If the accounting result of the exercise of a company shows a profit, the shareholders have the right to enjoy it through a distribution of profits. This must be agreed by ordinary assembly of shareholders, which must be held at least once a year, within the four months following the end of the fiscal year in question, in which the financial statements for the fiscal year are approved (art. 181, General Law of Mercantile Companies – LGSM-).
LEE: TAX MANAGEMENT OF DIVIDEND ADVANCES
To decree the distribution of dividends, among other points it must be observed that:
- A minimum of 5% of the net profits must be separated to form the legal reserve fund (which must represent up to one fifth of the capital stock).
In case of not doing so, the administrators will be unlimited and jointly and severally obliged to deliver to the company, an amount equal to the amount that should have been separated (arts. 20 and 21, LGSM), and - if there is loss of social capital, it must be reinstated or reduced before making the distribution (arts. 18 and 19, LGSM)
Therefore, the feasible distribution utility is obtained as follows:
utility of the exercise
|
|
Concept |
Imported |
|
|
income for the year |
$10,000,000.00 |
|
Any less: |
Expenses for the year |
6,500,000.00 |
|
Equal: |
utility of the exercise |
3,500,000.00 |
|
Any less: |
ISR |
1,050,000.00 |
|
Any less: |
PTU |
350,000.00 |
|
Equal: |
utility of the exercise |
$2,100,000.00 |
The necessary contribution must be made from the profit for the year to form the legal reserve
|
|
Concept |
Imported |
|
|
Capital social |
$8,000,000.00 |
|
By: |
Percentage that the legal reserve must keep (fifth part) |
20 % |
|
Equal: |
Necessary amount of the legal reserve |
$1,600,000.00 |
|
Any less: |
Existing legal reserve at the end of the year |
1,200,000.00 |
|
Equal: |
Amount to be reduced from the profit for the year for the legal reserve |
$400,000.00 |
Once the necessary amount for the legal reserve has been separated, the remaining profit subject to distribution is as follows
Feasible Distribution Utility
|
|
Concept |
Imported |
|
|
Net profit for the year |
$2,100,000.00 |
|
Any less: |
Necessary amount of the legal reserve |
400,000.00 |
|
Equal: |
Feasible Distribution Utility |
$1,700,000.00 |
