Capital increase in a GmbH and AG: how it works

Increasing share capital serves to strengthen the financial structure, bring in new investors or convert loans into equity. It is a governance operation that touches the articles of association, the notarial deed and the commercial register, and it has to be carried out in the right order. Let’s look at how it works in an AG and in a GmbH, taking into account the changes introduced by the reform of company law in force since 1 January 2023.

Why increase the capital

The typical reasons are three:

• strengthening equity to support growth or rebalance a balance sheet;
• bringing in new shareholders or investors with new contributions;
• converting debt into capital (for example a shareholder loan or a convertible loan).

The increase is not merely an accounting act: it changes the balance among the shareholders and must be designed with an eye on the cap table.

The forms of increase in the AG

The reform of company law reorganised the ways of increasing capital. Today the main distinctions are:

• Ordinary increase: the general meeting resolves a defined increase of the share capital, which must be carried out within a statutory deadline from the resolution.
• Increase with conditional capital: the articles provide that the capital may increase when conversion or option rights are exercised (useful for stock options, convertible bonds, instruments for investors).
• Capital band: the articles authorise the board of directors, within a predefined range and for a maximum period, to increase or reduce the capital flexibly. It is the instrument introduced by the reform to manage repeated operations without convening the general meeting each time.

Each form has its own conditions and limits: the choice depends on the objective (one-off operation, incentive programme, investment round).

The shareholders’ pre-emptive right

In the AG existing shareholders generally have a pre-emptive right: they can subscribe the new shares in proportion to their stake, so as not to be diluted. The pre-emptive right may be limited or withdrawn only for good cause and with the qualified majority required by the articles and by law. Managing this right correctly is essential when a new investor enters.

The increase in the GmbH

In the GmbH the increase of share capital follows an analogous logic, adapted to the structure based on capital contributions (quotas). The members’ meeting resolves the increase, the new contributions (in cash or in kind) are paid up and the articles are amended. Since the members of the GmbH are recorded in the commercial register, the increase and the entry of new members also entail updating the personal entries.

The procedure, step by step

Regardless of the form, the increase follows a typical sequence:

1. Resolution by the meeting (or by the board, in the capital band) on the increase and the related amendments to the articles.
2. Subscription of the new shares or quotas by the subscribers.
3. Payment of the contributions: deposit into a blocked account for cash contributions, or full documentation for contributions in kind and set-offs (conversion of claims).
4. Report and confirmations: in the case of contributions in kind, set-off of claims or special advantages, a report on the increase and an audit confirmation from a licensed auditor are required.
5. Public deed before the notary, who certifies the execution of the increase and adapts the articles.
6. Entry in the commercial register, which makes the increase effective towards third parties.

Mistakes to avoid

• Neglecting the documentation of non-cash contributions: without a report and audit, the increase stalls.
• Overlooking the pre-emptive right, with the risk of challenges from diluted shareholders.
• Underestimating the effects on the cap table and on the agreements among shareholders (shareholders’ agreements, preference clauses).
• Forgetting the taxes: some contributions can trigger issue stamp duty above the exemption thresholds provided by law.

In summary

A capital increase is a powerful instrument, but it must be chosen with precision: an ordinary increase for a single operation, conditional capital for conversion programmes, a capital band for flexibility over time. The difference between a clean increase and a contested one lies in the documentation and in respect for the shareholders’ rights.

Do you want to structure a capital increase consistent with your governance and your cap table? The corporate division of SIH ONE designs and executes the operation from idea to registration.