Additional payments made by the founders are one of the ways of financing the company by its members, and they are more closely regulated in Articles 178-180. Law on Business Enterprises, but it should be known that if these payments are made by a non-resident person, it is necessary to consider the provisions of the Law on Foreign Exchange Operations too. This type of financing is specific to a limited liability companies.
The purpose of the additional payment is that members can finance the company in a simple way. The provisions of the Law define that additional payment can be made exclusively in cash and members obligation to make additional payment is defined by the founding act or the decision of the general meeting of the company. It can also be specified that members make additional payments in proportion to the amount of their share in the company, but the proportion can be determined in a different way too. The exact amount of the additional payment may be determined by a simple majority at the General Meeting of Shareholders, unless that is determined otherwise by the founding act.
The advantage of this type of financing comparing to others is simplicity of making payments, while one of the disadvantages is the way of returning additional payments to members. Their return is done in accordance with the provisions of the Law relating to the reduction of the company’s stakeholder capital, which in practice means that for the return of additional payment it is necessary to pass three months from the date of registration of the decision of returning the additional payment with necessary protection of creditors.
An additional payment can not be returned to a founder if it is necessary to cover the loss of the company or to settle the creditors.
How to record the additional payments of founders?
Although the accounting method for the additional payment of the founders has not been specifically determined, the Ministry of Finance issued an opinion in 2012 where it lists several ways in which additional payments can be recorded, in accordance with their purpose determined by the Assembly. If additional payments are used to cover the loss of a company, the loss can be directly covered in favor of the account 350 – Loss of previous years and at the expense of the account 241 (244) – Current (foreign) account.
If it is not certain that additional payments will be refunded, it is considered that the payment should be recorded to the account 322 – Statutory and other reserves (our recommendation is to open a special analytical account for additional payments made by founders that do not increase stakeholder capital).
It may happen that the General Meeting of Shareholders determines in advance the obligation to return additional payments to members, which would mean that the additional payments should be recorded as a liability of the company in favor of the account 469 – Other obligations and at the expense of the account 241 (244) – Current (foreign) account or 322 – Statutory and other reserves, if the decision of returning the additional payments is made afterwards, after recording the payments on the company’s capital accounts.
What are the advantages?
Additional payments of the founders can have a significant positive influence on the credit rating of the company, about what we wrote in the text ”All you need to know about bank loans in economy”. Also, if one company wants to increase its subsidiary’s liquid assets without interest, in case it approves a regular loan, in accordance with the Law of Obligations, there would be an obligation to determine tax revenue from interest in accordance with the principle ‘out of reach’. In case of additional payment by the founder, there is no obligation to calculate interest. Therefore, it is important for the assembly of the company to make an assessment correctly and in the best possible way and to implement the purpose of additional payments of founders that do not increase the stakeholder capital.