Internal company financing

I. Shareholders’ equity and personal investment

Through cash contributions or shareholder current account advances, partners can invest part of their personal funds in the company. These funds help build the company’s equity. At the business creation stage, equity represents the amount of money that an individual or a group of individuals has invested in the company. 

A personal contribution of at least 20% of the total required investment is needed to start a business. “Personal contribution” refers to the money you raise through crowdfunding. It is often the first source of funding for startups.

Of course, that’s obvious. Personal contributions are the main source of funding for new businesses. 

As a project leader, you should plan to contribute at least a minimum amount of funding to launch your activity. In principle, this investment should represent between 20% and 30% of your financial needs and is intended to cover the organisation’s initial expenses, administrative costs, notary fees, and more.

Your initial investment reflects your motivation, commitment and determination. It shows that you are willing to make an effort to launch your business, which can help convince potential investors and financial institutions to provide funding for the development of your business idea.

Therefore, personal contributions are the first source of funding for startups and a key lever for securing additional financing.

This is why we speak of self-financing when you fund your startup solely through your own equity and that of your partners. This approach benefits the company because it removes the need for any commitments to a third party, whether an individual or an organisation.

In addition, even if this equity is not sufficient to fully finance the company, it still helps when applying for bank loans.

II. Love money as an alternative form of internal financing

You can also consider turning to friends and family as part of a fundraising  for a company or a project.  Love Money  is an alternative in your search for funding that involves asking your friends and family for a contribution to help you launch your business.

It is one of the primary sources of funding for starting or taking over a business.

This technique, which involves raising funds from your circle of acquaintances, allows your loved ones, friends, family or even colleagues to lend you money. It is a kind of “emotional” savings account.

Your loved ones may offer you :

• Donations;
• Interest-free loans, zero-interest loans;
• Low-interest loans (very low);

With regard to donations, there is no duty payable on donations not exceeding €31,865. However, there are a few rules to follow:

• The donor must be under 80 years of age;
• The beneficiary must be a child, grandchild or great-grandchild of the donor (or nephew/niece if the donor did not have children);
• The beneficiary must be of legal age and emancipated.

While love money has many advantages, it also has its share of disadvantages, which you should keep in mind when embarking on this adventure. 

In order to avoid future disagreements, it is important to put commitments in writing. While donations are rarely subject to a contract, this is a necessity for loans and equity investments. In the case of loans, it is essential to sign a contract. In the case of capital investments, a shareholders' agreement must be signed. Failing this, the transaction can be formalised in the company's articles of association.

Furthermore, to persuade those around you, simply highlight the tax advantages of this approach for individual investors.​

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