What can constitute a contribution to a limited liability company? Cash and in-kind contributions in practice

A cash contribution is the simplest way to pay for shares. A shareholder transfers a specific amount to the company, corresponding to the value of the shares they acquire.

It is also possible to acquire shares at a price higher than their nominal value. In such a case, the surplus, or the share premium, is transferred to the company in accordance with the principles set forth in the Commercial Companies Code and the company's articles of association. In the case of a limited liability company established traditionally, contributions should be made before the company is registered.

When using the S24 template agreement, only cash contributions may be made to cover the share capital. The capital must be paid no later than seven days from the date the company is entered in the register. This is based on Article 158 of the Commercial Companies Code.

This means that an entrepreneur who plans from the outset to contribute, for example, real estate, machinery, trademark or other property rights to the company in the form of an in-kind contribution should choose the method of concluding the company agreement accordingly.

The choice between S24 and traditional contract execution shouldn't depend solely on the speed of registration. The planned ownership structure, the method of financing the business, and the type of assets to be contributed to the company are also important.

A contribution in kind is a non-cash contribution made by a shareholder to a company in exchange for shares.

A contribution in kind may be a specific asset or property right, provided it meets the requirements for contribution to the company. If the share is to be covered in whole or in part by an in-kind contribution, the company agreement should specify in detail:

• subject of the non-cash contribution,
• a partner who makes a contribution in kind,
• the number of shares acquired in exchange,
• nominal value of these shares.

Such requirements stem directly from the Commercial Companies Code. Therefore, it is not sufficient to simply state that a shareholder is contributing "assets," "equipment," or "rights" to the company. The documentation should clearly establish exactly what the contribution is and what portion of the shares it covers.

A contribution in kind to a limited liability company may be an asset or a transferable right that has a specific economic value and can be effectively transferred to the company.

In practice, these may include:

• real estate,
• cars and other movable property,
• machines and devices,
• shares or stocks in other companies,
• receivables,
• enterprise or specific components of the enterprise,
• transferable intellectual property rights, e.g. trademark rights or certain software rights.

This does not mean, however, that every such asset automatically constitutes a contribution in kind. Each case requires an assessment of whether a given right can be effectively transferred to the company, how it should be described, and how its value should be determined. In-kind contributions involving real estate, businesses, intellectual property rights, and receivables require particular attention. In such cases, additional formal requirements, as well as tax and accounting consequences, may arise.

An inalienable right, work, or services cannot be contributed to a limited liability company. This means that a shareholder cannot cover the acquired shares solely with a commitment to work for the company, conduct sales, provide consulting services, or perform specific activities.

This is a significant difference between a contribution and other benefits a shareholder may provide to the company. The Commercial Companies Code allows a shareholder to be obligated to provide recurring non-cash benefits to the company. However, such benefits do not constitute a contribution to cover the shares.

In a limited liability company, there is no general obligation for every contribution to be valued by a certified auditor. However, this does not mean that the valuation can be made completely arbitrarily. The partners and management board should have a basis for accepting a value that reflects the real economic value of the contribution.

Intellectual property rights can be a valuable asset to a company, but their transfer requires special care.

Trademarks, copyrights or certain software rights may be a contribution in kind if they are transferable and can be validly transferred to the company.

Before making such a contribution, it is worth determining first of all:

• who actually has the rights,
• what is their scope,
• are they transferable,
• what is their value,
• how to transfer them.

In the case of software, the distinction between copyright in the code, licenses and other rights related to the use of the program may become particularly important.

A shareholder's contribution affects the shares they have acquired and may therefore have a significant impact on their position in the company. If the shares have an equal nominal value, each share carries one vote, unless the articles of association provide otherwise.

Therefore, at the stage of establishing a company, it is worth considering not only the value of the contributions, but also the structure of shares and the rules for exercising corporate rights.

Contributions can be made not only when establishing a company. Such a need may also arise later, for example, when increasing the share capital.

A capital increase may consist of:

• increasing the nominal value of existing shares,
• establishment of new shares.

Depending on the provisions of the company's articles of association, an increase may require amendments to the articles of association. Generally, an increase takes effect upon entry in the register. In-kind contributions may also be used to increase capital, provided that the regulations permit this and the procedure for amending the articles of association is followed.

It's worth remembering, however, that not every additional company financing requires an increase in share capital. Depending on the situation, an entrepreneur may also consider other solutions, such as a shareholder loan, additional contributions, or external financing. Each of these has different legal, tax, and business implications.

Making a contribution in kind shouldn't be treated solely as a way to "transfer assets to the company." Before making a decision, it's worth considering a few things.

• First, whether a given asset can actually be considered a contribution in kind. Not every right or benefit has the capacity to be considered a contribution in kind.
• Secondly, can they be effectively transferred to a company? This applies particularly to intellectual property rights, receivables, and assets subject to specific regulations.
• Third, how to determine its value. The valuation should be justifiable and reflect its real economic value.
• Fourth – how to accurately describe the contribution in kind in the company agreement and corporate documentation.
• Fifth, what will the tax and accounting consequences be? Depending on the subject of the contribution, these may be significant for the shareholder and the company itself.

A well-prepared contribution in kind reduces the risk of disputes between partners, registration problems and liability related to overestimating the value of the contribution.

Making a cash contribution is relatively simple. However, a contribution in kind requires verification of whether a given asset can be contributed to the company, how it should be valued, and how to properly conduct the entire operation.

In the case of real estate, businesses, intellectual property rights, receivables or other assets of significant value, it is particularly important to properly prepare documentation and take into account the legal, tax and accounting consequences.