By Startups.ch, June 7, 2018

Forming a Company Using Contributions in Kind

If you form a company, you do not necessarily have to pay up the initial share capital in cash, as founders can also pay by contributing assets. Such payments are called contributions in kind. To ensure the value stability of the assets, they must meet certain specific requirements and be subject to some special verification.

How to Form a Company Using Contributions in Kind?

A company’s initial capital is paid up in kind when it is paid up otherwise than in money. Instead, objects, claims or other assets are contributed. The contributor receives, in exchange, shares or interests. If a contribution in kind is worth more than the registered capital, the surplus can be credited to the contributor as a claim.

The Articles of Association should specify an asset, its estimated value and the name of the contributor, including the shares or interests assigned thereto. Furthermore, the founders have to confirm in writing that all the contributions in kind are mentioned in the Articles of Association and have been properly evaluated.

To prevent the initial capital from being paid up only partially or even only fictitiously by contributing worthless or overvalued assets, the company’s foundation has to be reviewed by a chartered auditor, but only if the company is acquired with assets and liabilities subject to review.

Prerequisites for Contributions in Kind

An asset can be used as a contribution in kind if it has a fair market value and can be activated under the rules of proper accounting. So basically all transferable balance sheet assets come into question as an economic substitute for cash payment. In case of doubts, it should be focused on what, from the company’s view, may have any value. The substance of the contribution in kind must eventually be usable so that creditors’ liabilities could be protected.

To sum up, contributions in kind are subject to the following prerequisites:

• Capability of being evaluated or activated: Only assets come into question that show a specific value and can be reported as such in the balance sheet.
• The company should have the possibility of acquiring rights (assignability): It should be possible to transfer the contributed asset to the company at the time of founding it or increasing its capital so that the company could acquire the same. Consequently, the transfer cannot be prevented by any legal impediment (such as a contractual ban on assignment).
• Availability (or unconditional right to get registered, e.g. in the Land Register): Once the company is registered in the Commercial Register, it should be immediately and unconditionally entitled to dispose of the contributed asset.
• Usability: It should be possible for the contributed asset to be assigned by the company to a third party. This is particularly relevant when the company is being dissolved. The contributed asset has to be usable so that it could serve as a liability substrate to the company’s creditors. Such usability presupposes the existence of an at least limited market. In addition, the assignment of assets must be legally allowable and valid.

Basically, allowable contributions in kind include, for example:

• movable property
• land (mostly real properties/condominium ownership)
• easements
• shares and interests in a limited liability company
• business operations, including their assets and liabilities
• patents, brands, copyrights (e.g. software)

For instance, the following assets are not allowable:

• Future claims (e.g. life insurance policies)
• Highly personal rights (e.g. rights of residence)
• Low value assets (e.g. office supplies)
• Components of land properties
• Interests in general partnerships
• Founder’s know-how/knowledge/skills

Unterlagen / Dokumentation

Note: It is not allowed to contribute an asset that has already been distrained.

Do you have any innovative business idea you would like to make come true? Use STARTUPS.CH experts to become self-employed.
» Startups Scene» Found online