PROCEDURE FOR INCREASING SHARE CAPITAL
A company’s share capital may be increased by an express resolution of an extraordinary general meeting. This decision is valid only if it remains within the limit of previously authorized capital. If this limit must be modified, the company’s bylaws must be amended and additional formalities completed, including registration with the Commercial Registry.
Once the decision to increase the authorized capital is approved, it must be registered in accordance with commercial regulations to ensure its validity and enforceability against third parties.
PRE-EMPTIVE SUBSCRIPTION RIGHTS IN A CAPITAL INCREASE
One of the most important safeguards for current shareholders is the pre-emptive subscription right. This right allows them to acquire newly issued shares before third parties, in proportion to their existing holdings, thus preventing dilution of their ownership.
If a company unjustifiably ignores this right, affected shareholders may file a legal action demanding the cancellation of improper subscriptions and recognition of their shares. If the shares have already been transferred to others, the company and its directors may be held jointly liable for the resulting damages, which can never be less than the corresponding nominal value.
This legal action must be filed within six months following the expiration of the subscription period.
DELIVERY OF SHARES TO NEW INVESTORS
INCREASING CAPITAL THROUGH PROFITS AND RESERVES
Another valid method of increasing share capital is through the capitalization of reserves, free funds, or dividends. In such cases, the proportional ownership of each shareholder must be strictly respected. Once the general meeting approves this measure, no shareholder may request payment in cash of their corresponding share.
This mechanism is commonly used to strengthen share capital without requiring new monetary contributions.
CONVERTIBLE BONDS
Shareholders also hold pre-emptive rights to subscribe to bonds convertible into shares. This financial instrument combines characteristics of both debt and equity, allowing companies to raise capital with the potential to convert obligations into shareholding.
This right may also be extended to holders of preferred shares, provided the company’s bylaws allow it.
WHEN CAN PRE-EMPTIVE RIGHTS BE LIMITED?
Exceptionally, the extraordinary general meeting may limit pre-emptive rights, but only under specific circumstances: when the company seeks to settle pre-existing debts with bonus shares, or when contributions are made in assets other than cash. These exceptions must be justified based on the company’s best interests.
CAPITAL INCREASE THROUGH PUBLIC OFFERING
Capital may also be increased through the public issuance of shares. To proceed, the extraordinary general meeting must approve the process and prepare a detailed subscription program. This program must include information about the company, its authorities, financial statements for the past three years, outstanding debts, and the characteristics of the new shares offered.
This subscription program must be submitted to the competent authority for review and authorization before launching the public offering.
LEGAL LIABILITY FOR NON-COMPLIANCE IN CAPITAL INCREASES
Any public share offering that does not meet legal requirements is null and void. In such cases, the company, its directors, and trustees may be held jointly and unlimitedly liable for any resulting damages. Any person who has subscribed to shares under such conditions may file a lawsuit seeking the nullity of the agreement and corresponding compensation.
In summary, capital increases in a Bolivian corporation must be carried out under clear rules that protect existing shareholders’ rights and ensure legal compliance. Whether through new subscriptions, capitalization of profits, or public issuance, the process requires formal approval, regulatory oversight, and appropriate documentation. The protection of pre-emptive rights and director accountability are key pillars of this process.
If you are considering a capital increase or are involved in a dispute related to shareholder rights, our corporate law specialists are ready to assist you. Contact our law firm today for tailored legal guidance.
Frequently Asked Questions (FAQs)
What is the pre-emptive subscription right?
It is the right of existing shareholders to acquire newly issued shares before third parties, in proportion to the shares they already own.
Can I lose my pre-emptive right?
Yes, but only in exceptional cases authorized by the extraordinary general meeting and justified by the company’s best interest.
What happens if the company ignores my pre-emptive right?
You may file a lawsuit within six months of the subscription period’s expiration to demand delivery of your shares or financial compensation.
Can capital be increased without receiving money?
Yes, through the capitalization of profits or reserves, provided the shareholding proportions are maintained.
What liability do directors face for an illegal public offering?
They are jointly and unlimitedly liable with the company for damages resulting from failure to comply with legal requirements.
The content of this article does not reflect the technical opinion of Rigoberto Paredes & Associates and should not be considered a substitute for legal advice. The information presented herein corresponds to the date of publication and may be outdated at the time of reading. Rigoberto Paredes & Associates assumes no responsibility for keeping the information in this article up to date, as legal regulations may change over time.
