Method for increasing the authorized capital of an LLC: path, form, method, procedure, decision, protocol, documents
If a legal entity has financial indebtedness to its participant (shareholder) or other person, offsetting such a debt in exchange for shares / shares in the authorized capital (UK) can be a good alternative to fulfilling the obligation in kind - if there is an interest on both sides. Especially if the actual calculation will be difficult for the company, if not impossible.
In English, this procedure is called a debt-equity swap, which literally means a debt-equity swap; debt capitalization is debt restructuring in the form of an exchange of a borrower's debt obligations for shares.
How to draw up the conversion procedure
The process of debt restructuring by converting the requirements into the legal entity's CC requires the correct preparation of documentation. At least two points must be included in the document that draws up the decision of the general meeting: on the decision made, to increase the authorized capital to an agreed upon amount due to the additional contribution of one of the participants (shareholders) or a third party; the debt to this person (or part of such an obligation) is considered repaid (set off) in connection with making such a contribution.
The absence of any of these provisions may become a stumbling block with the participation of interested parties or government bodies.
In the decision to increase the equity of the joint-stock company through the placement of additional shares through private subscription, it is also necessary to include a provision on the option of such payment in the form of offsetting claims on the company. If such a reservation is not made, payment of additional shares by set-off method is not permitted (clause 20.2 of the Regulation on the standards for the issue of securities dated 11.08.2014 No. 428-P).
The need to assess the requirements introduced in the authorized capital
The legislation, as well as various explanations of the regulatory authorities, does not have an unambiguous rule as to whether a third-party expert assessment is necessary in the implementation of the debtto-equity swap process.
The main "embarrassing" factor of all was the wording in the Civil Code of the Russian Federation, laws on LLCs and JSCs, which consisted in the fact that property and other rights subject to monetary valuation could also become a contribution.
The position of the authority authorized in this matter, the Federal Service for Financial Markets, in one of the information letters was as follows: the conversion of debt into authorized capital is a separate type of increase in authorized capital, and not a subspecies of non-monetary contribution. The provisions of the civil law on offsetting are applicable to this process. In this context, an assessment of the amount of the claim is not necessary.
However, some experts indicate that the assessment is advisable if you pay attention to a number of weighty arguments:
1. Such an assessment will help protect the company from fraud by persons whose statement of debt may be disproportionate to the counterparty received by the legal entity.
2. The assessment will ensure the protection of the holders of the minimum number of shares (minority shareholders) from “dissolution” of the interest in the company.
Debt Restructuring Standards
The legal regulation of the debt restructuring process through exchange for participation in the authorized capital has been incomprehensible for a long time. However, the next block of adjustments made to the Civil Code of the Russian Federation on September 1, 2014, clarified the regulation of this procedure.
So, article 66.1 of the Civil Code of the Russian Federation appeared on deposits in the ownership of legal entities. Now, a participant’s contribution to the UK means money, property (in the form of things), shares / stocks of companies, bonds, as well as intellectual property rights or enshrined in license agreements - if they can be given a monetary value.
With the adoption of these amendments, an exhaustive set of facilities has been established that can serve to increase the authorized capital. And the incomprehensible wording “property or other rights subject to monetary valuation” is excluded, which confused all interpreters before making adjustments.
At the same time, the legislator did not take care of amending special laws on limited liability companies and on joint-stock companies in accordance with the novelty of the Civil Code of the Russian Federation. Duality has been created in regulating this issue.
In fairness, it should be noted that, thanks to the reservation of the legislator when the amended norms of the civil code come into force, the provisions of the Civil Code of the Russian Federation are subject to priority application over the provisions of special legislation until their identity is established.
Thus, it is possible to calmly and reasonably apply Art. 66.1. Civil Code of the Russian Federation - the introduction of property rights as payment for the authorized capital is no longer provided. This is another, albeit not direct, confirmation of the legislator's approach that debt-equity swap is an independent way to increase the authorized capital.
By excluding property rights from the list of objects to be contributed as a contribution to the Criminal Code, rulemakers in a certain way confirmed the opinion of the Federal Service for Financial Markets on the extension of the rules on offsetting to debt conversion.
What you need to consider when converting debt into authorized capital
Even with the adoption of new norms of the Civil Code of the Russian Federation, some of the dubious aspects of the conversion process have not been eliminated. The main one is attempts to gain corporate control over the company due to a non-existent requirement.
Practice is known for many cases of abuse when attempts were made to increase the authorized capital by the amount of overstated, virtually unreasonable requirements. For example, under an agreement on the alienation of property with a pre-inflated price of the alienated object. Such attempts, crowned with success, lead to an increase in the authorized capital, which is not financially backed up.
Initially, it is impossible to protect yourself from such actions. The questions of the validity of such requirements are resolved in each case individually - by examining the totality of evidence.
It is possible that further rule-making in the field of debt conversion into the Criminal Code will be aimed at least at eliminating these controversial issues, and as a maximum, this procedure will be fully regulated both at the level of the Civil Code of the Russian Federation and at the level of norms of special laws.
Jana Polskaya, legal analyst. I am writing articles, looking for interesting information and suggest ways of its practical use. I believe that thanks to high-quality legal analytics, clients come to a law firm, and not vice versa. Do you agree? Then let's be friends on Facebook.
If you liked this material or any of our others, then recommend them to your colleagues, acquaintances, friends or business partners.
Our law firm provides various legal services in various cities of Russia (including Novosibirsk, Tomsk, Omsk, Barnaul, Krasnoyarsk, Kemerovo, Novokuznetsk, Irkutsk, Chita, Vladivostok, Moscow, St. Petersburg, Yekaterinburg, Nizhny Novgorod, Kazan, Samara, Chelyabinsk, Rostov-on-Don, Ufa, Volgograd, Perm, Voronezh, Saratov, Krasnodar, Tolyatti, Sochi).
We will be glad to see you among our customers!
Call or write right now!
Phone +7 (383) 310-38-76
Email address info@vitvet.com
Law Firm "Winds and Partners"
more than just legal services
