The number of participants in the business creation project determines the type of company to be created. A single entrepreneur can choose either a sole proprietorship or the legal form of EURL or SASU. On the other hand, as soon as there are several partners, they must set up a company: SARL, SAS, SNC or SA.
Apart from the number of participants, other criteria must be taken into account when deciding which legal form to adopt, notably the extent of each person's liability in relation to the amount of their contributions. The contributions made by the various participants determine the share capital. These may be in the form of cash and/or real or personal property. In return for their participation, associates or shareholders receive shares.
Find out here how entrepreneurs build up their capital.
What is the purpose of share capital?
Setting up a share capital is mandatory when creating a company. The amount is free. It can be as low as €1. But a large capital is a better guarantee for creditors, because if the company goes into receivership, the larger the capital, the more likely they are to be paid. It also gives the company greater credibility with business partners.
Share capital is used to distribute decision-making power within the company. As it is made up either of shares for SASs and SAs, or of partnership shares for SARLs and SNCs, the proportion of capital held by each shareholder or partner will determine his or her influence when voting at the Annual General Meeting.
The funds contributed at the time of creation are also used to launch the business: to buy equipment, machinery and stock, or to finance advertising campaigns, a website, and so on. In-kind contributions are used to bring personal assets such as premises or a vehicle into the company. This avoids the need for costly investments.
When it comes to obtaining a bank loan, lending institutions are often particularly interested in the amount of share capital, since this includes the personal contributions of the partners/shareholders. As a general rule, they will not finance a project if the contribution is too low (less than 10% of the total financing requirement).
Finally, capital can be used to temporarily avoid insolvency in the event of financial difficulties.
How do you determine your share capital?
Share capital is not fixed. It can be increased or reduced as needed. Only public limited companies have a minimum share capital of €37,000.
The amount of capital must still be sufficient to cover start-up costs. It is therefore advisable to make a reasonable estimate of your initial needs. It can be very useful to draw up a financing plan in advance. Capital that is too low is often mistrusted by partners, and can pose problems for certain projects. Personal funds invested in a company's share capital reflect the risk the founders are willing to take.
The capital can also be set according to the personal tax situation of the associates. In certain cases, shareholders benefit from income tax reductions when they make cash contributions. However, a number of conditions must be met to qualify. Share capital can also be a tax-reduction tool.
Where to deposit your capital?
The money is deposited in a blocked account with a notary, a bank or an online account.
Certain information will be requested at the time of the capital deposit:
- the identity of the depositor,
- the company's articles of association,
- the source of funds,
- the list of subscribers,
- the address of the company and its representative.
The depositor fills out a deposit application according to a prescribed model.
It is not compulsory to deposit the entire capital at the time of formation. The law requires a minimum of 20% for SARLs and 50% for SASs and SAs. The remainder can be spread over five years.
What's more, the amount is not blocked on the account forever. It can be used to finance the first expenses once the Kbis has been issued.