In addition to the legal reserve, there are legal reserves that are those that the company has taken into account in its statutes or statutes. Then, this legal reserve is affected if the company does not cover the compulsory expenses that it must respect, so that the legal reserve is finally used so that the company does not have problems of a legal or institutional nature. The value of the legal reserve is the sum of all the accounting profits that this company has, after this amount has already been paid without taxes or tax payment, 10% of this total amount is available to be allocated to the tax reserve of this company. If that company reaches the point where the annual statutory reserve exceeds one fifth of the share capital it holds by virtue of its financial security, that statutory reserve shall become the investment currency at its disposal; in this way, it is explained by the General Law of Commercial Companies (LGSM). At the time of incorporation of the company or subsequently by resolution of the general meeting, a statutory reserve may be created for the purposes that the shareholders deem appropriate. Taking into account the fact that the legal reserve is intended to accumulate in the share capital that, as we have defined above, the Company stores as a security method in a way that supports possible damages; The maximum limit that the legal reserve could have would be one fifth of the company`s net share capital. As mentioned earlier, the fact that a loss or negative result is obtained does not necessarily imply the obligation to compensate it, but in the case of voluntary or optional reserves sufficient to compensate for the annual loss, it would be strongly advised to proceed with compensation (erase losses) and clean the assets of the proven negative result. Every year, this exercise is carried out until the legal minimum of the reserve is reached, and from now on the company is free to continue to appropriate or not to acquire or acquire less than 10% if it prefers. The purpose of the reservation is to protect the assets of the company, so that no other use can be given than this eventuality or eventuality.
If the legal reserve is insufficient to cover the capital deficit, the social benefits of the following financial years shall be applied for this purpose. This legal reservation is mandatory until it remains in force, so if it is to be abolished, the statutes or statutes must be amended. Every company is exposed to risks and losses that can jeopardize its financial stability and assets, and remember that one of the legal bases for the dissolution and liquidation of a company is the reduction of its assets below the threshold set by law, which can be avoided if the company has built up sufficient reserves that can cover these capital reductions. The legal reserve can only be used for that provided for by law, and this allows its use only to cover losses, as stated in Article 456 of the Commercial Code: “The limited partnership by shares constitutes a legal reserve of at least fifty percent of the subscribed capital, consisting of ten percent of the liquid profits of each year. If it reaches this limit or the limit provided for in the articles of association, if it is higher, the company is not obliged to increase it further, but if it decreases, it will reuse the same ten percent of these profits until the reserve reaches the fixed amount again. “That is to say, according to the Companies Act, 10% of our profits must be paid into the coffers of the so-called statutory reserve, which must have a size of 20% of the share capital. We have already analyzed the reserves and the negative result or loss of the year, now we have to analyze the possibility of compensating for the same with possible negative results. We start with the legal reserve in the corporation because it is the one that is best regulated, and the legal reserve in other types of corporations usually refers to the rules of the corporation. That is, the legal reserve and social capital are tools that companies use as a security barrier and thus respond more appropriately to the various economic emergencies that may arise. 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. “Foreign companies with permanent operations in Colombia constitute the reserves and regulations required by law for national companies and meet other requirements established for their control and supervision.” This legal reservation is mandatory for each company, as it will not only be able to bear possible damages, but also to make mandatory payments and avoid legal problems for these companies. Assuming a liquid profit of $5,000,000, the use of the legal reserve in this case ($5,000,000 – income tax) x 10% would be the mandatory part of the benefits that must be accrued.
It cannot be eliminated, with the exception of compensation for negative financial years. To calculate the legal reserve, the company must determine its liquid or after-tax profit by reference to the accounting and non-tax profit, on this basis 10% must be applied, the result is allocated to the legal reserve. Reserves can be statutory, statutory or occasional: A company, as long as it does not reach the limit of 20% of the share capital, must distribute the results as follows: In this content, the statutory reserve is constituted after approval of the annual financial statements by the meeting. Perhaps one of the most practical examples is to observe how the legal reserve behaves within a company: in a company there may be several types of reserves that coexist and may have a different purpose; On the one hand, the Commercial Code refers to the legal obligation of reserve, which is nothing more than the obligation of the company to hold ten percent of the profits of each financial year, up to fifty percent of the subscribed capital, in which case it will not be necessary to continue to deduct said ten percent profits. In this case, income tax is determined on profit without deducting the reserve, and once income tax is determined, it is deducted to determine the liquid profit on which the legal reserve is calculated. Other types of reserves are optional under the articles of association for statutory reserves or the annual general meeting, for occasional reserves. Before knowing the legal reserve in detail, it is necessary to know that there are other types of reservations that companies can make according to their needs. 59 Resultados Acumulados      7,050    ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ ́ 582 Legalx/x por la detracción de la reserva legal de las utilidades no distribuidas. La ley no hace distinción a tipo o clase de sociedad, de modo que cualquiera que sea, por el simple hecho de ser extranjera debe constituir la reserva legal en los términos del artículo 452 del código de comercio. Determination of the statutory reserve based on 2019 net income In this case, the amount of $28,715.00 will be withdrawn from 2019 profits to increase the statutory reserve with which it will dispose of an amount of $60,000.00, or one fifth of the Company`s share capital.
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.