The legal reserve is mandatory, provided that the company has profits on which it can determine the reservation. For example, if a company has made a profit of €150,000 in the last year and its capital is €60,000, the legal reserve requirement is €9,000. In this sense, the legal mandatory reserve must reach up to 20% of the share capital of the company and therefore the company must contribute up to 3,000 euros of the profit made to the reserve in order to reach the minimum set by law. The rest can be used for various purposes, such as voluntary reserves or statutory reserves that could have been built up in the company. The reserve system is legally structured in such a way that the company is obliged to strengthen the share capital, for which all shareholders are responsible and shareholders are creditors. The resulting protection allows the undertaking to carry out its activities without prejudice to third parties. This is why reserve funds can never be used to pay dividends to shareholders. In this case, we see that of the €1,000 benefit obtained, 10% goes into the legal reserve and the rest is intended to cover a previous supposed negative year. Reserves are part of a company`s resources and are intended to meet future obligations that may arise towards third parties.
In this context, these reserves may be mandatory, statutory or occasional. Colombian commercial legislation stipulates that a reserve representing 10% of the company`s liquid profits is constituted until the equivalent of 50% of the subscribed share capital is completed, a reserve that may exceed this 50%, which represents a surplus of the legal reserve. Assuming a net profit of $5,000,000, the use of the legal reserve in this case ($5,000,000 – income tax) x 10% Which corporations are required to create and provide the statutory reserve? As for the recognition of the statutory reserve, it is part of the assets, more precisely in the account, which 330505 according to the Colombian chart of accounts alone. This reserve must be made by allocating 10% of the net profit at the end of the year until the amount is equal to at least 50% of the share capital. Once this amount has been reached, it is not imperative to continue to provide funds for the legal reserve. In this regard, the S.C. Antonio Castillo Sánchez, Tax Advisor at IDC Tax, Legal and Employment Advisor, explains the procedure for building up the legal reserve from 2019 profits, the case of a joint-stock company with variable capital, created in 2016, as indicated below: when using the reserve, the corresponding value is debited from the reserve account and credited to the account corresponding to the use made. reserve. It can be said that according to the provisions of articles 452 and 453 of the Commercial Code, the only reservation obliged to constitute a company is the legal reserve, since the main purpose is to cover the obligations that the company can acquire in the event of losses; This reserve guarantees a possible rescue of the company in the years when profits are not made, but lost. It is important to note that if the statutory reserve is distributed for purposes other than that of their capitalization, the administrator may repeat to the shareholders the value of what is delivered to them and the amount to be considered as an increase in the statutory reserve, since the profit of the financial year has a credit, it will be invoiced when withdrawing resources, to put them in the reserve account.
which is also of a credit nature. With regard to minimum reserves, these include liquid profit values aimed at complying with the legal requirements for the protection of the company`s assets. The legal reserve covers losses if there are no other reserves for this purpose; The legal obligation to make reservations is mandatory in public limited companies under the provisions of Article 452 of the Commercial Code, a situation that is not based on the simplified joint-stock company, since in this type of company, the constitution of the legal reserve for shareholders is optional. In fact, reserves could be depleted in future negative years to©cover losses or a decline in commercial production. The allocation of reserves may result from these circumstances and their replenishment is subject to the profit warning. Reserves are the means of the profits made by the Company to meet legal, statutory or occasional requirements. Third parties can request its creation: in addition to the shareholders, the creditors of the company can, in a summary, request the integration of the legal reserve Article 452 of the Commercial Code stipulates that joint-stock companies must constitute a legal reserve of at least 50% of the subscribed capital, which must be constituted with 10% of the illiquid profits of each year. This means that of all the commercial activities carried out by public limited companies, 10% of the constitution of the reserve is allocated until 50% of the subscribed capital is completed.
In this article, we will focus on the mandatory legal reserve: what it consists of, what impact it has on the company`s profits and what is the regulation it has set. The legal reserve is a type of regulation in some companies that is used in commercial law as a legal guarantee for the activities and operations carried out by the company, in case it cannot be held responsible for it or must compensate its creditors for defaults or other economic and financial liabilities.
