Subject: PROCEDURES FOR SHAREHOLDER LOANS
Shareholders may provide liquidity to the companies in which they hold an interest on various bases, ranging from a loan (and therefore with repayment envisaged from the outset), through to an actual share capital increase (with the related notarial procedure), with the further variants of capital contributions or contributions to cover losses, which remain part of net equity without requiring any amendment to the articles of association.
The most common way of injecting liquidity is certainly the shareholder loan, in relation to which a number of critical issues can be identified:
1) the point from which a shareholder may make a loan;
2) the type of remuneration agreed: interest-bearing or interest-free loan, and the related issue of the presumption that the loan bears interest provided for by tax law;
3) the possibility of repayment, in light of the existing civil law safeguards;
4) the possibility of waiving the right to repayment, with the related tax effects.
When a loan can be made
The legislation currently in force on combating the unlawful exercise of credit activity allows shareholders to make loans to the company in which they hold an interest, subject to the following conditions:
1) the shareholder must hold at least 2% of the share capital;
2) the shareholder must have been registered as such in the Companies Register (Registro Imprese) for at least 3 months.
If these conditions are met, the loan is permitted, although in day-to-day practice it is found that contributions of liquidity are often made directly when the company is incorporated.
Remuneration of the loan
As mentioned, tax law provides for a presumption that the loan bears interest, a presumption that can be rebutted by means of:
• the creation of documents with a certain date (data certa), showing that the loan is free of interest;
• a specific accounting description showing that it is interest-free.
It should be remembered that, in this regard, a decision taken at a shareholders’ meeting is not considered valid, also because each shareholder decides on his or her own account and the collective decision-making procedures do not apply.
It will therefore be useful to use the following templates.
Request sent by the legal representative to the shareholders
Alfa Srl
Via …………………. – Postcode City (..)
Tax code and VAT number: 00000000000
To the Shareholders
Subject: interest-free loan
Dear Shareholders,
as previously agreed, I inform you that our company, throughout the start-up period, needs liquid funds in excess of its capital endowment.
Before approaching the banking system, with the associated costs, I think it appropriate to ask whether you are willing to make an interest-free loan, in proportion (or not) to your shareholdings.
If you are willing, I would ask you to let me know the sum you can pay in, arranging for a direct credit to the bank account in the company’s name.
Awaiting your kind reply, I send you my best regards.
Alfa Srl
The legal representative
Each shareholder, regardless of the size of his or her shareholding, will be free to accept the proposal or not by replying to the request.
MARIO ROSSI (shareholder)
Via …………………., …
Postcode City (..)
To the Company
ALFA srl
Via ………………
…………………….
Subject: interest-free loan
Further to your communication of …/ …./ …. , I hereby confirm my willingness to make an interest-free loan to the company in which I hold an interest, with the following characteristics:
• Amount: xxxxxxx,00
• Return: zero (interest-free)
• Repayment: on simple request with 6 months’ notice.
I will credit the sums to the company’s current account.
Best regards
……………, …. / …. / ……
Mario Rossi
To avoid problems with the application of registration tax (imposta di registro), care must be taken to ensure that the signatures of the two parties never appear on the same sheet (to be understood as a contract).
A document with a certain date can easily be obtained:
• by applying the postal stamp to the document, following the specific procedure in use to avoid a blank sheet being stamped and filled in afterwards;
• by sending a certified email (PEC), where the shareholders have one;
• by registering the document with the Agenzia delle Entrate (Italian Revenue Agency), with the obvious additional expense (procedure not recommended).
Recording in the accounting entries
Having thus averted the possible adverse tax consequences, the sums contributed may be recorded in the company’s accounts as follows:
Bank X current account to Payables for interest-free loan from shareholder M. Rossi
With regard to the payables item, please note that:
• the interest-free nature of the loan is shown;
• the creditor is specifically marked, in order to take account of the possibility that the loan is made in amounts not proportional to the shareholdings, or that different repayment dates have been agreed.
Repayment of loans
In the sample documents proposed above, the advisability of indicating a repayment date for the loan, or a deadline within which repayment is to be made upon request of the holder of the right, was highlighted.
However, it should be noted that the Civil Code contains a provision protecting third parties, aimed at limiting the pathological phenomenon of undercapitalisation of Italian companies.
The concept is very simple:
• where the loan was made at a time when a fixed capital endowment was necessary;
• repayment is subject to the prior settlement of the company’s other liabilities, so that third parties cannot be disadvantaged.
Assuming, then, that the loan was made immediately upon incorporation and for amounts that are significant relative to the share capital, the so-called subordination (postergazione) will apply; in essence, the legal representative will not be able to repay the sums (even if the agreements provided otherwise), so as not to breach the law.
It would therefore be advisable to record this circumstance directly in the accounting entries, for future reference (in addition to the fact that detail is required in the notes to the financial statements), as follows:
Bank X current account to Payables for interest-free loan from shareholder M. Rossi, subordinated C.C.
Bear in mind that it is often the banks that require subordination with respect to the repayment of sums owed to them; the circumstance can then be recorded differently:
Bank X current account to Payables for interest-free loan from shareholder M. Rossi, subordinated Loan XY
In the absence of obstacles of a civil law or contractual nature, upon repayment the following entry will be made:
Payables for interest-free loan from shareholder M. Rossi to Bank X current account
Waiver of repayment
The shareholder might also waive the right to repayment of the loan, intending to contribute these sums to strengthen the share capital.
Here too, this is not a decision reserved to the shareholders’ meeting, since the right belongs to each individual shareholder.
It will be important here to understand on what basis the waiver is intended, since the following alternatives are possible:
• “payments on account of capital increase” (versamenti in conto aumento di capitale): they represent a capital reserve, with a specific earmarking restriction, which holds the capital amounts subscribed by shareholders, in the case of a divisible capital increase, when the capital increase procedure is still in progress at the balance sheet date;
• “payments on account of a future capital increase” (versamenti in conto futuro aumento di capitale), which represent a capital reserve with a specific earmarking restriction, in which are recorded the non-refundable payments made in advance by shareholders in view of a future capital increase;
• “capital contributions” (versamenti in conto capitale), which represent a capital reserve holding the value of new contributions made by shareholders, even without any intention of carrying out future capital increases;
• “payments to cover losses” (versamenti a copertura perdite) made after a loss has arisen; in this case, the reserve that is created has a specific purpose.
Correct classification, including in the accounts, appears very important because it determines whether the amounts are included under net equity or under payables and, moreover, may give rise (where not all shareholders have contributed in proportion to their shareholdings) to situations of advantage or disadvantage for some at the expense of others.
A communication along the following lines may then be used.
MARIO ROSSI (shareholder)
Via …………………., …
POSTCODE City (..)
To the Company
ALFA srl
Via ………………
…………………….
Subject: waiver of repayment of the loan
I hereby inform you of my intention to waive the right to repayment of the interest-free loan granted on ………. for an amount of euro ……….., allocating these sums to:
• Payment on account of capital increase, for euro …..
• Payment on account of future capital increase, for euro …….
• Capital contribution, for euro ……
• Payment to cover losses, for euro ……
I await explicit confirmation that my decision has been received.
Best regards
……………, …. / …. / ……
Mario Rossi
Obviously, the accounting entries must reflect the shareholder’s wishes. Assuming that the choice is for a capital contribution, the entry will be:
Payables for interest-free loan from shareholder M. Rossi to Reserve for capital contributions
Since the allocation is in favour of the company and not of the shareholder, it is pointless in this case to distinguish the origin of the sums.
In this regard, two circumstances should be noted:
1) the waiver cannot give rise to the recording of a contingent gain (sopravvenienza attiva) in the accounts, as was customary in the past; the OIC documents expressly prohibit this procedure, since it produces an undue effect on the result for the year;
2) for tax purposes, by contrast, the TUIR provides for differentiated treatment which will change from next year, 2016; in fact:
• up to the 2015 period, any contingent gain arising from the shareholder’s waiver (which, in the accounts, we have said should not be recorded) is not taxable;
• from the 2016 period, by contrast, the waiver is expected to give rise to a taxable contingent gain (irrespective of whether it passes through the income statement, and therefore with an upward adjustment in the tax return) for the portion exceeding the tax-recognised cost of the receivable in the hands of the shareholder, to be certified by a specific affidavit (atto di notorietà).
Let us therefore try to understand what will normally happen from next year, 2016, in the usual cases where the receivable waived arises from a previous loan.
If, for example, Mr Mario Rossi waives a receivable of 100,000 euro:
1) if he provides the company with an affidavit certifying that his receivable is worth 100,000 euro (an amount equal to the original disbursement), nothing happens for the company;
2) if, conversely, the shareholder certifies nothing, it would seem that the company must make an upward adjustment of 100,000 euro in the tax return.
It is therefore recommended that the waiver be accompanied by the required self-certification, as follows:
MARIO ROSSI (shareholder)
Via …………………., …
POSTCODE City (..)
To the Company
ALFA srl
Via ………………
…………………….
Subject: waiver of repayment of the loan
I hereby inform you of my intention to waive the right to repayment of the interest-free loan granted on ………. for an amount of euro ……….., allocating these sums to:
• payment on account of capital increase, for euro …..
• payment on account of future capital increase, for euro …….
• capital contribution, for euro ……
• payment to cover losses, for euro ……
I await explicit confirmation that my decision has been received.
Best regards
……………, …. / …. / ……
Mario Rossi
SELF-CERTIFICATION OF THE TAX VALUE OF THE RECEIVABLE
The undersigned ……………………….., aware of the civil and tax consequences provided for in the event of false declarations,
CERTIFIES
For the purposes of the provisions of the TUIR in force, that the receivable held against the company ………… which is waived by this deed has a tax value equal to euro ……..
The firm remains at your disposal for any further clarification.
Kind regards
signature
Studio Rimoldi