Managing Legal Entities Without Capital in LEM

Modified on Fri, 5 Jun at 4:21 PM

DiliTrust Legal Entity Management (LEM) now fully supports legal entities that have no share capital — such as LLCs, partnerships, and other simplified legal forms commonly used in the United States, private equity, and international group structures. This article explains what has changed, why it matters, and how to use these new capabilities.

✨ Introduction: What Is a "No-Capital" Entity?

In many jurisdictions — particularly in the US, Canada, the UK, and in private equity — legal entities are structured without traditional share capital. The most common example is the Limited Liability Company (LLC), where members hold economic interests (expressed as a percentage) rather than shares backed by a stated capital amount.

Previously, DiliTrust LEM required a capital value to be set for every entity. This created friction for teams managing LLCs and similar structures. With this update, LEM now natively supports capital-less entities, bringing the platform fully in line with international legal standards.

✅ Prerequisites / Getting Started

Before using these features, make sure:

You have an active DiliTrust LEM account with administrator or editor permissions on the relevant entity.
You are working in a group structure where at least one entity is (or needs to be) configured as a capital-less legal form (LLC, LP, LLP, partnership, NPO, etc.).
For existing entities you want to reconfigure as "No Capital", ensure the entity does not currently have a share class of type "amount" and is not a simplified capital company — the conversion option will only appear if these conditions are met.

⭐ What's New: A Summary of Changes

Here is a quick overview of all the improvements included in this update:

"No Capital" entity configuration — you can now create or convert an entity without defining share capital.
"Share classes" renaming — the "Shares" menu is now called "Share classes", accurately reflecting that this screen defines categories of securities, not individual holdings.
Ownership Interest % terminology — capital-related percentage columns are now labelled "Ownership %" throughout the platform, replacing legally ambiguous terms.
"No Capital" display label — entities without capital now show "No capital" explicitly in the Profile and Orgchart views (instead of a blank field).
No-par value share classes — a new option lets you define share classes without a par value, using the subscription amount as the capital basis instead.
Ownership % per class column — a new column showing ownership percentage broken down by share class is now visible by default in the Shareholders screen and in shareholding reports.

⭐ Step-by-Step Guide

1. Create a New Entity Without Capital

Navigate to Entities and click Add a company.
Fill in the entity's general information (name, legal form, jurisdiction, etc.).
In the capital section of the creation form, leave the capital field blank or toggle the "No Capital" option when prompted.
Complete the remaining fields and save the entity.

The entity will be created without any share capital. Ownership will be tracked exclusively through Ownership Interest % rather than capital amounts.

2. Convert an Existing Entity to "No Capital"

Open the entity and go to Shareholding > Share classes.
In the Capital widget area, look for the option to remove or disable capital.
If the entity has no share class of the "amount" type and is not a simplified capital company, a conversion option will be available.
Confirm the change. The entity profile and orgchart will now display "No capital" instead of a blank or zero value.

3. Add Capital Back to a "No Capital" Entity

Open the entity and go to Shareholding > Share classes.
Use the Capital widget to enter a capital amount.
Save. The entity will revert to a standard capital-based configuration.

4. Define a Share Class With No-Par Value

Go to Shareholding > Share classes and click Add a class.
In the Value dropdown, select "No-par value".
The par value input field will be disabled automatically.
An information notice will confirm: "For this class, the legal capital calculation will be based on the subscription amount paid by each shareholder."
Complete the remaining share class details and save.

Note: If you enter 0 as the par value, LEM will display an error message prompting you to select the "No-par value" option instead.

5. View Ownership Interest in the Shareholders Screen and Reports

Go to Shareholding > Shareholders or open a Shareholding report.
The columns Ownership % and Ownership % per class are now displayed by default.
Use these columns to assess each shareholder's economic interest independently of any capital structure.

6. Understand Updated Column Names

The following terminology changes have been applied across all grids, filters, and reports:

Capital interest % → Ownership %
Interest (Capital) (direct) → Ownership % (direct)
Interest (Capital) (indirect) → Ownership % (indirect)
Capital % per share type → Ownership % per class
Votes % per share type → Votes % per class
Capital shares + voting rights → Ownership interest + voting rights
Capital shares only → Ownership interest only
Shares menu → Share classes
Add shares button → Add a class
In Orgchart display mode: Capital → Ownership interest

The columns Capital and %Capital are now hidden by default in the shareholders grid. You can re-enable them using the column picker if needed.

✨ Tips & Best Practices

Use "Ownership %" as your primary metric for LLCs and partnerships. Unlike capital-based percentages, Ownership % reflects true economic interest regardless of whether a capital amount is defined.
Distinguish economic interest from voting rights: use Ownership % (direct/indirect) for economic exposure, and Votes % per class for governance analysis.
No-par value is ideal for North American entities where the legal capital is based on amounts actually paid by shareholders ("stated capital") rather than a fixed per-share nominal value.
Review your existing LLC entities: if you manage LLCs that were previously configured with a workaround capital value, consider converting them to "No Capital" from the Share classes screen for greater legal accuracy.
Reports are automatically updated: all shareholding reports now reflect the new terminology and column structure — no manual reconfiguration required.
The Orgchart is updated too: it now shows "Ownership interest" for non-capital entities, so your group chart reflects the correct legal reality at a glance.

❌ Limitations & Known Constraints

Conversion is conditional: you can only convert an existing entity to "No Capital" if it has no share class of the "amount" type and is not classified as a simplified capital company. If these conditions are not met, the conversion option will not be available.
Capital columns are hidden by default: the Capital and %Capital columns are no longer visible by default. If you rely on these fields for reporting, you will need to re-add them manually via the column picker.
No waterfall distribution modelling: LEM tracks ownership interest (%) per shareholder and per share class. Complex distribution waterfalls with preferences (common in private equity) are not modelled within LEM — this remains the responsibility of the CFO or finance team.
Capital account tracking: capital account balances (which fluctuate based on profits, losses, and distributions) are managed outside of LEM. LEM records the ownership interest structure, not dynamic capital account values.

❓ FAQ

What is the difference between Ownership % and %Capital?

Ownership % represents the proportion of shares (or units) carrying economic interest owned by a shareholder, relative to all shares with ownership interest in the entity. %Capital represents the proportion of the legal capital owned. For traditional capital-based companies, these are usually equal. For "No Capital" entities, %Capital is not applicable — Ownership % is the only relevant metric.

Can I still see %Capital data for my traditional (capital-based) entities?

Yes. The Capital and %Capital columns still exist and are available via the column picker. They are simply hidden by default to reduce visual clutter. Nothing has been deleted.

Will my existing data be affected?

No data has been deleted or changed. This update renames labels and adjusts default column visibility. Your historical shareholding data, capital values, and reports remain intact. Entities that previously had a capital value retain it unless you manually convert them to "No Capital".

My entity is an LLC but it was set up with a capital value in LEM — what should I do?

You can convert it to "No Capital" from the Shareholding > Share classes screen, provided the entity does not have a share class of the "amount" type. After conversion, the entity profile and orgchart will display "No capital" and ownership will be tracked by Ownership % only.

What does "No-par value" mean for a share class?

A no-par value share class has no fixed nominal value per share. Instead, the capital contribution is determined by the actual amount paid by the shareholder at subscription (known as "stated capital" in North American jurisdictions). Select this option when defining share classes for companies incorporated in jurisdictions that use this method (e.g., US, Canada).

Is %Control affected by this update?

%Control (the maximum total voting rights held through ownership chains exceeding 50%) is calculated separately from capital and is not affected by the "No Capital" configuration. It continues to work as before, now displayed alongside Ownership % for a complete picture of both economic interest and governance control.

I manage a mixed portfolio of civil-law and common-law entities — will this work for me?

Yes. This is one of the key goals of this update. LEM now supports both traditional capital-based entities and capital-less entities within the same group structure. You can manage all entity types in a single tool without workarounds.