The charter capital of a business can be formed in several ways. Independent auditor Altay Jafarov answers the questions that arise when fixed assets are contributed to it.
Charter capital, whether newly formed or increased later, is contributed by founders, shareholders and members in a variety of forms.
It may be contributed in cash and in various rights, and equally in land, buildings and equipment - that is, in fixed assets. Forming charter capital out of land, buildings and equipment is one of the questions practitioners find most interesting.
Suppose AA LLC has charter capital of 10,000 manats and its founders decide to increase it by 200,000 manats using property of their own. One proposes to contribute 100,000 manats worth of equipment, the other 100,000 manats worth of real estate.
Question: how should the 100,000 manats of equipment contributed by the first founder be recorded?
Answer: as a rule the equipment offered should belong to the founder. Sometimes it is not owned but merely used by them, with the actual owner consenting to its contribution to AA LLC. In practice that is not sound. It is better for the equipment to belong to the founder outright, which forestalls later difficulties both for the company and for the owner. An initial valuation of the 100,000 manats of equipment is advisable, and only then should it be handed over.
Question: and how should the 100,000 manats of real estate - a building, say - contributed by the second founder be recorded?
Answer: the building too is better held in the founder own name, again to head off later difficulties. Here as well an initial valuation is the practical course, and the transfer to AA LLC should be documented by handover deeds.
Question: can AA LLC take the building onto its balance sheet on the strength of the handover deeds alone?
Answer: no. Even property the company buys itself must be registered with the state and the company recognised in the register as its owner before it can be carried as a fixed asset.
When the charter capital is increased, an extract from the state register must likewise be obtained for the 100,000 manats of property.
Question: must the building be recorded as a fixed asset only once the extract is issued, or can it be recorded without one?
Answer: neither the accounting standards nor the Tax Code imposes such a requirement in so many words. A fixed asset may be recorded and depreciated once it is brought into use at its established value. But if title to an asset contributed as a share remains with the founder, disposal of it remains with the founder too, which is not the same as the asset passing fully onto the company balance sheet. Re-registering the building in the name of AA LLC is in any case required by the Civil Code and other legislation, so in such cases it must be done.
Question: should depreciation be charged on fixed assets contributed when charter capital is increased?
Answer: yes - assets handed over and taken onto the balance sheet in the proper way are depreciated at the applicable rates.
Source: https://vergiler.az/news/taxes/11855.html.
