What is a contribution in kind?
A contribution in kind consists of assets used as payment in a new share issue or when shares in a company are subscribed for. It can be anything from machinery and equipment to trademarks or technologies. The property must have a lasting value for the company and may not be services or work. When the contribution in kind is accepted, the person contributing the property receives shares in the company in return.
In practice, this means that the company first has an independent auditor assess the value of the property. It is then decided how many shares will be issued based on the value established.
How a contribution in kind works
With a contribution in kind, a company receives assets instead of cash, which affects both its valuation and its capital structure:
- Assets are used as payment
- Requires review by an auditor
- Must have a lasting value
- Can replace cash capital
- Used in new share issues
Once you know these elements, it becomes easier to judge whether a contribution in kind is relevant and how it affects the company's capital structure.
What matters with a contribution in kind
Worth bearing in mind
When a company receives a contribution in kind, it is important that the property has a real value and can contribute to the business. The valuation must be clear, since shares are issued in exchange. As an investor, it is therefore wise to examine what is being contributed, how its value was established and what significance the property has for the company's development.
In unlisted companies, a contribution in kind can be a way to strengthen the business without bringing in cash. At the same time, misleading valuations can create risks for both existing and new owners. Documentation, review by an auditor and clear terms make the process safer and more predictable.
Frequently asked questions
What can count as a contribution in kind?
Assets such as machinery, trademarks, patents or equipment. Services or work cannot be used as a contribution in kind.
Why do companies use contributions in kind?
To bring in valuable assets without requiring cash, for example at start-up or during expansion.
How is a contribution in kind valued?
An independent auditor reviews and certifies the value to ensure that the company receives correct consideration.
Is the ownership structure affected by a contribution in kind?
Yes. New shares are issued, which means that existing owners may be diluted depending on the size of the contribution.
Are contributions in kind common in unlisted companies?
Yes. They are often used by entrepreneurs who contribute assets instead of capital when starting a company or during its early development.