Share Capital and Increase and Reduction of Share Capital
The amount of share capital can be either increased or reduced. In either case, the Companies Act regulates the procedures for such changes. If the amount of share capital is stipulated in the Articles of Association, a change in share capital may also require amendment of the Articles of Association. According to the Companies Act, however, it is not mandatory to include such provision in the Articles of Association, and thus its exclusion enables a slightly easier and more flexible process for changing the amount of share capital.
According to the Finnish Companies Act, the minimum amount of share capital is 80,000 euros for public limited liability companies. Private limited liability companies are not a subject to a minimum share capital requirement. The share capital can be increased through a share issue, issue of option rights or other special rights, increase from reserves or investment in share capital.
The applicable procedures for increasing or reducing the share capital shall be set out in a resolution of a general meeting of shareholders. Additionally, to reduce the amount of share capital, consent of the company’s creditors may be required.
The share capital can be increased, for instance, in connection with a share issue [Share Issue], by crediting the share capital with either the entire subscription price of the subscribed shares, or a part thereof. In accordance with the general rule of the Companies Act, the share capital is credited with the subscription price of new shares, unless otherwise provided. On the other hand, the subscription price of option rights or other special rights shall, as a rule, be credited to the reserve for invested unrestricted equity. Therefore, it is advisable to specify, for example in the resolution regarding the share issue, where the subscription price shall be credited to.
An increase from reserves entails transfer of funds from unrestricted equity to the company’s share capital. In such case, the share capital is increased generally using previous years’ profit, or invested unrestricted equity, instead of new funds invested in the company. A shareholder or shareholders may also invest funds in the share capital, without subscribing new issued shares or other rights (so-called share capital investment).
Reduction of a company’s share capital may be expedient, for instance, when the amount of debt has increased to a degree where the amount of equity is less than one half of the share capital, or even negative. The limitations arising from protection of creditors must, however, be taken into account, according to which creditors, whose receivables have arisen prior to the public notice issued by the Board of Patents and Registration regarding the reduction of share capital, are entitled to object to the reduction. The share capital may be also be reduced to at once cover losses that for which there is not sufficient unrestricted equity. In such a case, funds are not transferred outside of the company and, therefore, the interests of the creditors are not endangered.
Option rights, convertible loans and other special rights may also affect the share capital, as they can be converted into shares in accordance with their terms. See further in Option Rights [Option Rights] and Special Rights [Special Rights Entitling to Shares].