Capital Contribution and Ownership Share – What You Must Know If You Plan to Open a Company

In the business world and in corporate law, the terms capital contribution and ownership share are used every day. Although they are often mentioned together and closely related, they represent two different but essential concepts that define the relationship between an owner and a company. Understanding the distinction is crucial for every founder, member, shareholder, or investor. This text, based on Macedonian legislation, aims to demystify these concepts of Capital Contribution and Ownership Share and explain their interconnection.

What Is a Capital Contribution?

The contribution is the starting point — the economic input that an individual or legal entity provides to a company, typically upon its formation or when increasing its share capital. According to the Macedonian Company Law, a “capital contribution in a company” is defined as money, assets, or rights that a member or shareholder transfers and assigns to the company.

Types of Contributions

1. Monetary Contribution: This is the most common form and represents an amount of money, in local or foreign currency, deposited into the company’s account.

2. Non-monetary Contribution: This may include assets (such as real estate, vehicles, equipment) and rights (such as patents, licenses, receivables) that have monetary value and can be financially assessed. The law requires that the value of any non-monetary contribution be evaluated by a certified appraiser, who issues a detailed valuation report. This report ensures that the value of the contribution is realistically determined and corresponds to the share or shares acquired in return.

3. Converting a Loan or Receivable into a Contribution: The law also allows an existing loan or receivable to be converted into a permanent contribution. This means that instead of the company repaying its debt, the creditor (a member or a third party) becomes an owner by transforming the debt into a lasting capital contribution. A well-known example is the Law on Conversion of the Republic of Macedonia’s Public Receivables into a Permanent Contribution in Tobacco Factory AD Prilep, where tax debts were converted into the state’s ownership stake in the company.

A key characteristic of the contribution is that once it is provided, it becomes the property of the company and generally cannot be returned to the members or shareholders during the company’s existence. The contributions of all owners together constitute the company’s share capital.

What Is an Ownership Share?

If the contribution is the economic input, the share is the legal consequence of that input.Under the Macedonian Company Law, an ownership share represents the totality of rights and obligations that a member acquires on the basis of their contribution to the share capital.

In other words, the share is not the asset you contributed — it is the bundle of ownership rights you receive in return. For example, in a Limited Liability Company (DOO), these rights typically include:

• Management rights: Participation in decision-making at the meeting of members.

• Right to participate in profit distribution (dividends): Receiving a portion of the company’s profit, proportional to the size of the share.

• Right to information: Access to company records and updates on business operations.

• Right to a portion of remaining assets upon liquidation or bankruptcy: After all creditors are settled.

In Joint Stock Companies (AD), the share is represented through shares (stock), which are securities. In contrast, shares in a DOO cannot be represented by securities, although the company may issue a “certificate of share” that serves only as proof of ownership and is not transferable like stock.

Ownership shares are transferable, meaning a member may sell, gift, or transfer them (including by inheritance), subject to the company’s articles and applicable law.

The Relationship Between Capital Contribution and Ownership Share

Put simply, the relationship is cause and effect: The contribution is the cause; the share is the result.

A helpful analogy: Imagine the contribution as the price of a concert ticket. The share is the ticket itself. You pay the price (contribution) to the organizer (the company), and this becomes their income. In return, you receive the ticket (share), which grants rights — to enter, attend, and enjoy. You do not own the stage or sound system; you own the right that stems from the ticket. Similarly, through your contribution, you don’t own a specific desk or machine in the company — you own a share that grants ownership rights.

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Conclusion

Understanding the concepts of contribution and share is fundamental to understanding corporate ownership.

• The contribution is the economic resource (money, assets, rights) provided to the company, forming its share capital.

• The share is the legal package of rights and obligations received by the owner in exchange for that contribution. It represents their ownership stake in the company.

This distinction has significant practical implications during company formation, transfer of ownership, valuation, and the exercise of ownership rights. These concepts are the alphabet of corporate governance and the foundation upon which every successful business venture is built.

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Note: This text has been prepared solely for informational purposes and cannot be considered legal advice or guidance for specific actions. Legal matters are complex, and each case has its own unique circumstances that must be assessed individually. For this reason, it is recommended to consult a qualified attorney who can provide tailored legal solutions to your specific situation.