Tag: μετοχικό κεφάλαιο

In our previous article we dealt with the share capital of SA. We had the opportunity to approach its undeniable importance for the existence, survival and development of the AU. We dealt, among other things, with its potential composition. We referred, regarding the latter, to the type of contributions (monetary and in kind) that may constitute the share capital. The latter (:contributions in kind), due to their importance and particularities, will be the focus of he present article.

Concept And Content

The concept of contributions in kind arises from the law itself (: article 17 of law 4548/2018). In fact, they are defined negatively (§1): These are those contributions “…that are not in money”. Furthermore, in fact, it is specified (§2) that “contributions in kind consist only of assets, which can be subject to a monetary valuation”. However, this position raises questions. And this is because all assets, without exception, can have a cash value (more precisely: they can be “measured” according to the Greek Accounting Standards – chapter 5, law 4308/2014).

The context of the valuation is sometimes clearer and specific and other times more blurred and debatable. Ambiguities and significant discrepancies are what the legislator wanted to limit. They therefore explicitly excluded from the contributions in kind those claims that are uncertain as to their fulfillment: claims which may be overestimated arbitrarily.

The following can also not constitute contributions in kind (§2), “…claims arising from the undertaking of an obligation to perform work or provide services”. This provision differs from those applicable in PCC. In the specific type of company, the contribution of work or services is permissible as a non-capital contribution (: article 78 of Law 4072/2012). The SA, on the other hand can, in a corresponding case, grant those who provide work or services (not shares but) founding securities. They become, in this way, creditors of the SA.

Examples of contributions in kind include, among others, the transfer of ownership or the concession of use of movable or immovable property, the transfer of rights, e.g. industrial property (: trademark, patent), of a business or a sector, receivables and securities.

The Determinants of Contributions in Kind

Any contribution in kind to the share capital of the SA presupposes (Article 17 §1) the reporting of specific information; specifically: (a) the type of contribution, (b) the person who undertakes the obligation to pay it and (c) the amount of the capital to which the specific contribution corresponds. The specific references take place in the articles of association (:if it is a payment of the initial capital of the SA) or, as the case may be, in the decision of the competent corporate body, General Assembly or Board of Directors, (:if it is a share capital increase):

At the establishment of the SA: The method of payment of the capital is included among the elements that constitute the minimum mandatory content of the articles of association (Article 5 §1, paragraph d’). Therefore, the mention of the specific information is mandatory. Failure to do so may, in fact, lead to judicial annulment of the company (article 11 par. 1, par. a’).

During the increase of its share capital: Negative legal consequences can also occur in the event that the decision of the body that decides on the increase of the share capital (Board of Directors or General Assembly) omits to mention the aforementioned information. These decisions are subject to nullity (articles 138 on the General Assembly and 95 on the Board of Directors).

It should be noted, however, that in the event that the articles of association or the decision to increase the share capital “…does not define the category of contributions (that is, whether they will be in money or in kind), then it is considered that all contributions are in money” (ind.: 2331/2006 Court of Appeal of Thessaloniki).

The Obligation for Valuation

A condition for the valid payment of contributions in kind is their valuation, the “official”, i.e., verification of their value. The specific verification takes place when the contribution is made (during the formation of the SA or, as the case may be, the increase of its capital).

The estimation of contributions in kind aims to avoid the risk of overestimating these contributions and creating, in excess, a fictitious share capital.

Competent Persons

The legislator particularly aims at the reliability of the persons who will carry out the valuation of contributions in kind. Therefore, they provide that the valuation report is drawn up “…by two chartered accountants or an auditing firm or, as the case may be, by two independent certified valuers” (Article 17 §3).

Through the assignment of the valuation to the specific persons, Law 4548/2018 aims, and rightly so, to reduce the state supervision of the SA. In order to achieve this goal, after all, they proceeded to the necessary abolition of the (known, of dubious reliability and, in any case, obsolete) Committee of article 9 of Law 2190/1920 (ie: the three-member assessment committee, which was most commonly composed of civil servants). The latter was tasked, however not exclusively – under the previous regime, with carrying out the valuation.

Furthermore, it becomes permissible for chartered accountants or certified valuers to hire special valuers, domestic or foreign, for the valuation of assets that require specialized knowledge or international experience.

Avoiding Conflicts of Interest & Ensuring Independence

The legislator wanted, reasonably so, to ensure the reliability of the assessment of contributions in kind. They sought to avoid a conflict of interests of the persons carrying out the assessment. Also, to safeguard their independence and impartiality.

For this purpose, they provided for a series of requirements, which cannot be bypassed by the aforementioned competent persons. Specifically, these persons cannot: (a) be the ones making the contribution in kind, (b) be members of the board of directors of the SA, (c) maintain a business or have other professional relationship with the company or the contributor or (d) be related to the specified persons up to the second degree or being their spouses.

Furthermore, the law provides that: (e) “…for the chartered accountants and for the auditing companies, of which they are members, there must not be any obstacles or incompatibilities that would preclude the carrying out of a regular audit by these persons, nor can they have carried out the regular audit of the company or of a company connected to it…within the last three years.” (article 17 §4).

Content of Valuation Report

The Valuation Report should, by law (Article 17 §5) contain: (a) the description of each contribution in kind, (b) reference to the valuation methods applied – the choice of which is left to the appraiser and (c) the opinion for the value of each contribution. In fact, in the event that the valuation results in a price range, the report must indicate a final price.

Furthermore, the law specifies the factors to be taken into account in the report for the valuation of fixed assets (Article 17 §6). The characterization of an element depends on its continuous use by the company (which must exceed a one-year period-law 4308/2014, Annex A΄). The price at which the valuation report ends is the highest possible price, with which the contribution in kind may be equal to (Article 17 §7).

Duration of Utilization of the Valuation Report

The payment of contributions in kind, based on the valuation report, may not take place after six months from the time of its drawing up. If the six-month period expires, a new valuation should take place so that the payment of contributions in kind is not affected (Article 17 §9).

Publicity of the Valuation Report

Valuation reports of contributions in kind must be published in the Business Registry. The ones concerned are responsible for the publication. It is noted, however, that each valuation report is sent directly to the Business Registry, without being subject to any approval or acceptance by the Administrative Authority (: Recitals of n. 4548/2018 on article 17). It is also underlined that, for new companies, the publicity takes place simultaneously with the registration of the company in the Business Registry (article 17 §8, section b).

Exemptions from the Obligation for a Valuation Report

Valuation of contributions in kind is not mandatory in every case. The provisions of article 18 of Law 4548/2018 provide the SA with the possibility to avoid, if it so wishes, the valuation of specific assets that are being contributed (see immediately below). This possibility is provided both during the establishment of the SA and in any increase of its capital. It is decided, respectively, either by the founders in the SA statute or by the body that decides on the increase.

This specific (facilitating) possibility is provided in three cases, only and if the special conditions provided for by law are met. In particular, no valuation is required when the subject of the contribution in kind:

(a) They are money market instruments or transferable securities.

(b) Are assets, other than transferable securities or money market instruments, which have already been the subject of a valuation for their fair value by a recognized independent expert.

(c) They are assets, other than securities or money market instruments, the fair value of which is determined, for each of them, from the Balance Sheet of the previous financial year.

A common feature of the above exceptions is the fact that the value of the contributed assets has already been determined by reliable sources. A new valuation is required, however, in the event that since the time of calculating the value of the assets contributed, an event affecting their value has occured.

As long as contributions are made in kind without valuation, the Board of Directors is obliged to make a declaration, which contains clarifying data (Article 18). This statement aims to inform any interested parties and must be made within one month of making the above contributions. In case of omission, responsibility of the members of the Board of Directors arises.

The Risks For SA, Shareholders & Creditors

Through the strict regulations, as analyzed above, the legislator sought to minimize the risks deriving from contributions in kind. Some of them:

(a) Risk of overvaluation of the contributions in kind and the (total) share capital: Any overvaluation would result in the (true) value of the contributions falling short of the apparent value, which would affect the (final) value of the share capital. This possibility carries risks, especially for the creditors of the SA.

(b) Risk for minority shareholders: Majority shareholders may resort to contributions in kind, with the aim of reducing (or eliminating) the presence, initially, and then expelling the minority. However, such a decision could, under certain conditions, be evaluated as abusive (and, therefore) voidable, in the event that it proved not to serve the corporate interest.

(c) Risk for the interests of third parties and in particular, lenders of the SA: through the so-called hidden contributions (: during the establishment or increase, a contribution in money is first paid, which is, however, returned to the contributor through the conclusion of a transfer contract to the SA of a specific asset in order to avoid valuation). In order to reduce this risk, specific restrictions and prohibitions are set by law.

Indeed, in order to avoid this specific risk, it is prohibited, in principle, for the SA to acquire, within the first two years of its establishment, its own assets (Article 19), when the sellers are: the founders, shareholders representing a percentage more than 1/20 of the paid-up capital or members of the Board of Directors, persons related to them or persons controlled by them. Also when the seller acquired from these persons during the last 12 months before the transfer. It should, however, be noted that the limited scope of the above prohibition does not adequately cover the risk in question.

There can be no doubt that the adequacy (even better: the excess) of the share capital in the SA is a factor showing the health of the company: It facilitates the achievement of its statutory purposes and also its development. It increases its creditworthiness and makes it more attractive to potential investors. It always facilitates the administration in its work and, on multiple levels, promotes the interests of its shareholders.

Things are simple, if not self-evident, when the contributions that make up the share capital are monetary; they are complicated when they are in kind. Especially with regard to the last case (:contributions in kind) for the protection of the company, the shareholders (minority as a rule) but also the third-party lenders, a series of conditions are set, by law – and rightly so, in order for them to be incorporated into the share capital. The question is, always, the health of the business. It is therefore desirable not only to support its capital, but also to faithfully (substantially – and not only “superficially”) apply the rules governing the integration of contributions in kind. The benefit will be, in this case, multi-layered. Besides, contrary practices or lack of compliance not only harm the business (among others), but can also be successfully tackled by the law.-

Stavros Koumentakis
Managing Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 13th, 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.

The importance of share capital in the life and operation of the SA is a given. It concerned us, for this reason, in our previous article. In this context, we referred, among other things, to the purpose of the share capital, its coverage and payment. Especially, however, with regard to the actual (and timely) payment of the share capital, we concluded that “it is extremely important for the SA. Precisely for this reason, its verification takes place through the (strictly defined) process of certification…” The will of the legislator to exclude past practices of false certifications is clear from this provision. We hereby undertake to make a more thorough reference to the procedural but extremely important issues of the certification of the payment of the share capital. Besides, the faithful implementation of what the law demands prevents the creation of (civil and criminal) responsibilities for the liable persons-members of the Board of Directors and chartered accountants.

Discretionary Option or Legal Obligation?

The certification of the payment of the SA’s share capital is not at the discretion of the company; it constitutes an obligation arising from the law (Article 20 §5 section a’ Law 4548/2018).

This obligation concerns both the initial capital of the SA (when it was established) and the capital of any subsequent increase. In the latter case, it does not matter if it is a common or extraordinary increase in share capital. Also, it does not matter what type of shares are issued.

In the event, however, that “the capital increase is not made with new contributions”: “certification of payment is not required” (article 20 §5 section b of Law 4548/2018). This exception seems reasonable as, in this case, there is no actual payment. On the contrary, a nominal increase of the share capital takes place, after capitalization of assets of the SA’s net position (e.g. reserves).

Certification of Partial Coverage & Payment

However, the coverage of the share capital increase (by decision of the competent body) may not be complete. In this case, the increase is carried out up to the point of actual coverage. It is sufficient that the relevant possibility has been provided for in the decision of the increase. The certification of the increase, when only partial coverage has taken place, will refer to the amount of the increase that was actually paid. [In addition, it should be reminded that if only partial coverage takes place, the Board of Directors is obliged to adapt accordingly the article of the SA’s articles of association concerning its capital (article 28 of Law 4548/2018)].

Likewise, certification of payment must also take place in case of partial payment. Specifically, every time an installment is payable (Article 21 of Law 4548/2018).

Certification Time And Publicity In the Business Registry

The time period within which payment certification should take place is strictly limited. Specifically: the certification of the payment of the initial capital should take place within the first two months of the establishment of the company. Accordingly, in cases of capital increase, the certification of its payment should take place within one month of the expiry of the deadline for payment of the amount of the increase.

The certification of the payment, in any case, is published by the Business Registry (articles 12 §1 f. e) and 20 §7 in fine Law 4548/2018). However, the law does not provide for a specific deadline for the publication. However, we should take into account that copies of minutes of meetings of the Board of Directors, for which there is an obligation to register them in the Business Registry (according to article 12), are submitted to the competent Business Registry service within twenty (20) days of the meeting of the Board of Directors. This deadline also applies to the submission to the public of the certification of payment. Either it is carried out by the Board of Directors or by a chartered accountant or audit firm, as analyzed below. Therefore: The relevant document should be submitted to the Business Registry within 20 days from the certification of payment.

The Competent Body

In derogation of what was in force under the existing law (:law 2190/1920) “…the certification of the payment of the capital is done by a chartered accountant or auditing firm, except for small or very small ones in which the competence of the Board of Directors is retained. » [: specifically, also see the Memorandum to the Law 4548/2018 on Article 20]. The Board of Directors, however, has the possibility to certify each payment in more additional cases. Particularly:

The Competence of a Chartered Accountant or Audit Firm

An innovation of Law 4548/2018 is the transfer, in principle, of the authority to certify the payment of the initial capital or the capital of the increase to a chartered accountant or audit firm (retaining, in special cases, the exclusive authority of the Board of Directors).

The specific deviation from the previous regime is clearly aimed at the legislator’s effort to ensure the credible and fair nature of each certification.

In fact, in order to ensure credible and fair judgment during the certification, the legislator provides that: “the chartered accountant or the auditing firm that certifies the payment of the capital…cannot also carry out the regular audit of the company. Also, the chartered accountant cannot be in an auditing company that carries out this audit.” (Article 20 §10 Law 4548/2018).

The Authority of the Board of Directors

The highest organ of the SA is, as is well known, the General Assembly. It is the General Assembly that retains particularly important authority, decisive and exclusive powers (:117 §1 Law 4548/2018). The Board of Directors retains, however, in some cases, authority to take decisions concerning the SA.

Such a case constitutes the certification of the payment of the share capital, carried out by the Board of Directors, in the cases mentioned below. In accordance with this competence, the Board of Directors acts collectively. It is not entitled to further delegate this authority and competence. In particular, the Board of Directors can itself certify the payment of the share capital:

(a) Upon the formation of the SA (: the initial capital) for all the types of SAs (Article 20 §6 in fine Law 4548/2018).

(b) When increasing the capital of the SA, as long as it concerns very small or small companies, the shares of which are not listed on a regulated market (article 20 §6, section c of Law 4548/2018). We note that very small or small companies are those (: article 2 k’ of Law 4548/2018) entities that on the date of their balance sheet do not exceed the limits of at least two of the following three criteria: (i) total assets, 350.000 euros, (ii) net turnover, 700.000 euros, (iii) average number of employees during the period, 10 people.

(c) Both during the formation of the SA and during the increase of its capital, when it comes to a contribution in kind (: article 17 of law 4548/2018). Indeed, the authority of the Board of Directors applies regardless of the size of the SA and after the transfer process has been completed (Article 20 §8 Law 4548/2018).

The Content Of The Report or The Minutes

The law provides (among others) the content that, depending on the body that carries out the certification, either the report of the chartered auditor or the auditing firm or the minutes of the Board of Directors must have.

The report or minutes must certify, as already pointed out, the timely (or not) payment of the contributions. That is, it must certify the exact time each contribution was paid, regardless of its type, under the statute or decision for the increase.

However, depending on the type of contribution, the content of the report or minutes differs (Article 20 §7 Law 4548/2018).

Regarding cash contributions:

(a) When paid into a special bank account of the SA: both the report and the minutes must be based on an account statement provided by the bank where the specific account is kept. In fact, the relevant excerpt must be attached to the above report or minutes.

(b) When the financial contributions are considered to have been made using the corresponding amount for the purposes of the company, as long as this is specifically provided for in the articles of association or in the decision on the capital increase (according to article 20 §3 section b’ of Law 4548/2018 ): both the report and the minutes must state the special circumstances of non-payment in cash due to expenses incurred for corporate purposes.

(c) When the payment takes place by offsetting debt, as long as this is provided for in the decision to increase the capital (according to Article 20 §4 Law 4548/2018): both the report and the minutes must be mentioned in the chartered accountant’s or audit firm’s certification, accompanying the settlement. The latter certifies that the debt being set off is existing and overdue and does not depend on any conditions. In case of a debt that is not due, a valuation takes place (according to Article 17 of Law 4548/2018).

Furthermore, the report or minutes certify that the netting has taken place and indicate the number of shares undertaken as a result from it.

In the Memorandum of the Law 4548/2018 on Article 20, it is pointed out that with the provision of contractual set-off, “…the Greek law is in line with the trend of relaxing the provisions that have to do with the contribution of capital, mainly it does not recognize the positive contribution of compensation (debt-equity swap) in the consolidation of the company, in the context of which, of course, “fresh money” does not flow into the company (in other words, its assets are not increased), but it is freed from obligations.”

In addition, we do stress the fact that for a debt offset to take place, it is assumed that: “…if the payer is not a shareholder…the pre-emptive right of the existing shareholders has been abolished (or has not been exercised).”.

Regarding contributions in kind

In the case of contributions in kind, the report or minutes must refer to the relevant provision of the original statute or decision on the increase. Furthermore, it must contain a description of the contribution and the liable person, as well as the valuation of this contribution (according to article 17 of Law 4548/2018-subject to article 18). Lastly, the completion of the transfer process must be certified, as required by law, depending on the object being contributed.

Criminal And Civil Liability

The confirmation of the payment of the share capital (and accordingly the process of its certification) is of particular value. It is also assessed as particularly important by the legislator.

This is also confirmed by the criminal liability that has been established for the case where: “…the member of the board of directors … violates the obligation to certify the payment of the capital within the period defined in article 20 or falsely certifies the payment in question” (article 179 §2 of Law 4548/2018). In this case, the member of the Board of Directors is punished with imprisonment of up to three years or with a fine from €5,000 to €50,000. The penalty for the chartered accountant who makes a false certification of payment is the same. Especially, however, with regard to the member of the Board of Directors who violates their specific obligations, the objective and subjective condition of article 176 of Law 4548/2018, which concerns false or misleading statements to the public, may additionally be met.

However, civil liability of the specific persons (: members of the Board of Directors and chartered accountant) against the SA and/or against third parties is not excluded.

As regards, finally, the shareholders to whom the false certification concerns, it is obvious that they are not fulfilling their assumed obligations for the payment of the SA’s capital. In this case, the provisions for late payment will be applied (Article 20 §9 with further reference to the proportional application of Article 21 §§5 & 6 of Law 4548/2018).

The share capital of the SA constitutes an important parameter of its existence, operation and development. An important parameter, also, for its liability, in the eyes of third parties, who transact with it. The required-increased formality and excessive seriousness with which the process of certifying its payment is treated (by the legislator as well) seems natural. In this regard, the need for reverent compliance with what the law demands appears as absolutely obvious. Past practices, which resulted in false certification of the payment of the initial capital (or subsequent increases), have no place anymore.

Heavy, moreover, is the ax of justice on the head of the lawless.-

Stavros Koumentakis
Managing Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 27th, 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.

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).

The company’s cash (… and its owner’s pocket)

I. Preamble

Alexandros Papadiamantis writes, in his novella “The Murderess”, that when the main character, Ms. Haidoula (Fragkogiannou) realized that the police was about to arrest her, she run to the aid of Marouso: That night she tried to avoid the consequences of the multiple crimes she had committed, the justice of men and the wrath of the, closed at that time, society of the island of Skiathos.

Papadiamantis writes, as if he was present, his character’s electrified, on many levels, conversation. One specific extract applies to the present article:

“-Oh! Every sin is sweet.”

“-That is true! … and how bitter is it at the end! Added Marouso in melancholy”.

The undersigned is not known for his knowledge in psychology or criminology or for having relevant experiences. We can, probably safely, assume that when committing any (more or less serious) illegal act, the perpetrator seems to satisfy an inner impulse and/or think that their act is righteous and that in the end the consequences of the illegal acts will somehow be avoided. Obviously, there is no intent to relate the perpetrator of any illegal act with any well-respected entrepreneur. We do, however, assume that the later must feel similarly when blurring the boundaries between their business’s and their own finances– between the cash of their business and their pocket.

To be fair, the boundaries are, very often, not clear…

II. Embezzling from a legal entity

The provision of Article 375 (§§ 1 & 2) of the recently passed Penal Code (Act 4619/19), in force since 1.7.2019, (containing minor modifications from its previous form) does not leave any margin for doubts when it comes to committing the crime of embezzlement from a legal entity. There is no margin as for the severity of this crime’s consequences, either:

“1. Anyone illegally appropriating a foreign (wholly or partially) movable property that came in their possession by any means, is punished with incarceration for up to two years or a fine and if the object is of an especially high value, with incarceration and a fine. If the object has been entrusted to the person liable …due to their capacity as trustee …or manager of foreign property, the person responsible is punished with at least one year on incarceration and a fine.”

2. If the value of the object of paragraph 1 is more than 120.000 euros in total, the person liable in punished by incarceration up to ten years and a fine.” It must be noted that the amount of the fine imposed to the perpetrators, according to article 57 of the new Penal Code, can be up to 18.000 euros, for cases where a fine is provided by law as an alternative penalty and up to 36.000 euros for cases where a fine is provided by law as a cumulative penalty.

III.  The perpetrators, relative precedents

It is accepted (especially when it comes to SAs) that even a company’s legal representatives (the President and the members of the BoD, among others) can commit embezzlement. Embezzlement can also be committed in many ways and not only in the most common way (the direct taking of money from the physical cash kept in the company’s headquarters or from the company’s bank accounts). To mention a few: by registering in the company’s ledgers and paying off false (fictitious) invoices (invoices that do not relate to the company’s practice and the achievement of the company’s objects), by appropriating  company’s movable property, by paying off personal (or third party) obligations, by using corporate credit cards for personal (not corporate) expenses, by paying overpriced goods acquired by the company and ending up in the perpetrators pockets, by partial or total discharge of debt of third party-debtors to the company (see Arios Pagos 883/2004 -6^th criminal division Council).

In cases like these there will, οf course, be more people criminally involved (e.g. those who assist the perpetrators before or after the embezzlement, i.e. financial managers, accounting supervisors etc.).

IV. The rest, non–penal, consequences

Besides the certain criminal liabilities, a possible embezzlement committed by the company’s representatives/managers (usually the majority shareholder or from the latte’s associates) causes a number of problems in many levels:

In case of a clear embezzlement of cash from the company’s physical “cash drawer” (cash physically kept by the company), we may be facing a notional fund (a fund that will appear in the company’s financial statements but will not truly exist) or a “problematic” account (i.e. “claims from shareholders”, which remains “outstanding” for years).

If we come across fictitious invoices, notional contracts or expenses that only appear to be liabilities of the legal entity but in reality have to do with physical persons or a third, unrelated, legal entity, we will, probably, be facing serious tax offences, but also the liability of the parties involved before the injured legal entity (for SAs see about the liability of the members of the Bod).

Problematic activities (and/or accounting documents) may be detected by tax authorities, by a minority shareholder practicing their rights, or, maybe, by the next manager or owner of the company.

It is common for the minority shareholders (and/or the next owners or managers) to act (either fairly or unfairly) as the pursuers of Fragkogiannou, who “while running she had climbed up, higher to the shore, exhausted, breathing heavily in and out. As she was going, she stood for a brief moment, trying really hard to listen. She wanted to know for sure whether her two pursuers were behind her… But she did not feel safe, the poor woman…”

V. Existing Solutions

Law, in general, provides a wide range of secure options that facilitate the transfer of liquidity from the company to the businessman / majority shareholder: Concluding an employment agreement, works or service contract, paying (or prepaying) dividends, capital decrease (or return) and, alternatively, the amortization of capital are only some of the options of the businessman -especially when dealing with SAs. Given the range of legal options given, it is not logical of someone to expose themselves to (potentially very severe) civil, criminal, administrative and tax penalties.

VI. In Conclusion

The owners of the (mainly family-owned) businesses often confuse their own financial means and pocket with those of their business. How easy is it for a businessman (majority shareholder, partner of owner) to understand that it is illegal and a “sin” to blur that boundary? Exactly this inability to understand is what often leads to wrong moves and wrong decisions. It is true that sometimes this tactic is followed because there are important needs of the businessman or because the businessman simply feels a lot of joy by satisfying their desires or material needs with “THEIR” company’s cash, but the question remains: is it worth it?

The consequences on a civil, criminal, tax and administrative level are nothing but minor. The path that this will lead to, comes with great dangers. As Papadiamantis put it: “Every sin is sweet.”… and how bitter is it at the end!”- let’s not forget that the relevant liabilities, at least the civil ones, have a statute of limitations of three years and, under circumstances, ten years (article 102 par. 6 Act 4548/2018)

On the other hand: (Most) options offered by law are sufficiently accommodating the transferring of liquidity from the company to its owner or to the majority shareholder/partner. As a result, it does not seem that there is any point in (the logical and well-respected) businessman taking on all that risk by making the wrong choices – the paths of anguish taken by Fragkogiannou…

Stavros Koumentakis
Senior Partner

P.S. A brief version of this article has been published in MAKEDONIA Newspaper (July, 28th, 2019).