Change to the company’s capital 2018-12-06T14:49:58+02:00

Resources Company management Change to the company’s capital

Change to the company’s capital

The company capital is one of its most import characteristics. It has two main functions:

  1. The distribution of the capital represents the distribution of the ownership over the company;
  2. The capital is the initial property of the company at the moment of its registration

The company capital in Bulgaria is always a number – a certain amount of money. It can be increased and in some cases – decreased. Increasing the capital is much more frequent than decreasing it.

Increasing the company capital

There are two ways to increase a company capital depending on the impact they have on the capital shares and their distribution.

  1. Increasing the nominal value of the shares;
  2. Issuing additional shares

In the first scenario the value of each share is increased equally while the number of shares doesn’t change at all. The proportional allocation of the sharesa also remains unchanged. For example, let’s assume Company A has a capital of BGN 100 distributed in 100 shares of BGN 1. The company decides to increase its capital to BGN 2000 by increasing the nominal value of the shares. The capital now amounts to BGN 2000, distributed again in 100 shares. The value of each share however, is now BGN 20.

In the second scenario the nominal value of the shares remains the same but their number is increased. It allows for a more versatile approach to the change. When the number of shares is increased its proportional distribution among the shareholders distribution can also be amended.

Depending on the origin of the funds used for the increase of the capital, there are also two options:

  1. Increasing the capital with the company’s own funds;
  2. Increasing the capital through additional share installment

Here the first option is only available if the company has made profit on an annual basis which is not distributed as dividend. This profit can be accumulated year over year but can also be used for the increase of the company capital. When the profit is capitalized the proportional distribution of the capital shares among the shareholders can’t be changed.

When the capital is increased through additional installments the shareholders are obligated to deposit a certain amount proportional to their share at the company account. This option can also be used when a third party joins the company as an investor (shareholder). Instead of transferring existing shares the shareholders can decide to issue new shares in favor of the investor.

Decreasing the company capital

Decreasing the company capital is very rarely used by Bulgarian companies since it has no positive effects on the company. In some cases it can be used as means for profit distribution without paying a dividend tax but the scope of this option is so limited that it is basically negligible.

The article was first published at Advokatami.bg

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