Share premiums in companies with capital
and in companies without capital
May 2021 – A share premium is best defined as the difference between the capital represented by new shares and the price to be paid for those shares. But what if the company has no share capital?
Legislative framework
The share premium is in fact a solution, in case of a capital increase, to remunerate the capital gain already created by each share, so that the new shareholder is in the same position as the old one.
The current legislation provides that for public limited companies (SA/NV), European Companies (SE) and European Cooperative Societies (SCE), share premiums must be included in a separate sub-heading of item I. Contribution.
For the other companies (the SRL/BV and the SC/CV), on the other hand, there is no separate subheading. This is not unusual: a share premium only makes sense in a company with capital. In companies without capital, the total contribution for the new shares should be recorded under the accounting item "Other available or unavailable non-capital contribution".
In the Standard Minimum Chart of Accounts, account 11 is now entitled "Non-capital contribution". This account contains the sub-headings "1100 Share premium" and "1110 Share premium" depending on whether the recorded share premium is available or not.
Under the former Companies Code, share premiums could only be treated as paid-up capital for tax purposes if they were statutorily unavailable. This condition has been abolished, but in many cases the articles of association still provide that share premiums are unavailable. As long as the articles of association have not been adapted on this point, the share premiums must therefore be recorded in account 1110 (under unavailable share premiums).
The new Companies and Associations Code (CSA) does not provide anything about share premiums in companies without capital and, consequently, about the availability or unavailability of premiums. The conclusion is therefore that it is up to the competent general meeting to decide whether the share premiums are available or not. If it does not decide on the issue, the share premiums are in principle available.
If the share premium is unavailable and the general meeting wants to make it available, it must be examined why the share premium was unavailable:
if the unavailability is provided for in the articles of association, a meeting deliberating as for amendments to the articles of association is required;
If the unavailability is the result of a decision taken by the general meeting when the shares were issued, a simple decision by the general meeting is sufficient to make the share premium available again.
Allocation of the share premium
The simplest way is to redistribute the share premium to the shareholders. This redistribution is equivalent to a repayment of capital and should therefore not go through the income statement. However, bear in mind that a net asset test and, in companies without capital, also a liquidity test must always be carried out.
The share premium can be incorporated into the capital (only in companies with capital, of course) and can also be used to cover losses. In principle, this must be done via the profit and loss account and if the share premium is unavailable because the articles of association so provide, the general meeting must also approve an amendment to the articles of association.
Finally, the share premium can never be transferred to a reserve account. This is because a reserve account is, by definition, derived from the company's own result, whereas the share premium originates from an external contribution.
Share premium in a company without capital
For a SA/NV, not much changes: it can issue shares below or above the par value or at the par value of existing shares of the same class, with or without a share premium. Where a share premium is provided for the new shares, the amount of the share premium must be fully paid up at subscription. Share premiums are available, unless the general meeting decides otherwise or the articles of association provide otherwise.
However, in SRL/BVs and SC/CVs, it is no longer necessary to provide for an issue premium to bring the issue value of the new shares up to the same level as the share in the company's capital. This is still allowed, but there is no longer any reason to do so.
SRL/BVs and SC/CVs that already existed on 1 May 2019 may have issued shares with a paid-up share premium in the past. In this case, the share premium should remain in account 1100 or 1110.
But since the concept of share premium is no longer relevant in companies without capital, the share premium can be transferred to account 1109 (Other available non-capital contribution) or account 1119 (Other unavailable non-capital contribution), as appropriate.
In the annual accounts of SRLs or SCs, share premiums must be included under heading I.A. Contribution - Available or I.B. Contribution - Unavailable, depending on whether this share premium has been made unavailable or not.
