A company has grounds for dissolution when its losses leave net equity below half of capital. Directors have two months to call the general meeting, which must dissolve the company or remove the ground. If they do not, they are personally liable for subsequent debts (arts. 363.1.e, 365 and 367 of the Capital Companies Act, LSC).
There are four ways out: increase capital, contribute funds without increasing it, reduce capital or sign a participating loan, which counts as net equity for these purposes. Which one is best depends on how much is missing, who provides the money and whether the company can pay its debts today. Here you have the calculation, an example with figures, the deadlines and the temporary measures in force in 2026.
How to know if you have grounds for dissolution: the calculation
The comparison is not made with equity from the balance sheet, but with adjusted net equity. It starts from accounting net equity (equity, valuation adjustments and grants) and adds or subtracts the items established by commercial law (art. 36.1.c of the Commercial Code, CCom, and art. 3.1 of the Resolution of 5 March 2019 of the Institute of Accounting and Auditing, ICAC).
| Item | Effect on the calculation | Source |
|---|---|---|
| Net equity on the balance sheet | Starting point | Art. 36.1.c CCom |
| Uncalled subscribed capital | Is added | Art. 36.1.c CCom |
| Nominal value and share premium of shares or participations recorded as a liability | Are added | Art. 36.1.c CCom |
| Adjustments for cash flow hedges pending recognition in profit or loss | Not counted | Art. 36.1.c CCom |
| Participating loans | Are added, even if they are liabilities for accounting purposes | Art. 20.One.d Royal Decree-Law 7/1996 and art. 3.1 Res. ICAC 5-3-2019 |
| Result | Compared with half of share capital | Art. 363.1.e LSC |
Having negative equity is a worse scenario: the company owes more than it owns. There are almost always grounds for dissolution and, if it also cannot meet its payments, the priority becomes insolvency proceedings, as you will see below.
The two-month period runs from when the ground arises, not from when the general meeting approves the accounts (art. 367.1 LSC). If a quarterly close already shows the imbalance, the clock may have started. What it means for you: calculate this adjusted net equity at every close, including interim ones, and keep the calculation with its date.
Example with figures: how much is needed to get out
A private limited company incorporated in 2022 has €120,000 in capital. At the close of 2026 it has €10,000 in reserves, carries forward €60,000 in losses from 2022 to 2025 and loses another €25,000 in the year. It has no participating loans or losses from 2020 or 2021.
| Concept | Amount |
|---|---|
| Share capital | 120,000 € |
| Reserves | 10,000 € |
| Accumulated losses from previous years | -60,000 € |
| Profit or loss for the year 2026 | -25,000 € |
| Net equity for dissolution purposes | 45,000 € |
| Half of the share capital | 60,000 € |
| Deficit to half of share capital | 15,000 € |
There are grounds for dissolution: €45,000 of net equity against a threshold of €60,000. The four options do not cost the same, because some also increase the capital figure and, with it, the threshold.
| Measure | Minimum amount | Why that amount | What it requires |
|---|---|---|---|
| New participating loan | €15,000 (better with a margin) | Adds to net equity and does not affect share capital | Interest linked to the business, subordination and early repayment only with an equivalent increase in equity (art. 20 of Royal Decree-Law 7/1996) |
| Shareholder contribution without a capital increase | 15,000 € | It goes into equity (account 118 of the General Accounting Plan) and does not touch capital | Agreement with contributing shareholders; it is not repaid as a loan |
| Par-value capital increase, in cash or by offset of credits | 30,000 € | Capital rises by the same amount as equity: twice as much is needed | General meeting, deed and registration; in the S.L., credits that are fully liquid and due (art. 301 LSC) |
| Capital increase with share premium (price equal to 4 times par value) | 17,143 € | Only one quarter of what is contributed goes to capital | General meeting, public deed and registration, with the share premium set in the resolution |
| Capital reduction for losses | No contribution | Reserves are applied and capital is reduced by €75,000: capital and net equity stand at €45,000 | Auditor-verified balance sheet, approved by the general meeting and dated within the six months prior to the agreement (arts. 322 and 323 LSC) |
The rule for a capital increase at par fits in one line: you must contribute at least the share capital minus twice the net equity (120,000 – 2 × 45,000 = 30,000 euros). The premium makes the way out cheaper because only the par value raises the bar; its calculation is in the guide on the share premium.
The reduction does not need money, but it has conditions. In an S.L. capital cannot be reduced for losses while the company has any kind of reserves, and the reduction must affect all shares equally (arts. 320 and 322.1 LSC). That is why the example first applies the 10,000 euros of reserves. If the reduction leaves the share capital below the legal minimum, a capital increase or a transformation must be approved at the same time: it is the so-called accordion operation (art. 343 LSC).
A timing nuance. A capital increase is only presented as capital if its execution is registered in the Commercial Registry before the accounts are prepared; otherwise, what is received appears as short-term debt (art. 8.2 of the ICAC Resolution of 5 March 2019). What it means for you: if you push the close, the participating loan or the shareholders' contribution takes effect before a capital increase pending registration.
Deadlines and liability of directors
The law links two two-month deadlines. Missing either one makes directors guarantors of debts the company incurs afterwards.
- Day 0. The cause occurs. If the director is appointed later, the period runs from when they accept the position.
- Two months to convene. The directors convene the general meeting to approve the dissolution. Any shareholder may ask them to convene it (art. 365.1 LSC).
- The general meeting decides. It may approve the dissolution or, if included on the agenda, the measures necessary to remove the cause, such as a capital increase or reduction (art. 365.2 LSC).
- Two months to go to court. If the general meeting is not held or rejects the dissolution, the directors must request judicial dissolution. The period runs from the date scheduled for the meeting or from the day it was held (art. 366 LSC).
- Consequence. Whoever fails to comply is jointly and severally liable for the company's obligations incurred after the cause. Unless proven otherwise, the law presumes that debts claimed by creditors in court are subsequent (art. 367 LSC).
There is a way out that cuts off liability. The directors are not liable for subsequent debts if, within those two months, they file for insolvency or notify the court of negotiations with creditors for a restructuring plan (art. 367.3 LSC). What it means for you: put the measures to remove the cause on the general meeting's agenda together with the dissolution, and keep a written record of each date.
If you also cannot pay: insolvency proceedings come first
The cause for dissolution due to losses only applies if filing for insolvency is not required (art. 363.1.e LSC). A company is in current insolvency if it cannot regularly meet its due obligations. In that case it must file for insolvency within two months of learning of the insolvency or of having been able to learn of it (arts. 2.3 and 5 of the consolidated text of the Insolvency Act, TRLC).
| Situation | Route |
|---|---|
| Net equity below half of capital, but the company pays its debts | Dissolution or removal of the cause (arts. 363 to 367 LSC) |
| Negative equity and no liquidity to pay amounts due | Insolvency proceedings or communication of negotiations (TRLC) |
| Positive net equity, but widespread defaults | Insolvency proceedings, even if there is no cause for dissolution |
Temporary measures in force in 2026
In 2026, three rules remain in force that exclude losses from the calculation or postpone the cause. None exempts from insolvency proceedings if there is insolvency.
| Measure | Who it applies to | Until when | Rule |
|---|---|---|---|
| Losses from 2020 and 2021 are not counted | All capital companies | End of the fiscal year beginning in 2026 | Art. 30 of Royal Decree-Law 7/2026, ratified on 26-3-2026 |
| Losses caused by the DANA (isolated depression at high levels) of October and November 2024 are not counted | Affected companies; they must identify those losses in the notes to the financial statements | End of the fiscal year beginning in 2026 | Art. 2 of Royal Decree-Law 1/2025 |
| There is no cause for dissolution due to losses | Certified emerging companies (Law 28/2022) | Three years from incorporation | Art. 13 of Law 28/2022 |
The extension of the losses from 2020 and 2021 had a bumpy ride. It was included in Royal Decree-Law 16/2025 and 2/2026, which Congress did not ratify; the rule in force is that of Royal Decree-Law 7/2026. If, excluding those losses, the result from 2022 to 2026 leaves net equity below half of the share capital, the general meeting must be convened within two months following the close (art. 30 of Royal Decree-Law 7/2026).
What it means for you: if your company lost money in 2020 or 2021, make two calculations. The one for 2026, without those losses, and the one for 2027, with them, unless another extension is approved. A company that breaks even this year can enter into cause at the next close without losing another euro.
When an issuance resolves the imbalance
If the deficit is large or existing shareholders cannot cover it, the way out is to bring in investors. Two instruments allow it and count toward remedying the cause.
- Capital increase with share premium. The premium reduces the amount to be raised, as the example shows. A public limited company can issue new shares and represent them in a tokenized register, with an ERIR (entity responsible for managing the registration and record) that maintains that register (art. 8 of the Law 6/2023 and Royal Decree 814/2023). The ownership interests of an S.L. are not securities and cannot be tokenized as such (art. 92.2 LSC). The process is in the guide to capital increases and in the comparison of tokenized equity vs traditional capital increase.
- Participating loan with several lenders. Each contract that meets art. 20 of Royal Decree-Law 7/1996 adds to net equity for commercial law purposes. The participating loan fact sheet explains its rules, and the participating loan with digital register page explains how to manage it with several investors.
One limit worth keeping in mind: the law recognizes participating loans as counting toward net equity. On a literal reading, bonds with variable interest are debt securities and do not inherit that effect from their name (art. 20 of Royal Decree-Law 7/1996). Before designing the issuance, ask your advisor to confirm that the chosen instrument counts for exiting the grounds for dissolution.
Checklist before the general meeting
- Calculate adjusted net equity using the table above and date the calculation.
- Check whether you have losses from 2020 or 2021, DANA-related losses, or emerging company status.
- Rule out current insolvency: if you cannot pay amounts due, the deadline that runs is the insolvency one.
- Choose the measure by its real minimum amount, not by the apparent deficit: a par-value capital increase costs double.
- Convene the general meeting within two months with dissolution and the remedial measures on the agenda.
- If the measure is a capital increase, calculate whether it will be registered before the financial statements are drawn up.
- If the general meeting does not remove the cause, request judicial dissolution within the following two months.
To go further: how a capital reduction is carried out and the 12 alternative financing routes compared.
If you need a law firm to prepare the transaction, at HokenFi's partner law firms you can request proposals from the platform.
Does your company need to strengthen its net equity with a capital increase or participating loans from several 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 happens if I have negative net equity?
If net equity is negative, below half of the share capital, and there are grounds for dissolution, the directors must convene the general meeting within two months to dissolve or rebalance with a capital increase, a capital reduction, shareholder contributions, or a participating loan. If the company also cannot pay its due debts, it must file for insolvency proceedings within two months (arts. 363.1.e and 365 LSC; art. 5 TRLC).
What does it mean to have negative equity?
It means accumulated losses exceed capital, share premium and reserves: the company owes more than it owns. For grounds for dissolution, equity alone is not used; instead, an adjusted net equity is used, which adds, for example, participating loans. Even so, with negative equity there are almost always grounds for dissolution.
Does a participating loan count as net equity?
Yes, for commercial law purposes. It is considered net equity for capital reduction and dissolution due to losses, even though it remains a liability on the balance sheet (art. 20.Uno.d of Royal Decree-Law 7/1996 and art. 3.1 of the ICAC Resolution of March 5, 2019). That is why it is a common route to exit the grounds for dissolution without increasing capital.
What deadline does the director have to call the general meeting?
Two months from when the grounds for dissolution arise, or from when he or she accepts the position if appointed later. If the general meeting is not held or does not resolve on dissolution, they have another two months to request it from the court. If they fail to comply, they are jointly and severally liable for company debts incurred after the grounds arise (arts. 365 to 367 of the Spanish Companies Act (LSC)).
Do the losses from 2020 and 2021 still not count?
Yes, until the close of the fiscal year beginning in 2026, under art. 30 of Royal Decree-Law 7/2026, ratified in March 2026. From the following fiscal year they count again, unless another extension is approved. Companies affected by the 2024 DANA also do not count those losses until the same date (art. 2 of Royal Decree-Law 1/2025).
Can an emerging company have grounds for dissolution due to losses?
No, during the three years following its incorporation, provided that insolvency proceedings are not warranted (art. 13 of Law 28/2022). After that period, the general rule applies: if net equity falls below half of the share capital, the directors must convene the general meeting within two months to dissolve or remove the grounds.
