Non-refundable Contributions by Shareholders in Spain

Non-refundable contributions by shareholders are an alternative to capital increases in the framework of Spanish companies. These are voluntary contributions made by the shareholders to the company on a non-refundable basis, i.e. without any consideration in exchange and any right to compensation or reimbursement.

The regulation of this figure is not included in the Spanish Companies Act but rather in account 118 Contributions from equity holders or owners of the Spanish General Accounting Plan (PGC), which defines such contributions as follows:

Asset items delivered by equity holders or owners when they act as such and for transactions not recorded in other accounts, as long as they do not constitute compensation for goods delivered or services rendered by the company, nor have the nature of liabilities. In particular, this account includes amounts received from equity holders or owners to compensate for losses.

Non-refundable contributions by shareholders are directly recorded in the company’s net equity. This makes them an extremely effective instrument for cleaning up or rebalancing the company’s financial situation, improving its liquidity at a given time or compensating for accumulated losses, among other possible uses.

Its main advantage lies in the immediacy, since non-refundable contributions by shareholders, unlike capital increases, do not require formalization in a public document, nor registration in the Commercial Registry. It, therefore, represents significant savings in terms of time and costs. In other words, non-refundable contributions constitute a much simpler operation, from a formal point of view, to inject funds into a company compared to a capital increase.

The adoption of the corresponding resolution by the company’s General Shareholder Meeting, reflected in the corresponding minutes, will be sufficient to make a non-refundable contribution.

The contributions must be free from any consideration and non-refundable otherwise, its accounting will be that of a loan, and thus reflected in the company’s liabilities.

It is worth recalling that these contributions are different from the ones made in return for a capital increase, and therefore it does not result in:

• The issuance/creation of new stocks or shares and their allocation to the contributors
• The increase in the nominal value of the existing stocks or shares.

Therefore, the composition of the company’s share capital does not change at all, nor does the percentage of shares held by its shareholders.

The main effect of non-refundable contributions by shareholders is an increase in the company’s net equity, and thus of the net book value of the company shares.

From a tax perspective, these contributions are treated as shareholders contributions and therefore do not constitute income or revenue for Corporate Tax purposes. Non-refundable contributions are considered as a corporate operation subject to the Stamp Duty Tax (ITPyAJD), thus requiring the corresponding tax liquidation/settlement, although in practice it is exempt from taxation.

For further information regarding non-refundable contributions by shareholders in Spain,