Equity premium in Guatemala

The topic of the equity premium has taken off in Guatemala, mainly because of the concern about how ventures can be financed, since:

  • They do not want to be diluted.
  • They need capital.
  • Their venture is valued as nothing more than an income expectation.

Essentially, there are two ways in which money can come into a company:

  1. Through contributions (they receive shares in return);
  2. Through loans.

The “capital”, from a legal point of view, is the sum of the assets contributed by those who are part of the corporation. Its basic functions are:

  • To define who the shareholders are and in what proportions.
  • To be a guarantee against creditors or lenders.


Traditionally, the contributions are reflected by the issuance of shares in favor of the contributors. The amount of these is recorded in the par value of the security or certificate and over time, the book value of the shares greatly exceeds the par value, which is reflected at the time that there are transfers of shares.

The nominal value becomes a derisory measure that only serves the purpose of defining who the shareholders are and in what proportions.

In other jurisdictions, there are shares without par value and, therefore, they only fulfill the first basic function of capital. The value of these entities or shares is determined, at the time of issuance, by the board of directors approving the issue and, at the time of sale, by the book price of the shares, or the amount freely negotiated by the parties. Thus, a company may have several rounds of capitalization. In each round a specific value will be assigned to the shares.

Although in Guatemala there are no shares without par value, there are no rules that prohibit the issuance of shares for values greater than the par value, especially if what is sought is that the money enters the company, which would be the case of an investor.

The premium preserves the value of the existing shareholders when a new one enters, and the nominal value does not coincide with the present book value of the shares.

As an example:

  • Capital stock Q5,000 = 5 securities with a par value of Q1,000 each.
  • Accumulated profit Q5,000 = 5 securities with a nominal value of Q1,000, although the book value of each share is Q2,000.

In a new issue, it would not be logical for a new shareholder to enter paying par value. Article 88 of the Guatemalan Commercial Code establishes that the authorized capital of a corporation is the maximum amount that the corporation can issue in shares, without the need to formalize a capital increase. In the present case, the shares that would be issued to the shareholders would be for the nominal value of the contributions made. For the additional amount to be paid, no shares would be issued to them.

Art. 102 of the Guatemalan Commercial Code states that “Corporations are prohibited from issuing shares for an amount less than their nominal value and from issuing definitive titles if the share is not fully paid”.

We do not find in the Guatemalan Commercial Code any rule that limits or prohibits the shareholders to pay for the shares above their nominal value, the only obligation is to pay at least the nominal value of the shares. In any case, it is prohibited to issue shares for less than their par value.

The shares express a sum of money and a share of the capital. This rule arises from the fact that the capital is expressed in money and that it is divided into shares. From the point of view of the form in which their value is expressed in the share, shares can be of a sum, if they indicate a specific amount, and of a quota, if they refer to the part of the capital they represent. At present, most of the shares are of sum and the Guatemalan legislation only admits this type, since it demands as a requirement of the title that represents the share, that “the nominal value (…)” of the same be expressed (art. 107 numeral 5º of the Guatemalan Code of Commerce). The share always expresses a value in money, which is called nominal value and is indicative of the amount of the contribution and not of the acquisition price in the market, which is called effective value. It is also possible to speak of a real value of the share, in which case reference is made to the equity of the company.

It is important to add that according to Edmundo Vásquez Martínez, in his book Instituciones de Derecho Mercantil, one of the characteristics of Commercial Law is flexibility. The activities of a commercial company and its very professionalism require legal rules that, in the face of changing and often unforeseen circumstances, rather than hindering, allow and facilitate commercial business and adapt to the new circumstances.

In view of the foregoing, we do not find any legal rule that prohibits shareholders from paying a value above the nominal value of the shares, and the company from receiving such amount.

Additionally, it is important to consider that, ultimately, the corporation is a commercial contract and, therefore, the agreement between the parties and the free contracting prevails, as long as it does not violate an express prohibitive rule, which must be documented through the articles of incorporation and its amendments.

Finally, the capital premium would be documented in the capital section of the Company’s balance sheet.