A capital increase represents a crucial milestone in the growth of a company. It is an extremely important evolutionary step, appreciated by all stakeholders, as the strengthening of the company's assets is a positive signal that receives great approval from banks and all other partners involved.
Among the various methods available to increase a company's share capital, equity crowdfunding is an interesting and increasingly popular option. Indeed, this financing method allows small and medium-sized companies to open their doors to new investors and access new cash flows needed for growth.
In the following we will explore the characteristics of equity crowdfunding and the reasons why it might be the most advantageous choice for the future of the company.
What is share capital and how does it work?
To better understand the fundamental role of capital increase, it is important to have a clear understanding of the concept of share capital. In short, share capital represents the total amount of contributions and contributions made by shareholders. It is stated in the company's articles of incorporation and represents the value of the sums and assets that the shareholders invest in the company as venture capital. This capital is divided into shares of equal value, allocated to the shareholders in proportion to the sums paid in by each of them.
According to the Italian Civil Code, joint stock companies and limited partnerships must have a minimum initial capital of 100,000 euros, while for limited liability companies, the minimum initial capital is 10,000 euros.
However, it is possible to open a start-up with as little as EUR 1 in capital, although it is generally advisable to pay a more significant sum in equity to cover at least all initial expenses. It is important to remember that if the share capital is less than the legal minimum for limited liability companies, the payment must be made in full. Conversely, it is possible to pay in only 25 per cent of the share capital and release the remainder at a later date.
Who can subscribe to a share capital increase?
Naturally, the first parties interested in the share capital increase will be the existing shareholders. If all shareholders subscribed to the capital increase, there would be no change in their weight within the company, as they would maintain the same percentage of shares they had before the increase.
On the other hand, when capital is opened to new third parties, the ownership structure of the company undergoes changes, as the share of capital held by the previous shareholders is affected to a more or less significant extent.
In the latter case, there are two possible types of capital increase:
1. A divisible capital increase: this is carried out regardless of the number of investors who decide to subscribe to the transaction.
2. An inseparable capital increase: can only be completed if all investors participate in the subscription.
How to use equity crowdfunding to find new shareholders and increase share capital
It is important to note that a capital increase through equity crowdfunding is a paid capital increase, as it is realised through the entry of new capital into the company. However, there are also free increases if no direct contributions from shareholders are required, but instead resources already on the balance sheet, such as reserves, are used.
The capital increase procedure takes place through the following steps:
1. Resolution
The first step is the resolution to increase the share capital, which can only be adopted if all initial shares have been paid up, i.e. paid in full, and if there are no losses or if these are less than one-third of the share capital. However, it is possible to supplement the missing requirements after the resolution has been passed if they are not present at the time of the decision.
2. Subscription
After the resolution, the capital increase must be subscribed to by the interested parties. Shareholders and third parties, if any, must then give notice of their adherence to the operation within the prescribed time limit.
3. Release of the shares
The subscription of the shares must take place simultaneously with the payment of 25% of the share capital and, if applicable, the share premium.
4. Filing of the certificate
The capital increase is concluded with a charge on the administrator who, within thirty days of the subscription, must file the appropriate certificate with the Company Registry.
Specifically for equity crowdfunding operations, it is necessary to indicate in the resolution to increase the share capital that the increase in equity will take place by means of a collection through this instrument.
This type of transaction falls within the category of an inseparable capital increase, considering that equity crowdfunding platforms allow the management of campaigns with a minimum threshold of collection target that, if not reached, would determine the return of the invested amounts to the lenders. In the case of equity crowdfunding, however, a maximum collection quota is usually set (also for business valuations) and failure to reach this quota does not invalidate subscriptions, thus opening up the possibility of scenarios similar to a divisible capital increase.