The Control of Non-Cash Contributions to Companies

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The public limited company in France and Ethiopia assumes such a company to be formed by a public offering of shares and the one to be formed without making such offering will also be touched upon. Moreover, the primary sources of laws for the purpose of this paper will be the company laws of the respective countries, contained in a separate act or the commercial code, and other areas of law like the commercial or criminal law will be considered only where necessary. The liability regime does not cover the specific criminal penalties and the period of limitation to bring actions.

Finally, the issue of control of IKCs in the event of conversion of one form of company into another as well as the case of group companies does not make up a part of this paper.

Comparative legal analysis is employed as the primary tool of research. The comparision is beteween the EC law and the laws of Germany, France and England, on the one hand, and the laws of Germany, France, and England with the Ethiopian law, on the other hand. The three legal systems i.

Germany, France and England are selected because they are the important sources of the Ethiopian Commercial Code, that contains the provisions governing companies. However, an attempt has been made to overcome the problem through the use of secondary sources where the relevant cases appear.

The thesis proceeds as follows: Chapter One, which is divided into five Parts based on the number of jurisdictions covered, explores the laws of the EC on the control of NCCs in respect of both types of companies and the different aspects of the control system and then by using this as a bench-mark that of the German French, and English legal systems. The Ethiopian law will be compared and contrasted with only the three legal systems since, obviously, Ethiopia is not a member of the EC.

Chapter Two wraps up the thesis by providing recommendations for the Ethiopian legal system and suggessions for further comparative research. It begins with the EC company law and by using this as a benchmark it will proceed to assess the other legal systems. Ethiopia, being a non-member of the Union, its laws will be compared only with the laws of the three legal systems.

The Chapter is broken down in to five Parts for each of these jurisdictions within which there are different sections on each phase of the control system in respect of companies of both categories. However, an undertaking to perform work or supply services may not form part of these assets. It then goes on and expressly excludes an obligation to do work or provide services even if they may satisfy this general criterion. The rational behing the exclusion of an undertaking to do work or perform services may be that personal obligations are difficult or legally impossible to enforce.

Having identified what can be a valid type of NCC to a public limited company under the EC law, we now turn to look at what legal safeguards this law provides in order to ensure that the actual value of a NCC corresponds to its stated value and when it should be transferred to the company.

Accordingly, Article 10 1 of the second Directive provides that where a NCC is made to a public limited company at the time of its formation, a report on it shall be drawn up, before the company is incorporated or is authorized to commence business, by one or more independent experts. Article 10 4 of this Directive entitles member states to grant exemption from the above requirement but only upon satisfaction of the conditions set out therein for the application of exemption. Secondly, it must be shown that the persons who sign or in whose names the founding documents or their drafts are signed have agreed to dispense expert valuation and such an agreement is published in accordance with the First Directive.

Thirdly, the contributing company must have non- distributable reserves of at least equal to the nominal value or accountable par of the shares to be issued for the NCC and guarantees up to this value the debts of the recipient company. Last, the contributing company has to place the above mentioned values of shares in to a reserve that is not distributable for three years.

Article 2 1 of the first Company Directive requires member states to ensure the compulsory disclosure by companies of certain documents and particulars. From the provision of the Directives, it is possible to identify three consequences of failure by a [public] company to satisfy the above disclosure requirments relating to NCCs. First, even if it is not expressly stated, the requirment under the second Directive that the expert report be drawn up before the company is incorporated or authorised to commence business may be understood to mean that a company may not be incorporated or authorised to commence business in the absence of this report.

Secondly, pursuant to Arts. In the context of NCCs, this means that a member state may provide for the nullity of a public comapny where the expert report was absent or the required particulars about NCCs were not contained in this report, another document, or in the founding documents or, that these documents or particulars were not properly disclosed.

Yet, this is only a post-formation effect. Or would its subscription be only unenforceable as regards the company and it be required to pay in cash? Or will the subsciption continue to be binding on both parties depite the non-disclosure and the contibutor can then oblige the company to accept what it promised? The Directives are silent on this issue. The first Directive, as amended, does not contain criminal penalties, i. Neither does the second Directive, as amended. It is still important to ask what will happen if a Community law does not expressly provide a penality nor does it refer to national laws, as in the case of the second Directive, as amended?

The second Company Directive expressly extends its rules on NCCs where a public limited company issues shares, in the event of increase in capital, against a NCC. Where the increase in the subscribed capital necessitates an amendment of the statutes, Art. One instance of this is where the capital increase is made to effect a merger or a a public offer for the purchase or excahnge of shares that is meant to pay the shareholders of the company to be absorbed or which is the object of the offer for the purchase or exchange.

The language of Art. However, this Directive, as stated before, does not provide which company documents shall contain what particulars about NCCs nor does it prescibe that any of the documents it requires to be disclosed shall contain information about NCCs. As far as a public limited company is concerned, the second Council Directive explicitly requires that certain particulars, which we saw earlier, about NCCs to be stipulated in either the statutes or instrument of incorporation or a separate document as given by the law of a state.

And hence by virtue of the above provision of the first Directive this means that amendments to these documents and particulars, including any amendment on statements made therein about NCCs, shall also be properly disclosed together with the amended texts. It might, however, be argued that the issue is governed by the general provision Art. With regard to post-formation acqusition of non-cash assets, Art. As will apppear from the discussion so far and as will be analyzed below, there are a number of matters concerning NCCs that are not governed by the Community company legislations under consideration or on which these legislations are silent.

To begin with, due to the very scope of the second Council Directive, the provisons of this Directive governing the types of valid NCCs, the valuation and payment thereof, and the mandatory stipulation in the founding documents or another document about NCCs do not apply in respect of a private limited company. Secondly, even in the case of a public limited company, this Directive does not speak about the critera for eligibility of the valuer and its liabilities, any liability of the contributor to make up a deficiency in the value of a NCC, any role or duty of the founders and the first persons appointed to administer or supervise the company in the valuation process.

Futhermore, this Directive is silent concerning the finality of the value fixed by valuer in the sense that whether it need to be approved by the subscribers or the contributor itself, as well as the majority and quorum required to approve a post-formation acqusition and the effect of non- satisfaction of the rules on post-formation acquisition.

Thirdly, the second Council Directive does not provide the consequences where the a contributor fails to fully transfer the NCC within the prescribed period, or where the company accepts an undertaking to do work or perform sevices. There is no also express provision in this Directive concerning the liability of transferors and subsequent holders of shares [issued against a NCC] to pay contributions that have not been fully paid up where such shares are transferred to another person.

The above Directive is also silent on the issue of whether a subscriber who first undertakes to pay in cash at a future date is bound to pay likewise or it can latter pay its promise in kind. In fact, the second Company Directive is in the first place silent on whether such an undertaking constitutes a valid form of cash consideration unless one argues from its requirment under Art. In addition, there is no clear provision in the EC Company Directives about the possiblity for a company to correct omissions from the founding documents of the required particulars about NCCs by amending those documents.

The same is true about the possiblity of correcting incorrect entries in the relevant register or of the submission of the expert report if it was ommited at registration. Last, the Directives do not attach penalties for the violation of many of their provisions and are silent on the issue of any direct or derivative right of action of shareholders or creditors of a company to enforce any claims the company may have or of their own.

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The above state of affairs of the Community legislations may be explained by the very purpose of the Directives and nature of Cummunity legislations in the form of directives that they primarily aim at bringing about harmonaization, rather than uniformity, of national laws of member states and give member states the choice of form and methods for their implementation. This general standard and specific exclusion are in line with the second Council Directive. A Cross Country Perspective , 23 U.

Wickersham, The Capital of a Corporation , 22Harv. Vagts, Basic Corporation Law: According to this author, capital is different from assets in that capital remains fixed despite changes on it brought about by amndments to the formation instruments while asets may fluctuate depending on the gains and losses of the company in its transactions and by other factors. Moreover, transfer of the shares within this period is prohibited.

It also imposes a duty on member sates to ensure the required filing and publication by comapnies. However, in the event of discrepancy between what is published in the press and what is entered in the register, the latter controls as Art. As regards the responsible person, Art. This issue is, however, in the firs place excluded from the scope of the paper since this event does not as such involve the making of NCCs for the purpose of purchasing of shares in a company. Acknowledgments First of all, I thank God who enabled me to bring this work to an end.

Background The corporation, as a vehicle of doing business, is regarded as having played a significant role to the economic growth of nations. Statement of the Problem There is a large body of comparative writing about the company laws of EC member states. Recordkeeping for contributions for which you receive goods or services: If you receive goods or services, such as a dinner or theater tickets, in return for your contribution, your deduction is limited to the excess of what you gave over the value of what you received.

But your contribution is fully deductible if: Be sure to keep these statements. Instead, you need a written receipt from the charity that includes: This type of benefit is considered to have no commercial value and so doesn't reduce the charitable deduction available.

You must have the receipt in hand by the time you file your return or by the due date, if earlier or you won't be able to claim the deduction. Cash contribution made through payroll deductions: A contribution that you make by withholding from your wages may be substantiated by a pay stub, Form W-2, or other document furnished by your employer that shows the amount withheld for the purpose of a payment to a charity.

Substantiating contributions of services: Although you can't deduct the value of services you perform for a charitable organization, some deductions are permitted for out-of-pocket costs you incur while performing the services. You should keep track of your expenses, the services you performed and when you performed them, and the organization for which you performed the services.

Keep receipts, canceled checks, and other reliable written records relating to the services and expenses. This presents a problem for out-of-pocket expenses incurred in the course of providing charitable services, since the charity doesn't know how much those expenses were. However, you can satisfy the written receipt requirement if you have adequate records to substantiate the amount of your expenditures, and get a statement from the charity that contains a description of the services you provided, the date the services were provided, a statement of whether the organization provided any goods or services in return, and a description and good-faith estimate of the value of those goods or services.

A qualified appraisal isn't required for publicly-traded securities for which market quotations are readily available. If you have any questions on the tax treatment of charitable expenditures or the substantiation rules, please contact Jenny Wei at While helping the charity of your choice, you can also receive a federal income tax deduction for your contribution. There are several things to keep in mind if you do intend to claim a tax deduction. In some situations, you may need professional advice about the rules that apply to the kind of donation you want to give and to whom.

However, the following guidelines will get you started. What kind of organization can receive donations that are tax deductible? The IRS has many categories of organizations related to taxes. You may have heard the term "tax exempt. Your donations would be tax deductible only to some tax exempt organizations--not all. The category of organization you are looking for is what the IRS calls c 3.

Know the rules for tax deductions on charitable donations of inventory

The purposes of an organization have to fall into one of the following areas to be designated c 3: Your contribution to any of these c 3 organizations would be tax deductible--except for those that test for public safety. In addition, there are now prohibitions on giving to c 3 organizations that have been recently identified as connected with or supporting terrorist groups. Any donations to these organizations are not tax deductible.

How can I find out whether the organization of my choice has applied for and received a c 3 status from the IRS? One of the easiest ways to check is through Guidestar , a national database of , IRS-recognized nonprofit organizations. You can find them on the web at www. The IRS also publishes an annual listing of thousands of tax-exempt organizations to which contributions are deductible as charitable donations-- IRS Publication Cumulative List of Organizations.

At the IRS web site www. Is there a ceiling on how much I can deduct? Publication 78 will also tell you what the limitations on your donations to any organization are. What kinds of records do I need to keep? When making a donation of money, it's a good rule of thumb to pay by check, rather than cash, and make sure that the check is payable directly to the charity--not the person collecting the money or a company of another name.

Also be sure to get a receipt for your donation and keep it with your cancelled check. You must subtract the fair market value of what you received see 8 below from the amount you claim as a deduction. You don't need to send the receipt in with your tax return. Simply keep it in your records. You will need to subtract their estimated value from the amount you claim as a deduction. You should not attach the acknowledgment to your income tax return, but must keep it in your personal records in case you are asked to substantiate your contribution later.

I made a donation to my town's volunteer fire department. Don't I get a deduction? Though they are not c 3 , in most cases, you can claim donations to volunteer fire departments, as well as donations to war veterans' organizations, as charitable donations.

Check with your tax advisor to be sure. There are, in addition, several other kinds of organizations other than c 3 that are eligible to receive contributions, deductible as charitable donations.

These include cooperative hospital associations, cooperative service organizations of educational organizations, and some others. Depending on the kind of work you do, contributions to some organizations may be deductible as business expenses. I am making a financial commitment to my church that extends into the next year. Can I claim the total amount on this year's tax return?

You must claim the deduction in the year that you make the contribution. Promises or pledges of future donations, even if made in the form of a written commitment, are not deductible until you have paid them. I received a free book about the work of the organization as a "thank you gift.

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Chances are you don't. I donated furniture to a thrift store. Can I get a deduction? If the thrift store is operated by a c 3 organization to raise money for its cause, you may claim a tax deduction for the "fair market value" of the items. Thrift store staff usually assess this amount for you and write it on your donation receipt. I bought several candy bars from a nonprofit that was selling them as a "fund raiser. I flew back to my home state to volunteer for a relief organization after a flood.

They told me I could take my airfare as a deduction. When you pay for your own expenses that are directly related to volunteering for a qualified charitable organization, you can deduct these expenses from your taxes. In this case, you will need not only receipts, but a statement in writing from the charity acknowledging your volunteer contribution. This information has been compiled from a number of sources. Accuracy and completeness of any of the information cannot be guaranteed by the Institute of HeartMath or any of its affiliates. Consulting with your financial advisor is recommended and may be necessary to address your specific situation.

Publication 526 (2017), Charitable Contributions

What expenses can I deduct when I do volunteer work for a charity? I spend 20 hours every week cooking meals and delivering them to an organization that feeds the hungry and homeless. Am I entitled to a deduction for my time and the food I pay for out of my own money? Generally, if you do volunteer work for a charity, you are not entitled to deduct the cost of services you perform for the charity.

However, if in connection with the volunteer work you incur out-of-pocket expenses, you may be entitled to deduct some of those expenses. If the amounts that you pay for food and other supplies used in the preparation and packaging of the meals are not reimbursed by the charity, generally you may deduct these expenses as contributions to the charity. In addition, if the amounts that you pay to travel by car or other means to deliver the meals are not reimbursed by the charity, and you derive no personal benefit from the travel, the expenses are deductible.

Qualifying expenses include gasoline for your car and fares for taxis or public transportation. If you drive your own vehicle to deliver the meals, you can use a special IRS mileage rate to calculate charitable contribution deductions involving use of your car. This special rate is currently 14 cents per mile. Very complicated Hurricane Katrina related charity mileage rates started August 25, Other out-of-pocket expenses incurred in connection with services you provide to a charity that are deductible include costs related to uniforms, travel, meals, and lodging. If you take a deduction for out-of-pocket expenses you incurred incident to your performance of services for a charity, it is important to have receipts to document expenses.

It is also a good idea to get a written acknowledgement from the charity for the services you provide. If you gave property, you should keep a receipt or written statement from the organization you gave the property to, or a reliable written record, that shows the organization's name and address, the date and location of the gift, and a description of the property.

For each gift of property, you should also keep reliable written records that include: How you figured the property's value at the time you gave it. If the value was determined by an appraisal, keep a signed copy of the appraisal. The cost or other basis of the property if you must reduce it by any ordinary income or capital gain that would have resulted if the property had been sold at its fair market value.

Detailed records help obtain full benefit of donating excess food or goods

How you figured your deduction if you chose to reduce your deduction for gifts of capital gain property. Any conditions attached to the gift. Home Order more Information. Requirements - page IRS booklet Publication http: Make sure the organization qualifies Charitable contributions must be made to qualified organizations to be deductible. It is available at www. You must itemize Charitable contributions are deductible only if you itemize deductions using Form , Schedule A.

What you can deduct You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats. When you receive something in return If your contribution entitles you to receive merchandise, goods, or services in return — such as admission to a charity banquet or sporting event — you can deduct only the amount that exceeds the fair market value of the benefit received.

Recordkeeping Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization. Pledges and payments Only contributions actually made during the tax year are deductible. Donations made near the end of the year Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.

You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. Tax Exemption Revoked Approximately , organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law.

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