LLC FOUNDING CAPITAL
The founding capital is one of the key elements in the establishment of the company, as well as its functioning, because it represents the value of the roles of the members of the company, which serves to protect creditors and cover business obligations. In the case of a limited liability company, the legal nature of the basic capital and the rules related to it are regulated By Law on Business Companiesand information for the founding capital can also be found by the Serbian Business Registration Agency.
WHAT IS FOUNDING CAPITAL?
According to the Law, the founding (registered) capital is the monetary value of the members' shares in the company, which is registered in the Register of Business Entities, which is maintained by the APR. In other words, the basic capital is the sum of all the contributions that the members of the company register when the company is founded or later in the course of business, and which are recorded in the register.
The founding capital is expressed in dinars, and contributions can be:
monetary (real money);
non - monetary (things and rights).
If the monetary deposit is paid in foreign currency in accordance with the law governing foreign exchange operations, the dinar equivalent of the deposit is calculated at the middle exchange rate of the National Bank of Serbia on the day the deposit is paid.
If you are planning to establish a company, and you are not sure how to determine the basic capital of the company, consult with a corporate law lawyer..
You can read more information related to the establishment of an LLC hereIf you still think that entrepreneurship is a better form of business for you, read more about it here.
Are you planning to establish or change the founding capital?
Check that your founding capital is properly arranged and registered. PM Lawyers can help you to carry out the entire procedure without errors.
Seek legal adviceMINIMUM FOUNDING CAPITAL LLC?
The law stipulates that the founding capital of a company is at least 100 dinars, unless a special law stipulates a higher amount of basic capital for companies that perform certain activities.
This means that a company can be founded and operate with a founding capital of only 100 dinars, without the obligation to increase it.
In practice, it often happens that companies are founded with a founding capital of 100 dinars, but later that founding capital increases due to business seriousness, credit rating, and business partners' belief in the seriousness of the company's operations.
Members investments in the LLC
The founding capital of the company, as mentioned earlier, represents the sum of the shares of the members of the company. The members of the company acquire shares in proportion to their stakes in the total capital of the company, unless otherwise determined by the founding deed at the time of founding the company or by a unanimous decision of the assembly.
What does it mean in practice and what does it look like? If the company is founded by two persons, and they decide that the founding capital will be 1,000 dinars, and at the same time person A pays 400 dinars and person B 600 dinars, this means that person A will acquire a share of 40% and person B a share of 60%.
PAYMENT AND INPUT OF CAPITAL AT ESTABLISHMENT
The contribution of the company does not have to be paid immediately upon registration, but there is a possibility that the contribution is only entered upon registration, and that it is actually paid later. In the founding act, it must be indicated in what period the member will make the payment, ie. entry of roles, where the law stipulates that the term cannot be longer than 5 years.
Therefore, at the moment of founding the company, although the founding contribution is defined, it does not have to be paid at that moment, but can be paid later, as previously stated.
INCREASE AND DECREASE IN SHARE CAPITAL
The law foresees the possibility of both increasing and decreasing the founding capital
An increase in the share capital can be effected:
- with new investments of the members,
- by converting reserves or retained earnings into capital,
- conversion of receivables into equity (e.g. debt into equity),
- status changes of the LLC.
A reduction of the share capital is also possible, but it cannot be less than the minimum amount prescribed by law – that is, not below 100 dinars.
Both procedures require a decision by the company's assembly and registration of the change in the Register of Business Entities.
Why is the founding capital important?
The founding capital has many legal and practical functions:
- represents the minimum asset with which the company disposes,
- serves as the financial foundation for the business,
- impacts credibility with banks and partners,
- affects the participation of members and the right to vote,
- In the event of liquidation, it may be relevant to creditors.
Because of all this, its legal status and records must be precisely regulated in the founding act and in the register.
