When a non-resident is a member of an LLC, he/she usually contributes foreign currency rather than UAH to the authorized capital. As you know, two different currencies are not always equally correlated – the exchange rate is not stable.
According to accounting standards, the amount of authorized capital is determined in UAH, and exchange differences arise. For example, the company decided to increase the authorized capital (IC) on July 08, 2020 by EUR 36,000.0 at the NBU exchange rate of UAH 30.4090; in UAH equivalent, it is UAH 1,094,724.00.
Making changes to the Unified State Register, data on an increase in the authorized capital at the rate of 30.5359 (the exchange rate as of the date of making changes) was indicated, respectively, in the UAH equivalent in the Unified State Register, an amount greater than 4,568.4 for the amount established in the resolution is indicated.
How to account for the difference between exchange rates if the equivalent of the UAH in the resolution to increase the authorized capital does not coincide with the equivalent of the UAH in the data of the Ministry of Justice. In this case, the procedure for increasing the authorized capital of the LLC shall be carried out through additional contributions. Thus, during such an increase in the Authorized Capital, there must be two resolutions of the general meeting of participants, not just one.
According to Article 16 of the Law on LLC, an increase in the authorized capital of the company is allowed only after all participants of the company have made their contributions in full. In case of an increase in the authorized capital through additional contributions, the nominal value of a company participant’s share may be increased by the amount of, which is equal to or less than, the cost of such a participant’s additional contribution.
According to Article 12 of the Law on LLC, the amount of the authorized capital of the company shall consist of the nominal value of the shares of its participants, expressed in the national currency of Ukraine. The amount of the company’s participant’s share in the authorized capital of the company may be additionally determined as a percentage. The amount of the company’s participant’s share as a percentage must correspond to the ratio of the nominal value of his/her share and the authorized capital of the company. Neither the nominal value of the participant’s share nor the authorized capital can be expressed in foreign currency.
According to Article 4 of the Accounting Law, one of the principles of accounting shall be single money meter, that is, the measurement and generalization of all business operations of an enterprise in its financial statements shall be carried out in a single monetary unit. And according to Article 5 of the same Law, enterprises shall maintain accounting records and prepare financial statements in the currency of Ukraine. And only at the request of users, the financial statements can be additionally converted to a foreign currency.
The procedure for increasing the AC through additional contributions is regulated in the following cases: Article 18 of the Law on LLC. According to this Article, the company’s participants may increase the authorized capital of the company through additional contributions from participants and/or third parties by resolution of the general meeting of participants.
The resolution of the general meeting of participants of the company on attracting additional contributions determines:
- total amount of increase in the company’s authorized capital;
- coefficient the ratio of the amount of increase to the amount of each participant’s share in the authorized capital, and
- planned amount of the authorized capital.
This is the first resolution, which records the participants’ intentions to make additional contributions to the AC. In this case, the exchange rate of the foreign currency does not matter at all, since we are talking only about the intention to make a contribution, and not about the fact of its implementation.
Participants of the company may make additional contributions within the period established by the resolution of the general meeting of participants, but no more than within one year from the date of making a resolution on attracting additional contributions. It is clear that in this case, the exchange rate of the foreign currency in which the contribution will be made may change.
The articles of association or a unanimous resolution of the general meeting of participants, in which all participants of the company took part, may set other deadlines for making additional contributions, may establish the possibility of participants to make additional contributions without observing the proportions of their shares in the authorized capital, or the right of only certain participants to make additional contributions, and may also exclude the stage of making additional contributions only by those participants of the company who have a pre-emptive right.
Within one month from the expiration date of the term for making additional contributions established according to Article 18 of the Law on LLC, the general meeting of the company’s participants shall resolve on:
- approval of the results of making additional contributions by the company’s participants and/or third parties;
- approval of the amount of shares of the company’s participants and their nominal value, taking into account the additional contributions actually made by them;
- approval of the increased amount of the company’s authorized capital.
This is already the second resolution, which should reflect the amount of the share of LLC participants in UAH, taking into account actually additional contributions made by them. The same resolution should reflect the approved amount of the increased AC of the LLC.
Therefore, it would be most logical to apply the EUR-UAH exchange rate on the day of making such a resolution. Or sell the currency altogether and continue to operate with the UAH amount, which is considered a contribution of a foreign participant.
According to Part 5, Article 17 of Law No. 755, for state registration of changes to information on the amount of the authorized capital, the amounts of shares in the authorized capital or the composition of participants in a limited liability company, you must submit the following documents:
- application for state registration of changes to information about a legal entity contained in the Unified State Register;
- document on payment of the administrative fee;
- one of the relevant documents, in particular the resolution of the general meeting of participants (resolution of a sole participant) of a limited liability company on determining the amount of the authorized capital and the amounts of the participants’ shares.
Submission of the second resolution of the general meeting of LLC participants, together with the relevant application, aims to provide the state registrar with information on the new amount of the authorized capital and shares of LLC participants. The function of the state registrar is to display the specified figures in the Unified State Register.
Thus, to resolve the above discrepancy in the amount of participants’ shares in UAH, you can use the following statement: second resolution of the general meeting according to the application for state registration of changes to the information about a legal entity contained in the Unified State Register. In other words, the numbers in the specified resolution and in the specified application must match.
The issue of foreign exchange differences and their accounting has been resolved in NAR(S) 21. But these changes after the second resolution is made should no longer affect the amount of the AC and the participants’ shares.