Understand what share capital is and how to define the value of a company
When starting a business, the term “share capital” becomes central and can raise some questions. From planning to executing the business plan, the focus is on achieving success in the venture, which involves spending resources effectively.
Share capital represents the initial investment needed to bring your ideas to life and start operations. Therefore, it is essential to understand how to calculate this value and know the best ways to use it. There are risks involved, but also numerous advantages. Check out more details in this text!
What is a company’s share capital?
Share capital is the initial amount invested by partners to start a company, including financial, material or immaterial assets.
This amount should be enough to cover initial costs without compromising future financial planning.
The share capital must be specified in the company’s articles of association , a document that formalizes the opening of the business, defines the type of company and includes information such as the company name, address, and the identification of the partners and legal representatives.
How to define the value of share capital?
Determining the amount of share capital is crucial, as it can influence the direction of the business. This amount should be based on an estimate of the resources needed to open and operate the company. It is recommended that:
- Develop a detailed business plan to identify start-up costs;
- Ensure that capital covers expenses until the company generates profit and achieves financial stability;
- Establish a minimum amount that covers initial expenses.
But don’t worry, you can adjust this value later if needed.
4. Share capital for a Single-Member Limited Liability Company
A Single-Member Limited Liability Company is a company with only one partner-owner. Companies that are sole owners of another subsidiary company and law firms also fall into this category.
Regarding the share capital of a Single-Member Limited Liability Company, there is no minimum value, and the value required for activities to begin may be considered, however, there is no obligation to provide proof.
However, caution is needed to ensure that the values do not differ from what is declared in the partners’ Income Tax .
Share capital: what else to consider
Is it clear how share capital is an essential element for opening a company? In addition to what has been said, it is necessary to understand this resource from other points of view. Follow along:
Share capital from a financial point of view
When deciding to open a company, an entrepreneur and his partners, if applicable, indicate as share capital everything that will be used to open the company and keep the business actively running until it starts generating its own profit.
This value can be defined and calculated in these terms:
- Material assets: vehicles, real estate, raw materials, equipment;
- Intangible assets: trademark registration, patents;
- Financial assets: money invested.
However, one point of attention: this capital must be changed when a partner withdraws part of the resource or increases the investment, always keeping it up to date.
Social capital from a social point of view
When determining the amount invested by each corporate party, the rules regarding the participation of each partner in the business, the limit of liability of each party, as well as participation in the percentage of the company’s profits are also determined.
Share capital from the point of view of limitation of liability
According to the amount invested by each partner, the limit of liability of each one is defined if the company has debts. Therefore, the greater the share, the greater the liability for this debt.
In a simple example, if a partner is responsible for 40% of the share capital of a company, he will be responsible for 40% of the debts that are incurred.
Main doubts about share capital
There are some issues regarding social capital that may raise questions, in addition to the points mentioned above. Clarify the main points below.
Is it possible to change the share capital?
Yes, it is possible to increase or reduce the share capital. The increase is carried out by the Commercial Board with the assistance of an accountant. The reduction is more complex, requires publication in a newspaper and a 90-day wait for creditors to respond.
What is paid-in share capital?
The paid-in share capital is the part of the share capital that is effectively available to the company. It can be paid-in with assets, such as real estate, registered at the Real Estate Registry Office.
What is share capital for?
Share capital finances the company’s initial operations until it begins to generate profits.
When is it necessary to increase share capital?
Share capital should be increased when the company needs more resources to expand its operations or face new financial challenges.
What are the risks of not defining share capital correctly?
Failure to correctly define share capital can lead to insufficient resources, initial financial difficulties and credibility problems with investors and creditors.
Start off right!
Share capital is the essential starting point for any venture, ensuring resources and solid strategic planning.
With correct allocation and clear distribution among partners, entrepreneurs can start their company operations and grow sustainably.