There are four generally recognised methods for transferring funds and assets to a company. The right option depends on the purpose of the funds, the company’s needs, and its financial and legal status. In this article, we outline different ways owners can transfer funds to their company and explore options for attracting new investors.
Each method comes with legal and/or tax implications, so it’s essential to carefully evaluate each and choose the most suitable option for your business.
Financing Options for Owners
There are many reasons why company owners may need to transfer funds to the business beyond the registered share capital. However, ensuring the registered share capital is paid is the first step in any financing process. Before considering the options below, review your company’s share capital status in the e-Business Register. If you see the remark “Capital is €2,500, established without making a contribution,” we advise completing the capital payment and registration. Once this is done, you can explore the following financing options.
1. Loan
Providing a loan to your company is one of the most common ways to finance it. A private individual may offer an interest-free loan to their company. However, charging interest can be beneficial to enable corporate tax-free distribution of interest. For legal entities, charging interest might be required, depending on the parent company’s jurisdiction. Interest must be at market level to avoid tax issues.
The loan agreement between the owner and the company should be in written form, including the loan amount, period, and interest rate if applied. This written agreement is essential for recording the loan on the company’s balance sheet.
Advantages:
No need for registration with authorities
Corporate income tax-free distribution of interest
Disadvantages:
Increases liabilities on the balance sheet, which may affect compliance with equity requirements at year-end
A loan is suitable for active companies that need short-term financing and have enough revenue to repay the loan and interest.
2. Increase of share capital (Monetary and Non-Monetary)
2.1. Capital Increase with Nominal Value
A capital increase must be registered in the Business Register and Tax Office. It becomes valid from the moment of registration. To increase share capital, a resolution from shareholders, amendment of the articles of association, transfer of assets, and submission of a petition to the Business Register are required. All steps can be completed online with an e-Residency card.
Capital increases can be made through monetary contributions (money transfer to the company’s IBAN) or non-monetary contributions (such as property transfers or converting an owner’s loan to share capital).
Advantages
Payments made to the capital can be repaid tax-free to the owner
Affects equity, not liabilities, unlike a loan
Disadvantages:
Requires compliance with legal and tax processes, including audits for amounts over €25,000
Increases the minimum equity threshold
2.2. Capital Increase with Share Premium
A share premium means paying more than the nominal value of the share capital. The nominal value is recorded as registered share capital, while the excess is recorded in equity.
Advantages
Does not significantly increase the minimum equity limit for larger financing needs
Disadvantages:
Share premium can only be used for covering losses or increasing share capital
Contributions to and distributions from equity must be reported to the Tax Office
A capital increase is ideal if your company’s revenue cannot support loan repayment, or if you need to raise equity to meet legal requirements. Any money paid into the capital can later be withdrawn tax-free.
1Office can assist you with the legal and tax compliance related to these options.
