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Non-cash contribution to a limited liability company: what you can contribute, how to value everything and how to proceed
Are you going to set up a limited company and instead of cash you want to put an item, know-how, software or perhaps a business plant into the share capital? We will explain to you in practice how to value and register such a non-cash contribution and what risks may be associated with it.
What you will learn in this article:
- What is a non-cash contribution and when is it useful?
- What kind of non-cash deposits can you put into an LLC?
- How do you value a non-cash deposit?
- How do you value a non-cash contribution in the formation documents?
- How do you make a non-cash contribution to a company?
- Advantages and disadvantages of a non-cash contribution to an LLC.
- Do you want a stress-free LLC with a non-cash contribution?
What is a non-cash deposit and when is it useful?
A non-cash contribution is any item valued in money that you as a shareholder put into the share capital of an LLC instead of money - for example, a car, machinery, real estate, a trademark, software, know-how or even a business plant (the company as a whole).
This area is dealt with by the Companies Act (ZOK) in Section 15, where it explicitly states that the contribution can be in monetary or non-monetary form. However, neither work nor services may be a non-monetary contribution.
It makes sense to consider a contribution in kind when:
- you already own the property and want to strengthen the share capital without cash outflow,
- you need to increase your credibility with banks or partners (more capital = stronger balance sheet),
- you bring intellectual property / know-how as a key value to your business,
- you are transferring an existing business to a new Ltd.
Tip: For more information on contributing to an LLC, read our article on LLC share capital.
What non-cash contributions can you make to an LLC?
In general, a non-cash contribution must have a monetary and transferable value. In the case of know-how or other intangible assets, it is crucial that they are properly described objects and documentation that the company will be able to use economically.
A receivable can also be a contribution in kind - but you are always liable for its recoverability up to the amount of the valuation.
| You can deposit | You cannot deposit |
|---|---|
| Movable assets (cars, machinery, IT equipment), real estate | Works and services (your future "work" on the project cannot be put as a deposit) |
| Intangible assets: software, trademarks, patents, licenses, know-how (if sufficiently describable and transferable) | Your own debt to the company |
| Receivable, if it is not for your own company | Values the contribution of which would be contrary to law, good morals or public policy |
Tip: There is an important restriction on receivables: you cannot use your own receivable from the company as a deposit. It can only be set off against a written agreement approved by the general meeting.
How do you value a contribution in kind?
The valuation is carried out by an expert from a list of experts chosen by the founders themselves (no longer appointed by the court as before). The expert's report must include at least:
- a description of the object of the contribution,
- the valuation methods used,
- the amount (value),
- justification
and shall be deposited in the collection of documents of the Commercial Register.
Tip: Real estate is normally valued at its normal value; however, for intellectual property / know-how, you cannot do without a good valuation methodology and documentation, otherwise there is a risk of questioning the value (and thus the liability of the managing director for due diligence).
How to disclose a non-monetary contribution in the incorporation documents?
When forming an LLC, you must include the following in the articles of incorporation:
- A description and valuation of the non-cash contribution,
- the designation of the custodian of the contributions,
- the details of the deposit obligation.
After the incorporation of the company, you can remove the transitional incorporation data (description and valuation of the non-cash contribution, the amount included in the issue price and identification of the expert who valued it) from the articles of association - this is regulated by Section 146 of the CCC.
Section 17 of the ZOK also stipulates that the valuation of the non-cash contribution may not include an amount higher than the amount determined by the expert. These rules also apply to the deposit premium (the positive difference between the valuation by the expert and the amount credited to the share capital).
How to make a contribution in kind to a company?
The method of making a contribution varies according to the nature of the property - handing over the movable asset to the deposit administrator, a written declaration and entry in the land register in the case of immovable property or a written contract for the contribution of a claim.
If you want to make a non-monetary contribution to an LLC without unnecessary delays and risks, stick to the proven sequence of steps - they build on each other and each of them has legal, documentary and accounting or tax implications, which should be taken into account in advance.
The outline below shows the whole process from the founder's/co-founder's perspective - it will help you to be clear from the start what to prepare, who to involve when and how to check the details in time to ensure everything runs smoothly.
- 1
Select the subject of the contribution and verify its transferability (no pledges, transfer restrictions, licensing restrictions on intellectual property, etc.).
- 2
Have an expert's report prepared. You (the founders) choose the expert. The output belongs to the collection of deeds.
- 3
Prepare the articles of association with the notary, including a description and valuation of the non-cash contributions and appoint a deposit manager (the deposit manager can be a natural person or a legal person, including the founder of the Ltd.).
- 4
Deposit by the custodian of the deposits:
Immovable property: by handing over the property (if its nature permits; otherwise by handing over the media and documentation).
Immovable property: by handing over the item to the deposit administrator + written declaration of insertion with a certified signature of the owner; the company acquires ownership by entry in the land register.
Receivable: by the effectiveness of the contract of deposit of the receivable (the depositor guarantees the receivable up to the amount of the valuation).
Business plant / part of the plant: by the effectiveness of the contract for the contribution of the plant (this contract is governed by the rules for the purchase of assets - e.g. transfer of rights and obligations, liability of the seller, transfer as a whole).
- 5
Repayment of deposits before registration in the Commercial Register: for an LLC, non-monetary deposits are made before the company is incorporated; for monetary deposits before the LLC is incorporated, you repay at least 30% of the value of each deposit (plus the entire deposit premium, if any). The deposit manager will issue a declaration which you will attach to the application for registration in the register of members.
- 6
Incorporation of the company. On the date of its incorporation, the company acquires ownership of the contributed items; in the case of immovable property, the date of entry in the relevant public register (cadastre, etc.).
Tip: Do you correctly distinguish between a managing director and a shareholder? The difference between a shareholder and a managing director is not just a question of titles - it will affect who makes decisions, who acts on behalf of the company, but more importantly who is personally liable for the fulfilment of legal obligations.
Advantages and disadvantages of a non-cash contribution to an LLC.
It is wise to consider the nature of the assets being contributed and compare whether they will benefit you more now or in the long term compared to a cash contribution - each option has its own benefits, costs and risks.
| Benefits | Disadvantages |
|---|---|
| Saving cash while strengthening equity | Administration and expertcosts (need for a proper valuation) |
| Better image for banks and suppliers (more equity) | Risk of overvaluation (managing directors are liable for due diligence; obviously overvalued deposits risk shareholder disputes or intervention by the Financial Supervisory Authority) |
| Makes sense for intellectual property, know-how, technology - values that define your business | For real estate, longer process due to registration in the land registry, land registry fees |
| Contribution in kind allows you to optimize accounting depreciation and asset valuation | For receivables, you guarantee the recoverability up to the amount of the valuation |
Do you want an LLC with a non-cash contribution without stress?
We will be happy to design, draw up and arrange everything for you - from the expert's report to the incorporation documents to the registration in the commercial register. Contact us using the form below and we will set up your company online and tailor-made in a matter of days!
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