Money transfers between the shareholders and the company

Money transfers between the shareholders and the company

Capital Fund

Up until recently, there were two common ways how shareholders did invest money into a company. Either the shareholders did increase the company’s registered capital, or they provided a loan to the company. Numerous experts have discussed also a third possibility – the possibility that shareholders invest the money in a company’s internal fund. This option has been subject to some disagreements in Slovakia with variety of legal opinions on this matter.

Pleased to report, that the legislature has recently codified the process of investing money in a company by allowing the shareholders to create company’s internal fund.

As of 1st January 2018, a company can create a new internal fund called “the Capital Fund”. The Capital Fund is established by shareholder contributions (primary), according to the frame set up in the Memorandum of Association.

Once, the Capital Fund reaches the maximum amount as defined by the Memorandum of Association, the shareholders can decide to redistribute the money back to themselves or to use it for the company’s own capital increase. However, the money in the Capital Fund cannot be used if the company is in crisis or could be in crisis due to the money redistribution.

Also, the redistribution must be announced at least 60 days in advance.

Any shareholder’s contribution to the Capital Fund is booked as shareholder’s share value. Furthermore, any redistribution from the Capital Fund to the shareholder that exceeds the shareholder’s contribution in the Capital Fund are taxed as dividends. This is especially the case if the Capital Fund was created by contribution from the company’s income after tax, or in the event of a merger, due to transfer of the dissolved company’s undistributed profits to the merged company’s Capital Fund. In both cases, the shareholder did not contribute to the Capital Fund, thus all redistributions will be taxed as dividends.

Capital Fund contributions are not regarded as a shareholder’s tax expense.

Article courtesy of   bnt attorneys-at-law, s.r.o.


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