Bahas Gramatidis & Partners
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Venture capital (see also Venture Capital, 7 April 1995 by Bahas, Gramatidis & Associates, Source Business Monitor)
Venture capital was introduced into Greece by Law 1775/1988, as amended by Article 8 of Law 2166/1993, on Companies for the Provision of Venture Capital. These companies are companies limited by shares and have as their main object the promotion and materialisation of high technology and innovation investments up to a percentage of at least fifty one per cent (51%) of their portfolio.
Such companies may in particular :
i. establish new enterprises ;
ii. participate in the capital of existing enterprises for the realisation of such investments ;
iii. give guarantees for the grant of loans to the above enterprises.
In order to attain their objects venture capital companies may issue bond loans or resort to the interbank market for bank loans.
The minimum share capital of such companies is Drs 500 m and must be paid up in cash. Shares must be registered shares and can be listed on the stock exchange in compliance with the provisions of P.D. 350/1985, as amended. However, no limitations are laid down in the law as to the founders, who may be either natural or legal persons of public or private law. The Bank of Greece exercises supervisory control, whereas the participation percentage of venture capital companies in other undertakings cannot exceed 20% of their own capital. Liquidity may be secured - in addition to the share capital, grants and reserves- by the issuance of convertible or non-convertible bond loans or by resorting to bank loans,as indicated earlier.
The law provides that the participation of venture capital companies in high technology undertakings is subsidised by a percentage of up to 30%. Participation is effected by means of the payment of a contribution for the establishment of undertakings engaged in high technology and innovation and by the increase of capital for carrying out high technology investments. The subsidy is granted by decision of the Minister of National Economy,following an opinion of the Special Advisory Committee provided in Article 8, paragraph 1 of Law 1892/1990, as amended by Law 2234/1994, upon submission of an application by the venture capital company.
Article 9, paragraph 1 of Law 1892/1990, as amended, provides that high technology investments are those aimed at :
i. the production of new products ;
ii. the production of new products and provision of services of exceptionally advanced technology ;
iii. the purchase and installment of equipment of exceptionally advanced technology for the production of products or the provision of services.
Participation of the venture capital company is effected in this respect by means of loan grants to undertakings involved in the aforementioned investments. Moreover such companies can give guarantees concerning the procurement of loans to undertakings by third parties.
As a separate issue it must be mentioned that high technology and innovation investments can fall within the ambit of the provisions of Law 1892/1990, as amended, provided that they comply with the requirements laid down in the law. However, in compliance with the provisions of Law 1775/1988 venture capital companies are subsidised by a percentage equal to their participation in high technology and innovation companies, whereas the subsidy provided in Law 1892/1990, as amended, concerns the investment. Obviously a combination of venture capital benefits and of the benefits established by Law 1892/1990, as amended, enhances the financial position of undertakings as it minimises their dependence on loans.
Capital gains are exempt from tax (Article 5 of Law 1775/1988). Moreover gains deriving from the partial or total sale of shares are also exempt from income tax. Such profits are shown in a special reserve account for covering future losses or the promotion and materialisation of investment, provided that it does not exceed fifteen per cent (15%) of the entire investment. Finally, interest accruing from bonds is also exempt from tax.
Venture capital companies are entitled to a tax rebate equal to 3% of their participation percentage as of the end of December of each fiscal year in enterprises undertaking high technology and innovation investments, as well as to 3% of the guarantees given to such undertakings. The tax rebate in question is carried forward to a special contingency reserve for the purpose mentioned in Article 1 of Law 1775/1988.
Every natural or legal person participating together with a venture capital company in the realisation of high technology and innovation investments by enterprises enjoys a tax rebate equal to 50% of his/its participation. Such a rebate must not exceed 25% of their participation and 50% of their total income each year.
Finally, it must be pointed out that the contribution can be in kind provided that it has been acquired by a consideration. In such a case the amount paid for the acquisition is exempt from tax. It must be noted that for the evaluation of the contribution in kind Article 9 of Law 2190/1920, as amended, applies.
The first sentence is corrected as follows :
Merger control is regulated by Law 703/1977 on Monopolies and Oligopolies and Protection of Free Competition,as amended by Laws 1934/1991,2000/1991 and 2296/1995.
Types of companies
The first two sections remain the same.
Corporations are governed by Law 2190/1920 on Companies Limited by Shares (AE),as subsequently amended. This law has been subsequently amended rather extensively by Presidential Decrees 409/1986, 498/1987 and 350/1993 with a view to harmonising Greek law with the respective EU Directives. It must be noted that since 1986 Greece has adopted the Directives of the Council of the EU 68/151/9.3.68 and 77/91/13.7.83 for the harmonisation of the rules relating to the establishment and operation of corporations and limited liability companies in the EU.
A corporation may be founded by at least two natural or legal persons,called the 'founders', by means of a notarial deed, being the Articles of Association. The minimum share capital is Drs 10m, for a capital investment corporation Drs 500m, for an insurance corporation Drs 120 or 240m (life and non-life insurance companies respectively), for a leasing corporation Drs 4 bn, for a banking corporation Drs 4 bn.
Limited liability companies
Limited liability companies are governed by law 3190/1955,as amended basically by Presidential Decrees 419/1986 and 279/1993 for the harmonisation of Greek law with the aforementioned Union Directives. Such companies may be formed by one or more natural or legal persons, called the founders,by means of a notarial deed being their charter. The law specifies the minimum contents of the charter of a limited liability company (Article 6 of Law 3190/1955), while the minimum capital requirement is Drs 3m.
Under Greek law joint ventures are recognised as constituting a separate legal entity and may take the form of one of the companies stated above. Although no approval or formality is required for the formation of a joint venture,called 'koinopraxia',the participants must enter into a written agreement which must be subsequently filed with the competent tax office. Each participant is taxed according to its participation percentage.
The sections on branches remain unchanged.
Athanassios Vamvoukos, Bahas, Gramatidis & Associates, Athens, Greece
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