A company’s life cycle starts with foundation. Thus, the first entry in accounting is the formation of share capital. What else happens in accounting in addition to the increase of capital, depends on the agreements between shareholders made upon foundation of the company.
- If the contribution equals to the size of the company’s capital and the payment is made in cash, the situation is simple. On the date of incorporation an entry is made in accounting, increasing both the cash account and the company’s capital account by equal amounts.
- If the contribution is non-monetary, both share capital and assets shall be recorded in the company’s accounting registries. At that moment the value of the assets in accounting is the value that has been agreed upon in the Memorandum of Association and determined by the evaluators. That amount shall be the acquisition cost of those particular assets for the company. Here it is not important how much the person who made the non-monetary contribution, paid for the asset upon acquisition or what was the asset’s value in the accounting of the person who made the non-monetary contribution.
- If the amount of the contribution exceeds the amount of the capital, the difference is recorded in equity in the account “Share premium”.
- Company foundation expenses are not those of the founded entity but should be paid by of the founders.
According to § 140 of the amended Commercial Code, starting from 1 January 2011 a private limited company with share capital not exceeding 25 000 euros can be founded without making contributions. Until the shareholder has completely paid the contribution, he shall be liable to the private limited company for the obligations of the private limited company in the amount of the outstanding contribution, unless the obligation of the private limited company can be performed on the account of the assets of the private limited company. Until complete payment of the contribution, the private limited company shall neither increase nor decrease the share capital and not pay dividends to the shareholders.
If the private limited company does not have unconditioned right of claim against the shareholder (for example if the shareholder is obligated to pay for his shares only in certain circumstances), the private limited company cannot record the shareholder receivable or corresponding share capital in its balance sheet.
If the private limited company has unconditioned right of claim against the shareholder (for example if the shareholder is obligated to make the contribution by a certain date), the private limited company can record the shareholder receivable in the fair value of the outstanding payment in its balance sheet.