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Corporate law Change in the authorized capital of an LLC

Taras Miroshnychenko

Head of practice

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miroshnychenko@prikhodko.com.ua

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Head of Corporate Law and Fintech Practice. Expert in the creation and reorganization of companies, support of M&A transactions, as well as legal support for opening and running a business in the EU, Asia, and North America.

Change in the authorized capital of an LLC

Changing the authorized capital (hereinafter referred to as the authorized capital) of a limited liability company involves the official registration of a new amount of contributions of its participants. This change must be implemented by increasing or decreasing the authorized capital, which can also occur in various ways in accordance with the Law of Ukraine No. 2275-VIII. Changing the authorized capital of a limited liability company also directly affects the corporate rights of participants, provides an opportunity to reduce liability (proportionate to the contribution) or increase opportunities for attracting new investments in the business. This and other aspects of the procedure are described in this article.

The concept of the authorized capital of an LLC

Authorized capital is the nominal value of all contributions of participants (members) of a limited liability company. It is worth emphasizing that the charter of an LLC may contain provisions that limit the possibility of changing the ratio of members’ shares for the implementation of certain goals. At the same time, in accordance with the Law of Ukraine No. 2275-VIII, the possibility of its increase must be separately provided for, which includes (as well as the formation of the initial amount):

first, fixing and full payment of a new contribution (no more than 6 months are given for this);
secondly, determining and increasing the nominal value, percentage ratio of the share (this is especially necessary to determine the influence of ultimate beneficial owners).

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What is the procedure for changing the authorized capital of an LLC?

The authorized capital can be increased or decreased. The increase will be made through additional contributions, in their absence. The main procedure involves the adoption of a preliminary decision (protocol) at the general meeting (at least 3/4 of the members of the LLC must vote), making additional contributions (or taking measures to reduce the size of the authorized capital), registering changes in the charter and the unified state register of legal entities. We will consider each of the options separately.

Without additional contributions

Increasing the authorized capital through retained earnings allows the company to raise additional funds without requiring members to raise additional funds. This method involves obtaining the minutes of the general meeting of participants on directing the net financial result of the activities of the limited liability company to increase the nominal value (in proportion to the share of each participant).

At the expense of additional contributions

Increasing the authorized capital through additional contributions is the most common. This procedure is complex and includes the following sequence of actions:

initiation of the constituent meeting;
making a unanimous decision;
registration of additional contributions (can be made by both participants and third parties, who may subsequently become new participants of the LLC);
making changes to the charter and the unified state register of legal entities.

Important to know! Contributions are made in monetary or non-monetary form. Moreover, additional contributions can be made by offsetting counter-homogeneous claims between the company and the participant, a third party (for example, offsetting a loan previously granted to a legal entity). For more detailed information, we recommend that you consult a lawyer on corporate issues.

It will also be useful: Types of activity of Open Company. Is it necessary to prescribe activities in the company’s charter?

How can the authorized capital of an LLC be reduced?

Reducing the authorized capital, as a general rule, aims to bring its size in line with the property status of the participants. This procedure can be carried out either by reducing the nominal value of the shares or by reducing the number of participants. The latter involves separate registration of the exclusion of a participant (as a result, the cancellation of the share), the acquisition of a share in the LLC’s own capital.

What actions should be taken after the decision of the general meeting of the LLC to change the authorized capital?

After the constituent meeting has adopted the minutes of the amendment, it is necessary to carry out a number of mandatory legal actions:

first, to comply with the requirements for creditor protection (when a reduction occurs);
second, to make changes to the constituent documents (constituent agreement or charter);
third, to submit an application and new constituent documents to the state registrar;
fourth, to pay the administrative fee for making changes;
finally, to make new contributions from participants, third parties, accepting them (if necessary) into the LLC.

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What can corporate lawyers of the Law Firm “Prikhodko & Partners” offer?

Corporate lawyers of our law firm provide comprehensive support in matters of changing the organizational activities of an LLC. They monitor the legality of procedures, the avoidance of unwanted legal risks, disputes, as well as the correctness of information reflected in documents and registers. Their main services include: