Can you get financing without including new partners in the company?
- 25 September 2020
- Business Consultancy
In general, when a company needs financing and goes to an investor, he ends up acquiring a percentage of the shares. But what happens if you don't want new partners to join the company?
In these cases, the solution consists of signing a participation account contract, which allows the company to obtain financing without the investor becoming a partner. Thus, if the business goes well, it recovers part of the benefits that have been agreed; and if it goes wrong, you will assume the corresponding losses.
What are the advantages of the participation account contract?
The main advantage of this type of contract is that the investor will never become a partner of the company and only must be informed of the economic results. In this sense, you can have the peace of mind of continuing to control the management of the business.
It is also possible to agree that the participation account affects only a specific business, and not all the activity of the company. In this way, we can open up to new markets without the new investor intervening in existing businesses.
This type of contract has tax advantages, both for the investor and for the company:
- For the company: the distribution of profits that corresponds to the investor will be a deductible expense. In this way, the company will save 25%.
- For the investor: this income will be a return on movable capital and will be taxed on your personal income tax on the savings base at a rate between 19% and 25%. And even if the investor was a partner and received dividends, he should also be taxed at those rates, but with the participation account he will be able to obtain a higher net.
For example, if a company formalizes a joint venture with an investor on a new business and in a specific year this generates 200,000 euros of profit, of which they have agreed that the investor receives 30%.
In summary, for the same profit sharing, with the joint account the investor obtains more profits than being a partner and, for its part, the company has more to distribute among the other partners.
