Company Annual Accounts: Legal Requirements and Procedures
G. – Proposal for Outcome Implementation
Along with the annual accounts and, where appropriate, management reports, administrators must propose a profit or loss allocation for consideration by the general meeting (jg).
The Limited Stock Act (LSA) mandates establishing legal reserves. A figure equal to 10% of annual profits will go to the legal reserve until it reaches at least 20% of the capital. In addition to legal reserves, statutes may require other statutory reserves. The jg, by agreement and without statute modification, may establish voluntary reserves. Statutes may further determine how profits are allocated.
After fulfilling legal and statutory requirements, directors may propose to the board that profits, or a portion thereof, be distributed to shareholders as dividends. Distribution is only possible if profits exceed the capital. No distribution may be subject to direct or indirect benefits charged directly to equity. If losses from previous years exist and are less than the social capital, profits will offset these losses. The LSA prohibits profit distribution unless available reserves equal research and development expenditure recorded in the balance sheet. A restricted reserve equivalent to goodwill appearing on the assets should be established, targeting a profit representing at least 5% of that fund. If there is no profit or it is insufficient, freely available reserves will be used.
If distributable profits exist, ordinary shares may not receive dividends until preference shares and non-voting shares receive their preferred dividends, including any unpaid portions from previous years, if cumulative.
Early dividend distribution to shareholders may be considered by the jg or administrators.
I. – Adoption and Publication of Annual Accounts
Annual accounts must be approved by the ordinary jg within six months of each year. Failure to meet this deadline does not affect validity if a later meeting is held. The jg will decide on profit or loss implementation according to the approved balance sheet. From the time of the meeting’s convening, any shareholder may request, free of charge, the documents for approval, the management report, and the auditor’s report.
Within one month, the company must deposit with the Mercantile Registry (RM) of its registered office a certification of the approved outcome and its implementation, along with copies of the accounts, management report, and auditor’s report. The RM will retain these documents for six years. Companies must indicate whether publication is full or abbreviated.
H. – Verification of Annual Accounts
The annual accounts and management report must be audited. However, abbreviated balances are acceptable for some companies. Auditing is required for companies listed on the Stock Exchange, those engaged in financial intermediation, those whose activities are subject to the LOSP, and other companies listed in DA 1 of the Law on Audit Accounts (07/12/1988). For companies not subject to mandatory auditing, shareholders representing at least 5% of the share capital may request the company registrar of the registered office to appoint an auditor within three months of the financial year-end.
Auditors are appointed by: a) the jg before the end of the year to be audited. The board may designate one or more auditors, who may act jointly and be either physical persons (pf) or legal entities (j), and b) The Registrar M. when auditors are not appointed by the board, refuse office, or are unable to fulfill their duties, at the request of administrators, any member, or a debenture union commissioner.
The initial appointment is for three to nine years from the commencement date of the first audited year and may be renewed annually by the general meeting (gral) after the initial period. Appointment may be revoked only for just cause.
Auditors, following auditing rules, prepare a detailed report within one month of receiving the accounts from management.