Capital Increases

What should founders pay attention to in the case of a capital increase?

Start-ups often use capital increases to welcome new investors. What do founders have to watch out for when increasing a company’s capital?

Prerequisites are:

  • A company limited by shares (mostly a limited liability company, rarely a joint stock company)
  • Consent of the remaining shareholders according to the articles of association
  • Waiver of preemptive rights by the other shareholders (usually the case)
  • Accession of the new shareholder to the company’s articles of association
  • Payment of nominal capital, frequently together with a share premium (additional contribution to the company’s capital reserve)

Founding shareholders should keep an eye on the following risks:

  • A capital increase and accession of a new investor often “dilutes” the stakes of the founding shareholders.
  • This is the case because while a founder’s nominal stake in a company remains the same, his or her (percentage) share in the company decreases because the overall share capital has increased.
  • Such a dilution can mean that founding shareholders forfeit important majorities in the business (e.g. 75% majority, 2/3 majority or 50% majority).

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