carries serious consequences (see below under 7).

In case of an increase of the share capital, the body that makes the relevant decision (general assembly or board of directors) decides on the deadline for covering the amount. This deadline can’t be less than fourteen (14) days or more than four (4) months from the day the decision was registered at the Hellenic Business Registry (art. 20, par. 2).

The cash amounts due for the initial share capital, for the capital increases (should they take place), as well as for a future increase, must be deposited, as mentioned above (under 3), into a specific for the purpose company bank account. Instead of making a deposit into the company bank account, the sum owed for covering the share capital or an increase (listed companies excluded) can be directly spent for pursuing corporate goals (as long as there is a relevant provision in the company statute or a provision in the decision issued by the body deciding on the share capital increase) (art. 20, par. 3).

 

5. The payment of the amount due for the increase of share capital by offsetting company debt

The recent Act makes it possible, for the first time, to pay the amount owed to cover the increase of share capital by offsetting company debt of the same amount (art.20, par. 4). Two conditions need to be met though, for this particular offsetting:

(a) a relevant provision must exist in the decision for the share capital increase, since unilateral offsetting is strictly forbidden, and

(b) the offsetting must be accompanied by a certificate from a chartered auditor/accountant or an auditing company, stating that the debt, according to the company books, is existing, overdue and unconditional – if the dept is not overdue, though, its current value must be estimated (according to article 17).

It must be stressed that these provisions do not apply in cases of capitalization of claims as part of a consolidation plan or redeployment according to the provisions of the Bankruptcy Code.

In any case: payment by offsetting and the number of the corresponding shares taken are registered at the Hellenic Business Registry.

 

6. Certification of payment of the share capital

Under the pre-existing legislation (Act 2190/1920) the certification of payment of the share capital was given by the board of directors and its verification was up to the competent minister – essentially under the control of the competent authority. This verification was in place to assure the actual payment of the share capital and also monitor if the board of directors duly performed its duty to certify.

Under the recent legislation, there is no administrative verification of the payment anymore.

The timely (or not) payment of the share capital (initial or after an increase) must be certified. A certification of payment is not required when the share capital is not increased by payment of a contribution (art. 20, par. 5).

The certification must take place within two (2) months from the establishment of the company and within one (1) month from the payment deadline of the amount for the increase of the company’s share capital. With most SAs (very small and small-unlisted), the board of directors can certify the payment in a meeting held within these deadlines with the certification of payment or not of the share capital, as an item on the agenda. With large and very large SAs the payment is certified by a report by a chartered auditor/accountant or an auditing company, after they are ordered to do so by the board of directors – within the abovementioned deadlines. When it comes to the certification of payment of the share capital, this is conducted by a charted auditor/accountant, an auditing company or the board of directors (art. 20, par. 6).

The report issued by the charted auditor/accountant or auditing company or the minutes of the board of director’s meeting must also mention the special circumstances of payment, as described in the second section of paragraph 3, or that the amount due was payed for by offsetting, according to paragraph 4. Regarding the payments by depositing cash to the special bank account of paragraph 3, both the report issued by the charted auditor/accountant or by the auditing company or the minutes of the board of director’s meeting must be based on a bank account statement, issued by the bank. This statement must be attached to the abovementioned report or minutes.

Hence: one or more receipts of deposit to the company’s bank account are not enough. The bank account statement will also show withdraws that might have been made. “Smart” practices from the past (many small deposits followed by equal small withdraws in order to sum up the total share capital) simply belong to the past.

The report issued by the charted auditor/accountant or auditing company or the minutes of the board of director’s meeting which certify of payment are published (art. 20, par. 7).

When an SA is established or its share capital increases by contribution in-kind, the certification can be made by the board of directors, no matter the size of the SA, after the completion of the transfer procedure (art. 20, par. 8).

In any case: The chartered auditor/accountant or the auditing company certifying the payment of the share capital, can’t also carry-out the company’s regular audits. Additionally, the chartered auditor/accountant can’t be part to the auditing company that carries-out the regular audit (art. 20, par. 10).

 

7. What is the “penance” for not paying for the undertaken (initial or after an increase) share capital οn time?

Not timely paying the amount of the initial share capital or its increase, carries (severe) penalties for the one that undertook the obligation to pay, and also results in necessary changes of the company (art. 20, par.9 and art. 21 par. 5 & 6). In that case, the board of directors sets a deadline of one month to the one liable to make the payment. At the same time, the board of directors is obligated to warn the person liable of the consequences in case the deadline expires.

What are those consequences?

In case the deadline expires, the company cancels the (not fully paid for) shares and retains for itself the amount that has already been paid (if any) (including partial payments or share premiums). At the same time, the company will issue new shares, as many as those that were canceled, which it then will initially offer to the other shareholders (: pre-emption right). In case the old shareholders show no interest in buying the new shares, the company offers them to the public.

If the canceled shares are restricted, as well as if the new shares, issued to replace the cancelled shares, are not sold, either some or all of them, the company must decrease its share capital (in the first general assembly to follow) by the amount of the nominal value of the shares not sold.

It is important to mention that the shares’ nominal value that was not timely paid for in any case burdens the liable shareholder, with the statutory rate of interest, until the shares are cancelled. Further penalty clauses or other claims against the person liable can be included in the company’s statute or at the decision ordering the increase of the share capital.

 

8. In conclusion

Throughout the time, capital sufficiency was crucial.  Among others, for the household of Jenny Marx and also for the businesses of her time and of today.

The existence of the necessary share capital in SAs is crucial for achieving their corporate goals. Manipulations of the past aiming to a “virtual” payment of the share capital have no place in the recent Act or in today’s reality.

But most importantly: The capital sufficiency of the businesses is a necessary requirement for their, as well as the country’s, (much desired) development.

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (September 1st, 2019).