Share Capital: Find Out What It Is and How to Define the Value!

If you plan to open a company or become a partner, knowing what Share Capital is is essential!

Share capital is not an uncommon term in our vocabulary. However, we only try to find out in depth what it means when we are going to undertake or open a company. 

If you are in this situation today, you have come to the right place! 

In today's text you will discover what social capital is, its importance, how to define its value and much more! 

What is share capital?

Simply put, share capital is the sum of the value that each partner has to open a company or start a new business. 

If you do not have a partner, know that he/she is the initial investment of your first venture. This investment can be in financial, intangible or material assets.

It is essential to define the exact value, as it must be recorded in the Company Articles of Association. 

 In addition to being used to purchase raw materials, goods, products or services that will help you set up your business, CS is also considered an emergency reserve.

This is because it is the one that will help you “hold the fort” and continue investing in the company’s growth while it does not generate profit. In other words, we can say that it will also serve as working capital.

Therefore, it is yet another reason for the value to be defined precisely and to also take into account unforeseen circumstances. 

Many ventures and businesses close in Brazil for the simple reason of not having a well-planned and defined Share Capital.

What is it for?

This tool can be viewed from three different perspectives: financial, social and division of responsibilities. 

From a financial point of view, this capital serves to maintain the business while it does not generate profits. 

Partners' investment may be in material, immaterial or financial assets, as already mentioned.

An important characteristic is that it is not static, that is, its value can increase or decrease, for example, if a partner withdraws his investment or vice versa.

From a social perspective, based on the value applied by each partner, rules are also defined related to the power of each action, responsibilities and also participation in the results of the business.

Share capital is also a tool for defining responsibilities within the company. The greater the investment, the greater the responsibility.

If the company incurs a debt, the liability of each partner is equivalent to the value of their capital.

In other words, if you hold 33% of the company, you will be responsible for 33% of the debts incurred by the company. 

Each taxpayer's share is also equivalent to their right and duty towards the company. Furthermore, at the time of return, each taxpayer will receive based on the CS invested.

We believe that up to now, the role of social capital in a business society has become clear.

As set the value??

The amounts invested come from each partner. When setting up a business, there is a plan to define the amounts needed to set up and maintain the business until it generates profit.

In financial planning we must list items such as:

• Rent;
• Employee salaries;
• Utility bills;
• Raw material;
• Documentation;
• Disclosure;
• Utensils;
• Between others.

By putting everything on paper, it is possible to identify the amount needed to open and operate the company. 

From there, it also becomes easier to identify what percentage each partner needs to contribute. 

The amount can be distributed according to the company's needs or the condition of each partner, since one person may be able or interested in contributing a larger amount.

However, to know the exact value of the share capital, it is essential to consider which type of company it falls into, if the company has a CNPJ. 

See more below.

HEY

There is no minimum value requirement for those who open an Individual Company. This means that the entrepreneur can enter with any amount. 

However, experts recommend not registering capital less than R$1,000.00 and that the value be updated over time, if necessary. 

Share Capital for Eireli

In this modality, the entrepreneur also does not have a partner, therefore, he holds 100% of the CS which, in turn, must not be less than 100 minimum wages. 

Considering the minimum wage as of May this year of R$1,320.00, the share capital for an Eireli entrepreneur must be at least R$132,000.00.

There is already a bill that aims to reduce the minimum value requirement for Eireli. 

There is no obligation to prove the minimum value when opening the CNPJ, however, it must be available.

Failure to comply with this rule may cause some problems for the entrepreneur.

The share capital in this modality must always be updated, mainly to keep up with changes in the minimum wage.  

Limited Liability Company

Limited Liability Companies are those companies that have the acronym LTDA in their corporate name. 

They must have two or more partners, and they do not need to carry out similar activities or activities of the same nature.

There is no minimum amount required for the share capital of a Limited Liability Company; it is defined by the amount invested by each partner. 

Share Capital for Single-Member Limited Liability Company

In this modality, companies have only one partner, normally because the partners have left. 

It is an interesting alternative for entrepreneurs who want to open companies without partners, and still protect their share capital.

There is no minimum amount required, but you must have an amount available to start activities, without the need for proof either.

MEI

The Individual Microentrepreneur also does not need to declare a mandatory minimum value in the share capital. 

If you are not sure how much your initial investment will be, especially if you are a service provider and do not have costs for rent, employees or raw materials, for example, the ideal is to set a value starting at R$1,000.00.

MEIs cannot have partners, therefore, they do not have a social contract. You can define your share capital, which is very important, but for personal control, there is no legal requirement for this. 

It is very safe to use share capital as an emergency fund, even if you do not have any business opening costs.

In this case, you need to define an amount that will allow you to maintain yourself while you don't have regular clients, in case a client terminates a contract or something like that.

O Sebrae gives some tips on Share Capital for MEI. We have summarized some of the tips (with our emphasis). Follow the next topic. 

Planning that helps to measure the initial expenses of the business

Having a business plan and planning is essential for an MEI. This professional is the sole financial representative of the company, so if there is a setback, he will not have partners to help. 

Furthermore, in many cases your main source of income comes from the business, so the company's financial health can harm your personal financial health or vice versa.

All these situations must be considered when defining the share capital for MEI. 

In addition to the costs of setting up and maintaining your business, it is important to consider that you do not have employees, but you need to have a salary to support yourself until you make sufficient profit.

Therefore, this expense must also be included in the CS. It must start with a minimum amount to cover initial costs, and be sufficient to pay business expenses until profit is made.

In some cases, profits may take a while to come, otherwise, it may require more investment over the months for the business to grow.

As previously mentioned, many MEIs need to close their activities and return to the CLT precisely because they do not have a share capital well defined, which meets the needs of your business while it was in the initial phase.

In addition to the assumed and extra expenses, it is important to leave a percentage of the CS for possible losses, which is quite common at the beginning.

For example, in Coca-Cola's first year of operation, it sold only 25 gallons: they made no profit, just a huge loss.

Likewise, use the example of one of the biggest companies in the world to overcome yourself and not give up. 

Where is the share capital money?

CS money belongs to individuals, but is transferred to a legal entity when used for corporate social capital. 

Therefore, it must be transferred to the company account. In the case of material assets, it must be transferred to the name of the legal entity. 

The MEI can also leave the money in a digital PJ/MEI account, in fact, it is interesting to invest this money while not using it to withdraw with income.

Even when the company is already generating profits, this tool can be useful. For example, when the company seeks bank credit, the declared value can influence and facilitate the process. 

Therefore, it is important to update the Articles of Association according to the financial progress of the business and if it has been necessary for the partners to make new contributions for the survival of the business.

Conclusion

In this text you discovered the importance of social capital for business survival. 

In addition, you learned important tips that aim to help you define the ideal value for your capital.

Be sure to put them into practice and carry out good financial and business planning before opening your company.

If in doubt, the best thing to do is to consult an accounting firm to receive guidance throughout the entire process of opening a company.

Discover how much does R$1,000.00 yield per month at Nubank.