Increase of share capital in public limited companies (AG)
In the Greek public limited company, a capital inflow is de facto possible only by means of capital increase, loan or gift. For tax reasons, however, the capital increase is usually preferred. In the case of a capital increase, the so‑called “capital accumulation tax” (Greek FSK) of 1% of the amount of the increase is incurred. If a loan is granted, stamp duty between 1.2% and 3.6% is incurred. In the case of gifts, the taxes incurred are even higher.
The increase of the subscribed capital of an AG is divided into two categories, actual and nominal capitalization. A capital increase is “actual” when new capital flows into the company, and “nominal” when existing shares are revalued. An actual capital increase can be effected by payment for the subscribed shares or by offsetting liabilities (e.g. with loans already received).
Increase by payment for subscribed shares
Under Greek law, a distinction is made between ordinary and extraordinary capital increases. The ordinary increase is effected by amending the articles of association, whereas the extraordinary capital increase is effected without amending the articles by resolution of the general meeting and the board of directors. The ordinary capital increase therefore requires a 2/3 majority resolution of the general meeting, which must be published in the register of public limited companies (Greek MAE) at the prefecture.
Once the share capital has been fully covered and paid in, the procedure is complete. Other ways of increasing capital are the issue of new shares or the increase of the nominal value of shares already issued. In practice, the first option is usually preferred.
Payment of the new capital must be made within 4 months from the date of the general meeting resolution. The board of directors is obliged to confirm receipt of payment. This is done in the form of minutes, which are published in the register of public limited companies (MAE).
An extraordinary (necessary) increase does not require an amendment to the articles but only a majority resolution of the board of directors or the general meeting, with a simple majority being sufficient. This case is usually already provided for in the articles. In the case of an extraordinary capital increase as well, receipt of payment must be certified by the board of directors.
Regardless of how the share issue is carried out, the legislator provides for a pre‑emptive right for existing shareholders. This means that existing shareholders enjoy a right of first refusal under the same conditions compared to other potential buyers. The corresponding purchase price of the new shares is set by the company itself.
The pre‑emptive right of the existing shareholders is regulated by law and therefore does not necessarily have to be provided for in the articles. In the case of contribution of share capital by contributions in kind, however, the pre‑emptive right of existing shareholders does not exist. The purchase of old shares (Article 15b Law 2190/1920) is also exempt from the pre‑emptive right. Furthermore, the public limited company is not permitted to purchase its own shares.
Pursuant to Art. 13 § 10 Law 2190/1920, the general meeting may decide whether the pre‑emptive right should be restricted or abolished. For this purpose, the board of directors must submit to the general meeting a report on the reasons for the intended restriction or abolition of the pre‑emptive right.
Increase by capitalization of liabilities
A form of capital increase is also the conversion of liabilities into share capital. Liabilities are obligations to third parties, bonds, etc. This is achieved by the company offsetting its existing liabilities to a creditor against its counterclaim against this creditor arising from the latter’s acquisition of shares from the capital increase. No fresh capital flows into the company, but liabilities are converted into equity, thereby relieving the company’s financial situation.
For this type of capitalization, a resolution of the general meeting on the intended increase of capital or on the issue of new shares for set‑off against the liabilities is required. According to the prevailing opinion in the literature, before the resolution on capitalization by liabilities, an objective valuation of the liability must be made by a three‑member committee consisting of three experts from the competent Ministry of Finance (Art. 9 Law 2190/1920). In practice, however, the prevailing view is that neither the value nor the current value of the liability needs to be further assessed if it is clearly determined in amount and correctly recorded in the company’s books. Such liabilities that do not require valuation include, for example, loans granted for which written loan agreements have been concluded.
Nominal capital increase
The nominal capital increase of an AG is effected by capitalizing reserves and profits. A nominal capital increase is primarily of an accounting nature, as funds already available to the company are converted into share capital. In the case of capitalization of profits, the company must first cover accumulated losses from previous years before it can convert profits into share capital. In addition, the company must use 1/20 of the profits to build up reserves (Art. 44 § 5, 45 § 2a Law 2190/1920). A further restriction on the capitalization of profits is provided for in Art. 45 § 2a Law 2190/1920 with regard to retention of dividends at the first distribution.
GmbH: increase of share capital
A capital increase in a GmbH always requires an amendment to the articles of association. A 3/4 majority of the shareholders holding 3/4 of the company’s total capital is required for the resolution to increase capital.
The assumption of capital can be made either by existing shareholders or by third parties. Existing shareholders enjoy a pre‑emptive right, which can, however, be excluded by the resolution to increase capital or by unanimous resolution of the shareholders. If the company has several shareholders, the pre‑emptive right is granted in proportion to their respective shares.
The Greek GmbH Act (Law 3190/1955) refers only to an actual capital increase with new contributions. This does not necessarily mean, however, that a nominal increase with reserves or liabilities is excluded. In practice, capital can be contributed both by creating new shares and by increasing existing shares.
The capital increase by shareholders or third parties is effected by written registration with the managing director, which must be submitted within 20 days of the resolution. Within 10 days, a notarial deed must be drawn up between the managing director and the person taking up the capital increase. However, if the funds for increasing the share capital come from reserves or liabilities, a valuation of the respective contributions by the three‑member commission pursuant to Art. 9 Law 2190 / AktGG is required in every case.
IKE: increase of share capital
A capital increase in an IKE always requires an amendment to the articles of association (Art. 68 para. 2 Law 4072/2012). A 2/3 majority of the membership interests is required for the capital increase.
The assumption of capital can be made either by existing members or by third parties. Existing members enjoy a pre‑emptive right, which, however, does not apply in the case of capital increases by contributions in kind. The articles may provide that the pre‑emptive right applies only to those members who hold interests corresponding to capital contributions.
The articles of association may also provide that the capital will be increased at certain times by new contributions. This time may be provided as a deadline or a condition, or be dependent on the corresponding resolution of the managing director or the members. If nothing to the contrary is agreed, all members are obliged to participate in accordance with their share.
(Status: January 2012. All information without guarantee.)