Classification of companies according to their legal structure: According to their legal structure, in Colombia, companies can be:
- Sole proprietorship
- Societies of People (Cooperatives, Associative Work Companies, Agrarian Transformation Societies, Collective Societies and Simple Limited Partnerships)
- Capital Companies (Limited Companies by Shares, Public Limited Companies)
- Mixed Companies (Limited Companies).
Sole proprietorship: As their name indicates, they are companies constituted by a sole proprietor, which can be a natural or legal person, who decides to contribute part of their resources to carry out a certain economic activity, which must be registered in the commercial register. as a legal person, different from its owner, who responds economically up to the amount of its contributions, which should have been registered in the Mercantile Registry (Articles 71, 72, 73 and 80 of Decree 222 of 1995). The initials EU (Unipersonal Company) must appear in the name of the company, otherwise, the owner will be unlimitedly liable to third parties.
Fractions into which the corporate capital is divided: In Colombian legislation, the fractions into which the capital stock is divided are:
- Interest parties: these are the aliquots into which the capital of sole proprietorships and limited liability companies is divided
- Quotas: these are the aliquots into which the capital of the limited partnerships is divided
- Shares: these are the aliquots into which the capital of joint-stock companies and limited partnerships is divided by shares
Accounting for the capital of natural persons: Both in single-owner family businesses (not registered as the US) and in partnerships, the owners are liable with all of their assets jointly and severally and without limits for social obligations, which gives Right of all partners to manage the company. The Opening Balance must stipulate the amounts that each partner has agreed to contribute and at the time of delivery of the contribution, an account is credited in their name with the debit to the respective asset contributed.
The accounting effect of the profits is to increase the capital accounts of the partners in proportion to the contributions. Likewise, losses and withdrawals decrease these capital accounts. Partners can withdraw from business only assets that have been earned, but not those that were contributed. This means that the balances of the capital accounts, legally for partnerships but generally among family businesses, cannot be reduced to amounts less than the stipulated contributions, except in the case of a net loss. Finally, if the gains do not materialize and instead, the losses continue, the law requires partnerships but it is also the reasonable decision in family businesses that the business be liquidated when the capital contributed has decreased by 50%.
Exercise: On January 5 of the previous year, three individuals formed the collective society "Manuel Sáenz y Cía.", According to the Company Deed, the entries would be:
Year: Every month, during the year, the partner José Sáenz must be paid monthly with the sum of $ 4,000,000. If during the year the company obtained profits for $ 56,400,000, make the corresponding entries:
Exercise: The company Sigo al Comodín SA, recently formed, has obtained authorization to issue 10,000 shares each with a par value of $ 100,000 on January 1. The first entry of this company before selling any stock is:
Tomás Mejía 1000 shares, cash
Salvador Terán 1000 shares, 20% in cash, 40% at 6 months and 40% at nine months
Pedro Duba 1000 shares, 30% in cash, 40% at 6 months and 30% at nine months
Alexis Borrero 1000 shares, 40% in cash, 40% at 6 months and 20% at nine months
They are 1,900 in cash and 2,100 on credit (1,200 for 6 months and 900 for 9 months). The seats are:
Frequently, the stock market distorts the nominal value of shares, which is why entrepreneurs resort to estimates of the value of their company's shares. When it comes to defining the price or value of the shares for a certain negotiation, it is necessary to analyze the different existing systems, which has effects on the fixing of capital, the negotiations of shares, etc…
The Nominal Value is the one set in the Deed of Incorporation and refers to the value of the aliquots into which the company's opening capital stock is divided.
The Intrinsic Value is the result of dividing the equity by the number of shares and is useful for purposes of comparison with the Stock Market and for the application of the equity participation method in companies that have subordinates.
The Market Value is the result of the brokerage of the shares in the stock market and is widely used in the calculation of the Premium for placement of shares. While some companies work with a value somewhat lower than this, others do it using the average price that the sale of their shares shows up to the moment of the last declaration of dividends. It is also very important for the rating of high, medium or low Marketability, which determines its ability to sell on Stock Exchanges, at the same time that it indicates a great impact on the liquidity expected by any capitalization plan.
The Tax Value is the price for which the shares must be included in the income statement and is equal to the tax cost adjusted by the inflation index.
The Equity Value is estimated by the application of technical valuation methods. According to the requirements of the Superintendencies, it is the basis for calculating the premium through its adjustment by the price index.
The Premium in Placement of Shares
The nominal value of a share establishes a limit price and no corporation can issue its shares at a lower price, although once issued, the price of the shares is subject to the market price. When it is required to capitalize a corporation, it must be defined whether the capital will be obtained from the current shareholders or from new ones.If it is one of the existing ones, there are two options: either the contribution is received in cash or the system of delivering dividends payable through shares is used, in which case, it must be clarified whether the shares delivered are preferential or taxable. When all existing shareholders subscribe to the capitalization in identical proportions, it does not matter if the new issue is for nominal value or with a premium. But if the capital comes from new shareholders, it is necessary to set the premium value based on a technical valuation of the company, since the new ones have additional equity shares due to revaluations, and surpluses, reserves and accumulated profits..
When all shareholders subscribe for shares and pay the premium for the placement of shares, the resulting intrinsic value for each share affects or compensates all equally, however, when not all pay the premium, in the shareholders who have made the payment, the The cost paid would not be proportionally offset by the increase in the intrinsic equity value.
The Share Placement Premium is a capital surplus and cannot be distributed as a dividend. With the capitalization of the Premium for issuance of shares, the obligation to maintain it as non-distributable is understood to have been fulfilled. The capitalization of the premium in the placement of shares is an income that does not constitute income or occasional profit for both the company and the shareholders, however, this effect is liable to be lost if a decapitalization occurs due to capital withdrawal or repurchase of own shares during the next immediate year.
Year: The company Sigo al Comodín SA, two years after being incorporated, issued 2,000 shares at $ 120,000 each. Before this issuance, there were 4,000 shares in force for a value of $ 400,000,000. The seats will be the following:
Exercise: The company Sigo al Comodín SA, declared a dividend in shares of 12% on December 5, 20X2, to be paid at the end of that same month. Its authorized shares are 12,000 with a par value of $ 100,000 each and, before the dividend, it had 6000 shares in force. The company managed on December 31st the sum of $ 288,000,000 as accumulated profits
Solution:
No. of Shares in force: 6000 shares x 12% = 720 shares
Dividends in shares to be distributed: 720 x $ 100,000 = $ 72,000,000
The corresponding entries are:
Solution:
Number of Shares in force: 6720 15% of shares in force: 6720 x 15% = 1008
Dividends in shares to be distributed: 1008 x 120,000 = 120,960,000
The entries to record dividends in shares using the market price are:
Solution:
No. of shares in force: 7,728 shares
Cash dividend to be distributed: 7,728 x $ 10,000 = $ 77,280,000
Current intrinsic value of each share: 1,081,920,000 / 7,728 shares = $ 140,000 / share.
Fall in intrinsic value: 1,159,200,000 - 1,081,920,000 = $ 77,280,000
Fall of the intrinsic value of each share: $ 77,280,000 / 7,728 shares = $ 10,0000
Market value of the share: $ 140,000 / share
Therefore, the cash dividend does not mean anything to the shareholder, since although it is true that he has received $ 10,000 for each share, it also happens that the intrinsic value of the company's shares has decreased by the same value and is identical at market value.
Exercise: The company Sigo al Comodín SA, declared a dividend in shares of 25% of the shares in effect on March 15, 20X3 and uses the nominal value to register it. Estimate the net effect on the equity value of the shareholders.
Solution:
No. of shares in force: 7,728 shares 25% of shares in force: 7,728 x 25% = 1932
Dividends in shares at par value to be distributed: 1932 x 100,000 = 193,200,000
Final number of shares in force: 7,728 + 1,932 = 9,660 shares
Final intrinsic value: 1,081,920,000 - 193,200,000 = $ 888,720,000
Final intrinsic value of each share: $ 888,720,000 / 9,660 shares = $ 92,000 / share.
Market value of the share: $ 140,000 / share
Consequently, this dividend in shares means the shareholder a reduction in the value of his shares by $ 28,000, since although it is true that he has received $ 100,000 for each share, it also happens that while the equity decreases by 18% of its value, the number of shares in force has grown by 25%, however, when comparing with the market value, the shareholder continues to retain the same equity that he owned before the receipt of dividends (7,728 shares x $ 140,000 / share = $ 1,081,920).
An interesting conclusion is that “ a shareholder can make a profit beyond the time of payment of a cash dividend, as long as the market value of the shares continues to rise. Likewise, a shareholder can obtain profits beyond the time of payment of dividends in shares, as long as the market value of the shares is kept up ”.
Own Shares Reacquired
Exercise: On June 3, a company reacquires 130 of its own shares for a total cost of $ 5,200,000, and two years later sells them for a value of $ 11,050,000. The corresponding entries are:
In Colombia, according to Article 88 of Decree 2649 of 1993 or the Accounting Statute, for the reacquisition a reserve or equity fund must have been created equivalent to at least the cost of the reacquired own contributions. From a tax point of view, it is important to distinguish the value of the profits available to the company for the purchase, as they may come from profits that would not be taxable if they were distributed among the shareholders.
D.2649 establishes that the reacquisition must be recorded at cost and its presentation must be made in the balance sheet, within equity, as a subtraction factor of the account 330515 "Reserve for reacquisition of shares".
There are different regulations on fiscal cost and non-income income. For the shareholder who sells the shares to the company that repurchases them with profits, the difference in the reacquisition price and the fiscal cost yields taxable profit (in natural persons, if the shares are older than two years it is occasional profit). Fiscally, no loss is accepted in the sale of shares (Parra, 2007). It will therefore be necessary to know the fiscal cost of the shares and the time of possession of them, due to the fiscal benefit that operates in each case.
In accounting terms, the difference between the replacement price of the reacquired contributions and their cost, when the former is higher, must be recorded as "Premium on placement of shares". In the event that the sale price is lower than the cost, the Reserve for the repurchase of shares must be affected by the difference.
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