A capital increase, which the Ley de Sociedades de Capital calls an increase in share capital and in Latin America is known as an increase in capital, is the transaction by which a company issues new shares or participations, or raises the nominal value of existing ones, in exchange for cash, assets, credits or reserves. In cash capital increases with new shares, whoever does not exercise their pre-emptive right sees their percentage diluted.
What a capital increase is and what it is for
Increasing capital means amending the articles of association to raise the share capital figure. Article 295 of the Ley de Sociedades de Capital (LSC) allows two forms: creating participations or issuing new shares, or increasing the nominal value of existing ones. In both cases, the consideration can be cash, assets or rights, credits against the company, or profits and reserves from the last approved balance sheet.
It is the standard corporate transaction for bringing in investors and the legal basis for almost any financing round. For the issuer, the relevant decision is not only how much to raise, but with what consideration, at what price and with what effect on the distribution of ownership.
The two forms are not interchangeable in practice. Increasing the nominal value requires the consent of all shareholders, unless it is done entirely against profits or reserves (art. 296.2 LSC). That is why, when an investor comes in, the usual thing is to issue new securities that they subscribe for.
Capital increase or share capital increase: two names for the same transaction
In Spain both terms coexist: the law speaks of an increase in share capital and business practice speaks of a capital increase. In Mexico, Peru, Chile or Colombia, the usual term is capital increase. The concept is the same; what changes is the company law that sets the procedure. In Mexico, for example, the Ley General de Sociedades Mercantiles gives shareholders fifteen days to exercise their preferential right from publication of the resolution in the electronic system of the Secretaría de Economía (art. 132), compared with the minimum one month set by Spanish law for non-listed companies.
If a Latin American company issues through a vehicle incorporated in Spain, the LSC applies to that vehicle's capital increase. How that structure fits is in the guide on tokenization for Latin American issuers.
Types of capital increase
| Type | What the subscriber contributes | Main requirements (LSC) | When it makes sense |
|---|---|---|---|
| Cash capital increase | Cash | In the SA, prior shares must be fully paid up, except for an outstanding amount not exceeding 3 % of capital (art. 299) | Raising cash to grow: the usual route in rounds and issuances |
| Non-cash | Real estate, machinery, shares in another company | Directors' report available to shareholders (art. 300); in the SA, and in the SL with outstanding bonds, also a report by an independent expert appointed by the registrar (arts. 67 and 401.2), except for the exceptions in art. 69 | Contribute an asset without payment |
| By set-off of credits | Company debts that are converted into capital | In the SL, fully liquidated and due credits; in the SA, at least 25 % liquidated, matured and due, the rest with a maximum maturity of five years and auditor's certification (art. 301) | Clean up the balance sheet or convert shareholder loans and convertible notes |
| Charged to reserves (paid-up) | Nothing: reserves are capitalized | Balance sheet approved by the general meeting, no more than six months old and verified by an auditor (art. 303) | Strengthen capital without new money; it is the mechanism of the scrip dividend |
| By conversion of bonds | Convertible bonds | Only in the SA: the SL cannot issue bonds convertible into shares (art. 401.2). The provisions of the bond issuance agreement apply (art. 302) | Execute previous convertible financing |
The modalities can be combined in the same transaction: a round that mixes new cash with the conversion of shareholder loans, for example. Each one carries its own reports, so it is advisable to decide the combination before calling the general meeting.
How to carry out a capital increase, step by step
- Prepare the transaction. A defensible valuation, because it determines how many securities the investor receives and the premium; the dilution modeled in the cap table; the shareholders' agreement, with the rights of the incoming investor; the register of shareholders up to date, and articles of association without restrictions that block the structure.
- Resolution of the general meeting, with the requirements of an amendment to the articles of association (art. 296.1). In the SL, the favorable vote of more than half of the votes of the capital is required (art. 199.a). In the SA, a quorum of 50 % of the capital with voting on first call and 25 % on second call (art. 194), with absolute majority or two-thirds depending on the capital present (art. 201). The general meeting of an SA may delegate to the directors cash capital increases of up to half of the capital for a maximum of five years (art. 297).
- Preferential subscription right. Shareholders have at least one month from the announcement in the BORME, or from the written notice when the law permits it (art. 305); in listed companies the minimum is fourteen days (art. 503). In the SL, what is not taken up is offered first to those who exercised their right and may then be awarded to third parties (art. 307).
- Assumption or subscription and payment. The premium is paid in full when assuming the shares or subscribing the shares (art. 298.2). In the SL, the nominal value must be fully paid up when granting the execution deed (art. 78); in the SA, each share must be paid up at least one quarter (art. 296.3). If not all is covered, the SL is increased by the amount paid unless otherwise provided (art. 310); the SA, only if the issuance conditions provided for it (art. 311).
- Deed and articles of association. The execution deed records what was contributed and to whom it is awarded (art. 314), and the directors redraft the capital article (art. 313).
- Registration. The resolution and its execution are registered at the same time in the Mercantile Registry (art. 315). If six months pass from the opening of the preferential subscription period without submitting the documentation, subscribers may request the return of what was contributed (art. 316).
Bringing in an investor: the elimination of the preferential subscription right
In cash capital increases with new securities, each shareholder has the right to subscribe in proportion to their holding (art. 304). This right protects against dilution: whoever exercises it maintains their percentage; whoever does not reduces it. In the SA, it is transferable like the shares themselves, so the shareholder who does not participate can sell their right; in the SL, the transfer is limited to those who could freely acquire shares or to what the articles of association provide (art. 306).
For a specific investor to enter, the general meeting may eliminate the right, in whole or in part, when the company's interest requires it (art. 308). The law requires:
- A directors' report with the value of the shares, the justification of the proposal, the consideration and the persons to whom the securities will be allocated.
- In the SA, additionally, a report by an independent expert, different from the auditor and appointed by the Mercantile Registry, on the fair value of the shares and the theoretical value of the right being eliminated.
- That the notice of meeting includes the proposal, the issue type and the shareholders' right to examine the reports.
- That the nominal amount plus the premium corresponds to the real value set by the directors' report (SL) or to that resulting from the expert's report (SA).
In the SL, the disapplication resolution also requires two-thirds of the votes of the capital (art. 199.b). This is where most transactions get stuck: not because of disagreement with the investor, but because the general meeting and the reports were not prepared sufficiently in advance.
The share premium
New shares or units are rarely issued at nominal value. The difference between the subscription price and the nominal amount is the share premium, which the law expressly permits in capital increases (art. 298). It allows the new investor to pay the real value of the company without inflating the share capital figure or giving away a percentage at the expense of existing shareholders. In practice, the premium is the accounting reflection of the agreed price: the balance sheet does not record the company's valuation, but what was contributed, with the nominal amount in share capital and the rest in account 110 «Share premium or assumption premium».
What it costs and how it is taxed
The capital increase is exempt under the corporate transactions category of the Transfer Tax and Stamp Duty (art. 45.I.B.11 of its revised text). The real cost lies in what surrounds the transaction: notary, Commercial Registry, legal advisory, valuation and, depending on the type, expert report or auditor's certification. It grows mainly with complexity and with the number of shareholders involved; the amount of the increase has little influence, because notary fees are calculated on a decreasing scale based on the amount. Non-cash contributions may generate a gain for the contributor (art. 37.1.d of the Ley del IRPF; arts. 17.4.b and 17.5 of the Ley del Impuesto sobre Sociedades), unless they fall under the special restructuring regime, and the capitalization of credits is valued for tax purposes at the amount of the increase from a corporate law perspective (art. 17.2 of the Ley del Impuesto sobre Sociedades). Each case should be reviewed with an advisor.
When many investors come in: classic capital increase or tokenized equity
A capital increase with two or three investors is manageable. With thirty, every subsequent transaction, whether a dividend, a new round or a transfer between shareholders, becomes a manual process that someone has to manage, with a notary when required and with a shareholder register to keep up to date.
Tokenized equity is a capital increase whose shares are represented on a distributed ledger, with an ERIR that keeps the registration under article 8 of Ley 6/2023. The corporate nature of the transaction does not change, and it does not replace the notary where the law requires one: what changes is the representation of the security and the management of subsequent events. A nuance that conditions the structure: the participaciones of an SL 'shall in no case have the character of securities' (art. 92.2 LSC), so an issuance of tokenized shares in practice requires a sociedad anónima. The choice is in SL or SA to issue.
The traditional capital increase remains the right route for most transactions. It falls short in three cases: when the number of investors makes manual register management unviable, when the investor is meant to hold a negotiable security and not a participation with transfer restrictions, and when periodic distributions to many holders are planned. The complete comparison, with costs and timelines, is in tokenized equity versus capital increase.
Are you preparing a capital increase to bring in investors? Take the issuance diagnostic (2 min) or request a proposal.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
Frequently asked questions
What is a capital increase or increase in capital?
It is the transaction by which a company increases its share capital by issuing new shares or units, or by increasing the nominal value of existing ones, in exchange for cash, assets, credits or reserves. In Spain the law calls it an increase in share capital and in practice a capital increase; in Latin America it is called an increase in capital. It is the usual mechanism for bringing in new investors.
How is a capital increase carried out?
In Spain, the general meeting approves it with the requirements of an amendment to the articles of association. Then the pre-emptive right period opens, at least one month in non-listed companies, the subscribers pay in, the execution deed is granted, and the resolution and its execution are registered at the same time in the Commercial Registry. Beforehand, it is advisable to have the valuation and the allocation in the cap table closed.
How is a capital increase taxed?
In Spain, the capital increase is exempt under the corporate transactions category of the Transfer Tax and Stamp Duty (art. 45.I.B.11 of its revised text). The real costs are for notary, Commercial Registry, advisory and, depending on the type, expert or auditor reports. Non-cash contributions and the premium may have their own tax effects that should be reviewed.
What happens if you have shares and there is a capital increase?
If it is a cash capital increase, you normally have a pre-emptive right to subscribe for new securities in proportion to those you already hold and maintain your percentage. If you do not take it up, your stake is diluted. In an S.A. you can sell that right, because it is transferable like shares. The general meeting can waive it to bring in an investor, subject to reports and valuation requirements.
Can you carry out a capital increase with tokenized shares?
Yes. Ley 6/2023 allows new shares to be represented using distributed ledger technology, with an ERIR that maintains the registration. The corporate transaction is the same: general meeting resolution, pre-emptive right, deed and registration. Since participations in an S.L. do not qualify as securities, in practice it requires an S.A.
