There are several reasons why a company changes the registered capital. One of the most common case is that the business is growing fast and as a result there is a need to put more money into the company’s operation. In this case, the existing number of shareholders intend to increase their financial contribution to deal with the visionary business growth. In another scenario, the company needs an additional complimentary partner who would fill up the gap in their business value chain, and as a result they prefer to have more members as the additional shareholders.
Unlike the above mentioned, a company may want to show their business and financial growth to the public so as to build trust and confidence among their prospective outside partners. They seem to register less capital from the beginning, and increase it gradually from time to time. Doing so can prove the outsiders that the business is growing steadily.
In the worst scenario, capital increase results from accounting and tax matters. Generally speaking, the company shall file the Tax on Profit report (ToP) to the Tax Office on the annual basis. At the year-end, the company may have to increase the registered capital when the company finds itself making a loss (revenues – expenses < 0) which is more than the existing registered capital (losses > registered capital).
In any scenarios, legality is crucial and therefore the company’s capital adjustment shall be legally recognized. Personal contracts or agreements among the shareholder members or among shareholders and outsiders should not be 100% trusted. Any agreements or contracts shall be filed in the government registrar.
CAMBIZIAN Consultant would be extremely please to meet and discuss this topic with businessperson so that they do not worry about legality. We provide the one-to-one consultant for free of charge.
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