capital increase

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This is an operation in which a company’s capital (sometimes called share capital) is increased by emitting new stocks or by increasing the nominal value of the existing stocks. To do this, money or other capital must be provided or by transforming reserves or profits that were already part of the company’s equity. In this second case, the capital is increased but is not considered new.

This type of operation must be approved by the stockholders. When capital is increased, a certain percentage of the total value of the new stocks purchased must be paid up front (in Spain, that amount is 25%).

A capital increase can be done in several ways:

• Monetary contribution
• Non-monetary contribution
• Credit compensation
• Utilization of reserves

In any capital increase, it is important to consider the subscription rights. This means that the current shareholders will have preferential subscription rights or, in other words, will be offered to buy more capital (sometimes at a discount, attractive or preferential price) before others who did not previously own capital in the company