The term subscribed capital appears again and again in the financial world . This describes capital that limits the liability of the shareholders of a corporation for existing liabilities to the amount of their contributions. According to the German Commercial Code (HGB) Section 272, the so-called nominal amount is to be applied.
Face value, another word for face value
The nominal value (nominal amount) is the value that is written on the share or the unit certificate. It quantifies the amount with which a shareholder or shareholder purchases his share. There are hardly any corporations where the nominal value, as the nominal value is also called, corresponds to the market value.
What are corporations?
Only corporations have subscribed capital. In the case of the KG, in contrast to the partnerships, the capital participation is in the foreground . Personal cooperation of the shareholders in the company is not necessary, and participation without capital is not possible. Partners are not liable for the company’s debts with their private assets. As a rule, a transfer (sale) of individual shares does not affect the existence of the company.
Right of co-determination in corporations
Shareholders have a certain right of co-determination over company activities through their voting at the annual general meeting. The valuation is usually carried out in relation to the equity participation. That means nothing else than that a partner who owns more than 50 percent of the company shares or shares can basically determine the welfare of a corporation by himself. For some resolutions, such as amendments to the articles of association or liquidation, German company law requires at least 75 percent of the investors to agree.
Difference between equity and debt
Basically, subscribed capital counts as equity . Even if it looks like it at first glance, subscribed capital is not borrowed money. The donors acquire shares in the commercial enterprise and are therefore co-owners in principle, albeit with limited liability.
Economics defines equity as that part of capital that forms the difference between assets and liabilities. It is available to companies indefinitely and without any repayment obligation . You calculate book equity from the difference between the assets side of the balance sheet , assets and deferred income , and the liabilities side, liabilities , provisions and deferred income .
It is only in the context of a sale or liquidation that one speaks of effective equity. Since then the hidden reserves or hidden losses are determined. Real equity arises from contributions by the owner (s) (see. In the case of corporations / limited partner contributions, it arises from an increase in capital. Withdrawals, losses and capital reductions reduce equity.
Of debt the business at talks borrowed capital , ie funds which are used for financing.
Creditworthiness and equity ratio
As with private individuals, banks check the creditworthiness (creditworthiness) of a company. The better the credit institutions rate the creditworthiness , the easier and, above all, the cheaper the company can get a loan.
The main criterion is the equity ratio . The equity ratio reflects the relationship between equity and total capital . If a company has a high share of equity, this shows great financial stability, independence from lenders and a low risk of insolvency. The equity ratio is calculated using the following formula:
(Equity x 100) / total capital = equity ratio in percent
The equity consists of:
- Subscribed capital
- divided by outstanding contributions to the subscribed capital
- + Profit and capital investments
- + half of the special items with a reserve portion
In the simplified formula, you equate the total capital with the balance sheet total. In the adjusted variant, however, it consists of debt (provisions, liabilities and half of the special items with a reserve portion) and equity.
Bonds, a financing option for corporations
According to DEFINITIONEXPLORER, bonds, also known as bonds, annuities, fixed-income securities or debentures, are interest-bearing securities . They certify to a creditor the right to repayment of a loaned amount including agreed interest. These bonds, known as bonds or debenture bonds, can also contain additional rights of the obligee.
Bonds serve the debtor as, mostly long-term, means of external financing. For the creditor, on the other hand, it is an investment.
Subscribed capital at GmbH and AG
Limited Liability Company (GmbH)
Both the AG , as well as the GmbH, is a corporation . Accordingly, both are a legal person . The GmbH was the first of its kind worldwide and is the most common form of company in Germany. The limited liability corporation was introduced with the passage of the “law [es] on limited liability companies” on April 20, 1892.
Establishment of a GmbH
Founding shareholders of a GmbH are always individuals or several natural persons . Partners do not have to be natural persons, they can also be legal persons. However, a notarized articles of association with statutes is mandatory for the establishment of ener GmbH. This must include the following:
- Head office
- Property of the Company
- Amount of share capital and
- Takeover of the capital contribution for each shareholder
In addition, there is an obligation to appoint at least one managing director at the founding meeting. In addition, the share capital in Germany must be at least 25 percent .
The contributions, i.e. the nominal capital of a GmbH, result from the sum of all nominal amounts of the capital contributions and shares. According to the law, the GmbH must show the subscribed capital separately. That is, it indicates where subscribed capital is on the balance sheet.
Aktiengesellschaft, an association under private law
The legal basis for the stock corporation (AG) is regulated in stock corporation law . Typical for AGs are the high capital requirements and a concept aimed at asset amalgamation and asset growth.
The share capital of these corporations is divided into shares. In order to establish the company, the subscribed capital of an AG must be at least 50,000 euros in accordance with Section 7 of the Stock Corporation Act . In numerical terms, the share capital is made up of the sum of the nominal values of all shares. However, the amount of the share capital does not say anything about the value of the company’s assets.
According to Sections 36 and 36a AktG , an entry in the commercial register can only be made after the founders of the AG have taken over all the shares and the amounts claimed have been paid in. The legislature prohibits the return of the contributions, the acquisition of own shares is only possible under special conditions. The share capital is to be shown on the liabilities side of the balance sheet as subscribed capital. It is not changed by profit or loss. The balance sheet equity therefore consists of:
- Share capital
- + Capital reserves
- + Retained earnings
- + Profit carried forward or loss carried forward
- + Annual surplus or annual deficit
Contrary to popular belief, the shares of a stock corporation do not necessarily have to be traded on the stock exchange. However, they are rarely evidenced in documents these days. Listed companies usually combine their shares in a global certificate and deposit them with Clearstream, a central securities depository for German and Luxembourg domestic securities as well as for the international capital markets. Shareholders can exercise their rights at shareholders’ meetings using their voting rights. Public companies have various options for raising capital, for example by issuing new shares or issuing bonds or by involving employees and / or small investors.