Assuming that a given company has earned a total of $10,000 net in the last year, 10% of this amount is deducted from this annual amount, which is directed to the reserve, as it is calculated that this percentage can cover possible negative figures that this company may have the following year. The legal reserve covers losses if there are no other reserves for this purpose; The legal reserve is mandatory in joint-stock companies in accordance with 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 creation of the legal reserve is optional for the partners. Therefore, the statutory reserve is based on profits made over the years and is calculated after amortization of contributions for officers, directors, etc., social security contributions and other business costs, as well as©financial and business expenses and expenses. The legal reserve is one of the most commonly used economic instruments, as it allows companies to create and maintain economic support that meets all eventualities. Third parties may demand its establishment: In addition to shareholders, the company`s creditors can also sue in summary proceedings for the integration of the legal reserve For a company that achieves a result of € 10,000 this year, its share capital at present is € 50,000 and the statutory reserve of € 9,000. How much is missing for the statutory reserve of 20% of the share capital? Determination of the statutory reserve on the basis of the 2019 annual result The term legal reserve refers to a type of mandate by which a commercial company reserves a certain amount of capital as collateral for its activity. As a general rule, this sum corresponds to twenty per cent of the value of the total share capital. They are gained from the benefits of exercises until they reach that twenty percent. If, of course, the company believes that there is no reserve, then it begins to build itself in the first fiscal year. We start with the legal reserve in the company because it is the one that is best regulated, and the legal reserve in other types of companies usually refers to the rules of the company. This provision is constituted by the allocation of 10% of the annual net income until the amount reaches at least 50% of the share capital. Once this amount has been reached, it is not mandatory to continue allocating funds to the legal reserve. The obligation to constitute a legal reserve is provided for by the Commercial Code and applies to the following companies If this company reaches the point where the annual legal reserve exceeds one fifth of the available share capital within the limits of its financial security, this legal reserve becomes the investment currency available to the company; this is explained by the General Law on Commercial Companies (LGSM).
This legal reservation will be mandatory until it remains in force, so if you want to eliminate it, you will have to change the statutes or statutes. When do legal reservations cease to apply? According to the information given above, the legal reserve account must reach 20% of the company`s share capital, so the calculation: 2,000,000 x 20% = €400,000 would result in a shortfall of €150,000 to reach this 20%. If this reserve reaches this fifty percent, the company is not obliged to continue to transfer ten percent of the net profit to this account. If, however, it decreases, it must reuse the same ten per cent of these profits until the reserve reaches the fixed limit again. The value of the legal reserve is the sum of all the accounting profits that this company has after this sum has already been liquidated without taxes or tax payments, 10% of this sum is available to be destined for the tax reserve of this company. Since the profit for the year is creditable, it is debited when the funds are withdrawn in order to transfer them to the reserve account, which is also creditable. It should be noted that the minimum amount of the legal reserve is 50% of the subscribed capital, since the company has the authorized, subscribed and paid-up capital. The purpose of the legal reserve is therefore to protect the share capital against possible losses. Companies cannot freely dispose of these reserves or use them as they wish, but their sole purpose is to respond to losses. The legal reserve is also the one that a company (company) must have according to the regulations in force. In some countries, the legal reserve must be equal to 10% of the profit of the last financial year until it reaches at least 20% of the share capital. This statutory reserve is used to offset losses if the company has no other reserves for this purpose.
In this case, since the amount of $28,715.00 is required to complete the legal reserve of 20% of the share capital. It can be said that, according to the provisions of Articles 452 and 453 of the Commercial Code, the only reserve required to set up a capital company is the legal reserve, since the main objective is to cover the obligations that the company can acquire against losses; This reserve guarantees a possible rescue of the company in the years when the losses are not made, but the losses. The legal reserve is constituted only if the partners determine it in the articles of association of the company and the amount and its determination are determined by the same articles of association. From a legal point of view, reserves represent a set of securities and assets that are excluded from distribution and dividends that receive shares to support economic activity. Therefore, these are sums of profit and are intended to increase net wealth. The above voluntary reserves are those reserves that are freely available after compliance with applicable laws and the possible distribution of dividends, so that the company concerned can use them when it needs them or when it deems appropriate. In particular, there is ample evidence that they can be used for any purpose that the company`s managers deem important. In this case, we see that of the profit of € 1,000 obtained, 10% goes to the legal reserve and the rest is intended to cover a previous negative year. That is, the legal reserve is a percentage of our profits that is intended to be stored and accumulated until it has to be used to compensate for economic difficulties that may arise in the future. Taking into account that the legal reserve must be accumulated in the share capital that, as defined above, the company stores as a method of hedging to support possible damages; The maximum limit that the statutory reserve may have would be one-fifth of the net share capital of the company.
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