Why to increase the share capital of a corporation?

Many enterprises are established with the required minimum capital (3000 Euros in the case of a limited company and 60,000 in an S.A company) and with the passage of time this is becoming smaller capital in the balance sheet of a large company. Companies with profits accumulate reserves, ignoring the capital; until one day someone puts their eyes in and decides it's time to accompany the growth of the company. 


The increase of the stock capital of a company can be done in two main ways, by issuing new shares or by increasing the value of the existing shares. The main purpose of the capital increase is to fund the capital needs of the corporation and the funding can be obtained from different sources: • from the company's shareholders. Funding from existing shareholders may be given in two ways: - With the influx of new capital. - Sacrificing the remuneration of shareholders, so that the expansion is carried out of reserves or undistributed profits allocatedto reserves. 

• From creditors of the company, so that they redeem their credits in exchange for shares of the company from being creditors become shareholders. This type of expansion is often a wayfor creditors to intervene in troubled companies to meet their payment obligations to these.

 

• From the bondholders become actions. This is an option given to the bondholders in many cases, this way following pre-established conditions and terms become part of the shareholders of the company.

 

• In new shareholders who bring new capital through a capital increase. These extensionsprovide a preferential right to purchase its former shareholders.

Companies often raise capital mainly because need capital for various reasons, such as making acquisitions of other companies making major investments to finance new projects,financed by the inability of credit institutions, or legal reasons among others . In relation to legal reasons TRLSC Article 363 states, including the mandatory grounds for dissolution ofcorporations as follows:

 • For losses that reduce the net at less than half of the share capital, unless it is increased or decreased to the extent sufficient equity, and provided it is notappropriate to request the bankruptcy.

 • By reducing capital below the legal minimum, provided it is not a result of compliance with a law. For his art, Article 327 provides for the compulsorynature of the reduction in the corporation when losses have decreased net assets below the two-thirds of the share capital and one fiscal year has elapsed without having recovered equity.

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