Forming a Company Using Acquisitions in Kind
When a company is formed using acquisitions in kind, it undertakes, once it is entered in the Commercial Register, to take over assets belonging to its shareholders/members or related parties. It is often difficult to separate such formation method from that in which cash is used. This distinction is important, however, because companies formed using acquisitions in kind must meet some special requirements.
How Can a Company Be Formed Using Acquisitions in Kind?
A company is formed using acquisitions in kind when it undertakes to take over, in return for payment, assets belonging to any of its shareholders/members or related parties. It is especially difficult to separate such formation method from the regular one based on cash because neither doctrine nor case law makes it clear within what timeframe the acquisition in kind should take place. Some of the criteria that can be used to assess whether or not it is an acquisition in kind are as follows:
- The acquisition in kind is part of the formation plan; without the acquisition the company would not be formed.
- The acquisition is economically significant; acquisitions of marginal economic importance do not fall under article 628 clause 2 of the Swiss Civil Code.
- It takes place outside the ordinary course of business.
- The acquisition in kind seems likely to happen; either a formal agreement regarding the acquisition in kind or a firm intention of the founders and a fair chance of its materialisation are already in place.
In addition, the Articles of Association should specify the subject of the acquisition, the alienator’s name and the consideration from the company. Furthermore, the founders have to confirm in writing that all the contributions in kind are mentioned in the Articles of Association and their valuation is adequate.
The company formation needs to be reviewed by a chartered auditor to make sure that the assets to be taken over are really worth as much as it is indicated in the founding statues. Such review should be conducted by a chartered auditor if the company is to be taken over together with assets and liabilities that are subject to regular audit.
Prerequisites for Acquisitions in Kind
As it is the case with the formation using 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 balance sheet assets can be used as acquisitions in kind.
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).
- 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.
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