Funding limited liability (s.r.o.) companies can be a headache because using debt or equity in the form of registered capital invariably has either negative tax consequences or procedural complications. Another option is to make a contribution outside the registered capital.
This method involves money being contributed to the company in the form of a specific equity fund created by one or more shareholders. Shareholder approval is required.
The principal advantages are:
- unlike an increase in the registered capital, it is not subject to court proceedings on registration in the Commercial Register;
- the repayment process is more straightforward than that of reducing the registered capital;
- unlike a loan, the fund counts as part of the equity. This improves the debt : equity ratio, which generally has positive tax implications: in particular reducing the applicability of thin capitalisation rules.
