The previous wording of the Commercial Code stipulated that the share capital of a private limited company must be at least 2,500 euros, and the company could be established without making that contribution. As of 1 February 2023, a private limited company does not have a minimum capital requirement, and as such, the option of establishing a private limited company without paying in a contribution no longer exists, either. The minimum permitted nominal value of a share in a private limited company, one cent, remained valid even after the changes in the Commercial Code, which means that in the future the minimum share capital must be at least one cent. For a public limited company, the minimum capital requirement remained unchanged at 25,000 euros.
The amendment to the Commercial Code gives the founders of a private limited company greater freedom and, as far as determining share capital, more opportunities to assess the actual capital need. However, the change brings out concerns for entrepreneurs. Resolving these issues has to start already when the private limited company is founded, and the amount of the share capital should be carefully considered.
As mentioned, the permitted minimum nominal value of a share in a private limited company can be one cent (0.01 euro). If there is just one shareholder, this does not pose a problem, but problems arise when several shareholders want to establish a private limited company or new shareholders are involved in the private limited company. In this case, the share capital can no longer be 0.01 euro, because this amount of share capital cannot be subdivided to 0.005 euro. In the long term, the share capital of a private limited company must be increased with the involvement of a new shareholder, which means time-consuming paperwork.
For the sake of clarity, it is worth noting that the nominal value of a share can also be another amount, for example 10 euros, or whatever nominal value that the shareholders agree on. That determines the amount of share capital contributions, which is also closely related to the number of shareholders.
Existing private limited companies that did not make a contribution can continue to operate on the basis of the previous conditions, but they will no longer be bound by the prohibition on setting off share capital contributions against the shareholder's claim against the company. The option of offsetting does arise in the event that a private limited company established without a contribution has made a profit.
The amendments also included updates to the Bankruptcy Act, which now stipulates that the shareholder is personally liable if a private limited company's share capital is less than 2,500 euros and the interim trustee in bankruptcy is unable to satisfy claim from the debtor's other assets, the interim trustee has the right to demand that the shareholder compensate fees and expenses in the amount of the difference between the private limited company's share capital and the 2,500-euro mark. So if a shareholder paid only one cent into the share capital when the private limited company was established, the shareholder would be personally liable for 2,499 euros. If the share capital of a private limited company is 2,500 euros, the shareholder does not incur personal liability if the company becomes insolvent.
Since the net assets/equity requirement is closely related to share capital, two conditions had to be met in the past:
Also see the article "Negative net assets and related issues" from autumn 2022, where we also touched on the topic of net assets and the implementation of measures to correct negative net assets.
As of 1 February 2023, only one condition applies:
On the one hand, shareholders will welcome the change, because the private limited company does not have to turn a profit in the first year in order to meet the net asset requirement, and the net asset requirement can be met in any case. But on the other hand, what if a shareholder lends money to a private limited company with a share capital of 0.01 euro in order to foster business (finances one’s own company) and the company does not turn a profit? In this case, granting a loan to the company influences the figures for the first financial year and in particular the net asset indicator in the balance sheet. Thus, the financial statements for the first financial year may indicate negative net assets. The remedies provided in the Commercial Code must be used to correct the issue (the subject was covered in more detail in the aforementioned article "Negative net assets and related issues"). In addition, practice shows that most companies end the first year with a loss, i.e. for a private limited company with a share capital of 0.01 euro, operating at a loss will necessarily lead to negative net assets. This is also one of the reasons why a shareholder must carefully consider the amount of the share capital when establishing a private limited company and assess the need for this amount.
Based on the above, the goals of the company's business activity and the sustainability indicator, we recommend making an appropriate contribution to the company’s share capital upon founding the company, and not making cavalier decisions based on the changes to the Commercial Code that entered into force on 1 February 2023.
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