Some considerations concerning capital as a source of financing

Self-employed, NPO, company: discover in this guide the information related to capital as a source of financing according to the status.

When is capital built up?

The capital is constituted during the creation of the company or during an increase in the capital (through additional contributions, or by including other items in the equity). In very rare cases, the capital is reduced during a reduction in capital. All operations concerning the level of subscribed capital must be the subject of a notarised deed.

Capital for non-profit organisations or self-employed persons

The company exercising its activities as a self-employed worker or asbl is not affected by the concept of (share) capital. However, it can have equity, formed by self-financing and, depending on interpretations, by any quasi own funds and advances from the entrepreneur.

What is the right level of capital for a company?

The evaluation of a suitable level of capital for a company has nothing to do with the latter's legal minimum capital. This must be evaluated by the entrepreneur based on a mixture of other criteria, such as:

• The balance required between permanent capital and provisional capital, notably based on the volumes of investments required
• The balance between own funds and third-party funds, notably based on external requirements (suppliers, banks, customers, etc.)
• The need to have a source of own funds to be able to access credits
• The balance required between funds contributed in capital and those loaned in the form of related advances shareholder
• The evaluation of these balances through various financial ratios, for example solvability, liquidity and financial independence.
• Access to the different sources of financing
• Funds provided by the entrepreneur
• The entrepreneur's position relative to the opening of their company's capital to external capital, and to what extent.
• The profitability of the activity and the costs of the different sources of financing (return requirements from different creditors).

What is the risk of investing capital in a company?

Investing in a company’s capital represents a high risk different from the risk taken by other financial backers. The expected profitability of the funds injected by investors is a function of this risk. The entrepreneur must consider this aspect carefully, both in terms of his own capital investment and for that made by any external investor.

• Opening the capital of your company up to external investors is not an easy decision, and must be considered carefully.

• The holding of a majority (51%) of the shares by a shareholder, or at least the voting rights of a shareholder or group of shareholders, is essential for making strategic decisions and thus for the proper development of the company.

• A change in the composition of a company's shareholders can be synonymous with significant strategic and structural impacts. Henceforth, the shareholders will often have recourse to a “shareholders’ agreement” in order to determine certain terms in advance, often linked to the transfer of shares.

• A company's main shareholders, particularly in the case of an SME, often also have a decisive role in the management of the company as a company director. In this case, the entrepreneur has two roles or statuses within the company, which must not be confused.