Contribution in kind without issue of new shares
July 2021 – Can a contribution in kind to a limited liability company be made without issuing new shares? In 2013, the Institute of Company Auditors (IRE) took the view that it could not. But since then, the law has changed and the IRE has also been forced to review its position.
The objections in 2013
When, in 2012 - 2013, the IRE was asked to decide whether a contribution in kind could be made without issuing new shares, it found that this was not the case.
It based its decision mainly on two arguments.
The first was a textual argument: the law prescribed (and still prescribes) that a contribution in kind requires a report by an auditor. And the purpose of this report, according to the law, is to ensure that the valuation method and the valuation itself correspond to the number of shares "to be issued". The IRE concluded that new shares had to be issued.
The IRE found a second argument in the principle of unjust enrichment of the company. The lack of share issuance could be a problem for tax reasons.
The arguments in 2021
But this view is now outdated. The Companies and Associations Code (CSA) contains a provision for SRL/BVs (Article 5:120, § 2) which provides that the general meeting, acting by a simple majority, has the power to accept additional contributions without issuing new shares. It is impossible to be more explicit.
Such a contribution can be decided by a simple majority, but a notary's visit is necessary, as a deed is required.
There is no such explicit legal provision for SC/CVs, but the IRE has come to the conclusion that a contribution without issuing new shares should also be possible in these companies. Indeed, the former argument that a report had to be drawn up to judge the valuation of the new shares to be issued is no longer in the law. The 2013 textual argument has therefore disappeared. The IRE concludes that a contribution without issuing new shares is also possible in SC/CVs.
According to the IRE, such a contribution requires the unanimity of the shareholders (present or represented). The contribution must also be recorded in an authenticated deed.
Finally, there is the SA. In the case of a public limited company, it is required, as was already the case before, that the company commissioner (or, in the absence of a company commissioner, a company auditor) reports on the description of each contribution in kind, the valuation adopted and the valuation methods applied. This report must indicate whether the values arrived at by these methods of valuation "correspond at least to the value of the shares to be issued as consideration".
IRE uses this provision as a textual argument to argue that a contribution in kind without the issuance of new shares is not legally possible in a public limited company.
