What is social capital?
Social capital represents the total sum of money and other financial assets that shareholders of a company subscribe to and use for the company’s operations. This source of capital is considered an important instrument to assure the company’s creditors that it has the necessary resources to fulfill its obligations.
The social capital of a company is characterized by its stability and can only be modified through decision-making processes.
What are the situations in which a reduction of social capital may be necessary?
1. The Company Records Losses
In this situation, the net asset value of the company’s assets decreases compared to the nominal social capital of the company. There are two options: either the company replenishes its assets to match the social capital or the social capital is reduced to the level of the existing assets.
2. The Initial Social Capital Proves to Be Too High
This occurs when the initial social capital considered at the establishment of the company is, in reality, higher than the actual needs of the company. This situation is less common in practice, as it aims to ensure a balance between the assets and liabilities of the company’s assets.
3. Failure to Make Payments for Subscribed Shares
For example, in the case of establishing a joint-stock company, there is a deadline for shareholders to pay a certain percentage of the subscribed capital. If these payments are not made on time, the shareholders in debt will be pursued or the shares in question will be canceled. If, after this procedure, the amounts owed to the company are not realized, a reduction in social capital may be necessary.
4. One of the Shareholders Withdraws from the Company
In this case, the shareholder has the right to the equivalent value of the shares or social interests, leading to a corresponding reduction in social capital.
5. One of the Shareholders is Excluded from the Company
In this scenario, the excluded shareholder has the right to a sum of money representing the value of a portion of the company’s assets that is proportional to their contribution.
It should be noted that in the last two cases, a reduction in social capital may not be necessary if the payment to the withdrawing/excluded shareholder is made from the company’s assets without affecting the nominal social capital (i.e., the company’s assets are greater than its social capital).
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Bianca Dan – Attorney at Law