What does Foundation in Kind Stand for? Part 2

Foundation in Kind 2

When is a foundation in kind recommended for you?

A foundation in kind is always recommended for you if you do not have enough cash for the foundation and the share capital to be raised. It is also worth considering if you have sufficient contributions in kind in the form of objects that you will bring into society anyway and should belong to the company. A foundation in kind is also recommended in the case of a conversion of the company . This can be the case if you have founded a sole proprietorship and this is now to be converted into a corporation.

Here are the reasons again at a glance:

  • Too little cash for the share capital
  • Companies should enter into a different legal form be converted
  • Possession of property that should become the property of the company

What is a report on incorporation in kind?

A tangible formation report is a document, which you need to pay if you want to bring your initial contribution to a corporation in the form of a contribution in kind. The report on the contribution in kind declares that the contribution in kind has a value and that the value of the contribution in kind also corresponds to the actual value of the contribution obligation . A foundation report must always be drawn up in writing and must be signed by you and every other founder personally. In addition, the constitutional report is deposited in the registry court and it is also published in the commercial register .

What has to be in your report on incorporation in kind?

All circumstances that are important for the valuation of contributions in kind must be recorded in writing in the report on the formation of funds . The report can contain the following content.

  • Evaluations by one or more reviewers
  • Manufacturing and purchase prices
  • usual market prices
  • Possibilities of use
  • Condition of the objects

In addition, all documents and receipts relating to the value of the contribution in kind by the shareholder must be attached to the report on the formation in kind . It does not matter whether it is invoices, price lists, reports or sales contracts. Documents, for example about licenses, must also be enclosed with the report.

Who will prepare a foundation report for you?

The factual formation report does not necessarily have to be prepared and certified by the notary . You and the shareholders can also prepare the report yourself. However, it is important that all shareholders sign this report and that the circumstances of the contribution in kind are explained. With the exception of the management, however.

Veiled foundation in kind

What do you have to imagine by a veiled foundation in kind? The term veiled incorporation in kind means the incorporation of a GmbH in kind in order to buy things from a shareholder’s contribution in kind with the cash contribution. Reasons for a disguised contribution in kind can, for example, be circumventing the regulations for a contribution in kind, which also include, for example, the contribution in kind report. But it also serves to ensure that the contribution in kind is bought at a price that is far too high.

What dangers can await you when founding in kind?

There are basically three major dangers awaiting you when setting up a business in kind.

  • Danger number 1: When setting up in kind, you run the risk of personal liability . You always face this risk if the assets you bring in do not correspond to the value of the capital listed. If, for example, in the case of bankruptcy, it is found that the value is too low, you have to pay the difference.
  • Danger number 2: The start-up costs for a non-cash establishment can be significantly higher for you. You have to reckon with at least around 500 euros for the tax advisor. In addition, there are around 500 euros for the notary and around 400 euros in costs for the district court.
  • Danger number 3 : If you plan to use entire business units to start up, then your liability increases for another 5 years.

Advantages and disadvantages of setting up in kind

A foundation in kind, both with the establishment of an AG and a GmbH, has its advantages, but also its disadvantages. You can see them here at a glance:

advantages disadvantage
You don’t have to raise the share capital in cash. In the case of a foundation in kind, there is not enough liquid capital available. Paying bills can therefore be difficult.
Material assets such as real estate or machines are immediately available in the new company. The necessary investments can therefore be significantly lower. Any material value brought in must be made immediately and in full.
It is possible to contribute entire companies as contributions in kind. Extra costs arise from the determination of the value of the contributions in kind by an appraiser.
Real assets can make it possible for business operations to start faster. There is a risk that the contributions in kind will exceed the value of the contribution actually to be made. This must then be recorded separately in the partnership agreement.

Conclusion

Thanks to the possibility of incorporating in kind, you have the opportunity to set up a corporation even with little cash. This means that with the establishment in kind, you can bring assets into the company and benefit from them immediately. In addition to some advantages, a foundation in kind has its disadvantages. Above all, it is important to ensure that at least enough cash is available to be able to pay the first bills, etc. With the establishment in kind, for example by bringing in real estate, you can save some costs right from the start, such as rental costs.

Foundation in Kind 2