VARIABLE CAPITAL COMPANY: CONSTITUTION, ADVANTAGES, DISADVANTAGES - DUDAS - 2025

A variable capital company is a corporation in which the capital and shares of the shareholders vary at any time, depending on whether there are increases due to new contributions by shareholders or admissions of new partners, or decreases due to partial or total withdrawals of shareholders.

They are the companies that expressly host this type of society in their statutes. This type of company must add at the end of its business name the initials CV corresponding to Variable Capital.

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The shareholders of the variable capital company share the nominal capital of the company in proportion to the nominal values ​​of their shares. The financial result of this type of company is proportional to the values ​​of the shares weighted by the duration of participation of the shares.

The capital of a variable capital company will always be equal to its net assets. This provides flexibility in the distribution and reduction of capital.

Legal procedure

To avoid the detriment of the shareholders' rights, the legal procedure for issuing shares for the variable capital company must be defined in accordance with the national trade laws of any country.

The five types of companies that are regulated by the General Law of Commercial Companies can be variable capital. These are: in simple limited partnership (SCS), in limited partnership (SCA), limited liability (SRL), in collective name (SNC) and anonymous (SA).

What is a variable capital company?

The variable capital company is a corporate entity in which any individual can have shares.

The shares in a variable capital company will entitle the members to receive profits from the assets of the company, in accordance with the rights established in the constitution of the company.

Therefore, a variable capital company does not limit itself to paying dividends only on profits, as is often the case with companies. Members can also trade or sell their shares to the society to get out of their investment.

Variable capital and fixed capital

A distinction between variable and fixed capital is the formalism given to capital increases or decreases.

In order to decrease or increase the fixed capital, an extraordinary meeting must be held, in which at least three-quarters of the capital must be represented. This decrease or increase must be approved with a vote in favor of the shares that constitute at least 50% of the capital stock.

The minutes resulting from this meeting must be formalized before a notary public and subsequently registered in the Public Registry of Commerce.

On the other hand, when the capital to be decreased or increased corresponds to the variable capital, it will be approved at an ordinary meeting. At least half of the capital stock must be represented at this meeting.

The approval will be effective with the vote in favor of the majority, without being necessary to formalize the document. You only need to register in the capital variations book.

These formalities are not applicable to any decrease or increase, but only when the capital increases due to the admission of new partners or subsequent contributions. In the case of capital decrease, it only applies for the partial or total withdrawal of the contributions.

How is it constituted?

The intention to be a variable capital company is manifested in the founding document. It could also be established at a later extraordinary meeting.

The constitution of a variable capital company contains certain provisions that cannot be repealed:

- The value of the capital of the variable capital company is considered at all times equal to the value at which it can be settled.

- The shares of the variable capital company must be issued, redeemed and repurchased at an amount that represents their proportional part of the net value of the company's assets.

The constitution must establish the rights of the shareholders, such as their participation or collection of profits.

To ensure confidentiality, the constitution will not be publicly available. However, a copy must be filed with the accounting and corporate regulatory authority.

The directors may alter the constitution for the purpose of forming a sub-fund without the approval of the members, if this right is provided for in the constitution.

Therefore, the requirement to obtain the approval of the members to amend the constitution of a company will not apply to such amendment.

As with any other company, a variable capital company must prepare its financial statements.

Sub-funds

A variable capital company can be established as an umbrella structure, with several sub-funds. Each sub-fund must be duly registered.

Its assets and liabilities must be allocated and used to meet the liabilities of each of the sub-funds.

The variable capital company must keep the assets and liabilities of each sub-fund segregated. The assets of one sub-fund cannot be used to discharge the liabilities of another sub-fund.

Financial statements must be provided to members annually. Therefore, the members of a sub-fund will have access to the financial information of another sub-fund in the same variable capital company.

Advantage

The main advantage of the variable capital company is the use of an umbrella structure. This allows the sub-funds to share a single board of directors and have a common service staff, such as the fund manager, custodian, auditor, and administrative agent.

Another advantage obtained by forming a variable capital company is the ease of being able to decrease and increase the capital stock.

You can also consolidate certain administrative functions, such as holding general meetings and preparing prospectuses.

Other advantages of the variable capital company are the improvement of operational and tax efficiency. Can be used:

- To have a variety of investment strategies, such as traditional funds, hedge funds, private equity and real estate funds.

- As an investment vehicle to group investments, thus favoring multi-level fund structures.

Stocks and dividends

The variable capital company allows the issue or exchange of shares without the approval of the shareholders. This, in turn, will allow an investor to enter or exit your fund at any time.

When a variable capital company is set up as an umbrella fund with several sub-funds, the members may own shares that refer to a particular sub-fund owned by the company.

A variable capital company can help pay dividends with your capital. Companies with the variable capital company structure are not obliged to pay dividends only from their earnings, as is the case of companies under the Companies Law.

This also benefits fund managers, who may have the flexibility to meet the dividend obligation. This is an important factor for the investor.

Disadvantages

This type of variable capital company has certain disadvantages, which are presented below:

- The company is obliged to pay a tax each time it executes any change in capital, either increasing or decreasing it.

- This variable capital company regime is not universal nor can it be applied to all companies.

- This type of company cannot tender its shares on the stock market, after they have the characteristic of having been repurchased.

- As this type of company usually requires a large number of investors or various partners, it is not the priority choice for an individual entrepreneur.

- It is impossible to control the entry into society of unknown persons, by increasing the capital in the stock market with new shareholders.

Examples

Most of the companies established in Mexico and other countries are public limited companies with variable capital. It can be seen that after the name of the company it says “SA de CV”. For example, the company "Industrial de Ensambles, SA de CV"

The letters SA mean textually: Public Limited Company. A society is a group of individuals who come together to achieve a goal, which is to run a business.

When the company is anonymous it means that the partners that constitute it have a limited liability with respect to their economic participation.

When two or more individuals associate to form a society, they invest money in different amounts. Individuals buy shares, which are the certificates that certify the money invested in the company.

In corporations, the individual qualities of the people participating in them are not addressed. It is attended to is the amount of money invested in the company.

It does not matter if Julio Márquez, a mechanic by profession, participates in society, or Juana Gómez, a doctor in biochemistry, participates. The important thing in public limited companies is how much each person contributes as an investment to society, that is why they are anonymous.

Variable capital

The other letters mean: C for Capital, and V for Variable. In the creation of business partnerships this is also a modality.

The addition of "CV" indicates that the corporation can increase or decrease its capital stock within the limits established by the corporation's bylaws, without having to formally modify its corporate bylaws.

The capital that a company has corresponds to the money that has been invested in it. This money is used to support the obligations you get and the responsibilities you face.

The variable capital of the company can be decreased or increased, depending on the situations faced by the business society. However, it is somewhat strange for a company to reduce its capital.

The capital of a company can establish how strong it is in the market. In the course of its operations, the company may gradually increase its capital to meet other commitments.

References

1. Pwc (2019). Understanding the Singapore Variable Capital Company (VCC). Taken from: pwc.com.
2. Emerald Insight (2014). Joint stock company with variable capital (JSCVC). Taken from: emeraldinsight.com.
3. Allen & Overy (2018). The Variable Capital Company: A New Corporate Structure for Funds in Singapore. Taken from: allenovery.com.
4. Argus Global (2018). Variable Capital Companies (VCC) -Gateway for Investments into Singapore. Taken from: argusglobal.co.
5. Ruiz Consultores (2019). Variable Capital Companies. Taken from: ruizconsultores.com.mx.
6. Legal Agreement (2013). What does SA de CV mean? Taken from: acordejuridico.blogspot.com.