08 June 2023

Commercial advisor: The contribution of the shareholders to the 118 Account of the General Accounting Plan: A flexible form of financing?

The 118 Account is a useful accounting instrument for companies that need to solve financial or treasury problems when financing specific projects. However, it is common that shareholders choose this form of financing without understanding the true nature of this business. The purpose of this article is to clear up any doubts that may arise in relation to the 118 account from a practical point of view.

 How to transfer funds to a Company without the intervention of a Notary:

Unlike capital increases, it is possible to contribute funds to a company through the 118 account without the intervention of a notary or its registration in the Mercantile Registry, simply by drawing up a minute. The General Accounting Plan (hereinafter “PGC“) defines the contribution to account 118 as the contribution of “assets and liabilities made by the shareholders (…) provided that they do not involve any consideration for the delivery of goods and are not classified as liabilities“. In other words, contributions are operations that transfer the ownership of goods, money or rights (“assets“) to the company’s equity, without the right to reimbursement, and without receiving any remuneration in exchange.

What kind of assets can be transferred:

As for the goods or rights that the shareholders can transfer to the company, the PGC refers to “assets”, a term that, in our opinion, includes any asset or right that can be economically valued. We could even consider the cancellation of a debt by a shareholder as a contribution to account 118, the problem would reside in the criteria to be used to calculate the reasonable value, but the elements to make the contribution effective are the same as for the rest of the contributions: (i) certainty of the cancellation of the debt; (ii) identity of the contributor; (iii) determination of the reasonable value of the debt forgiven; (iv) objective reason for the increase in funds; and (v) approval by the Shareholders’ Meeting.

The “non-refundable” nature of this kind of contributions:

Shareholder contributions do not modify their share in the Company, since these funds are not included in the capital stock but are treated in the same way as special reserves. The shareholders may agree to make “non-refundable” contributions proportional to their participation in the company or asymmetrically.

A common mistake in asymmetrical contributions is to expect the agreement to state the identity of the contributing shareholder or to foresee the repayment of the amount. The main difference between a loan and a shareholder contribution is the non-refundable nature of the contribution. Likewise, establishing a link between the contributing shareholder and the company could distort the consideration of the contribution as equity and qualify the business as a loan and, therefore, as a related party transaction that must be subject to market interest.

Likewise, as they become part of the company’s reserves, the possible distribution of the asymmetrical contributions in accordance with the share in the capital of each shareholder (in a distribution of dividends, for example) implies an improvement in the assets of the non-contributing shareholders and a liberality on the part of the contributing shareholder, which could entail tax consequences.


To summarize and as a conclusion, contributions to the 118 account (i) can be made in the form of monetary contributions or contributions of goods and rights; (ii) do not modify the share of the shareholder in the capital stock; (iii) are not refundable outside the provisions of Article 273 of the Capital Companies Law for the application of the result; (iv) can be made proportionally or asymmetrically; (v) have relevant tax implications both for the company and for the shareholders, whether they contribute or not.

Stay informed:

If you want to know more about the tax implications of contributions to the 118 account, don’t miss the next B LAW & TAX INSIGHTS article.

B Law & Tax International Tax & Legal Advisors.

“En B LAW&TAX somos especialistas en asesoramiento fiscal internacional tanto a empresas como para particulares. Si desea ampliar la presente información, estaremos encantados de poder atenderle en el 917817194 o en [email protected]