The content of the annual accounts consists in a balance sheet, a P&L account, a statement of changes in equity, a cash flow statement and the review memorandum (article 254 of the Royal Decree 1/2010 of July 2nd, approving the revised Capital Companies Law (hereinafter, LSC, its Spanish acronym)).
Capital Company administrators are obliged to issue the annual accounts in accordance with article 253 of the LSC. The period to do so is within 3 months after fiscal year closing.
Pursuant to article 272 of the LSC, the managing body who must approve the company’s accounts every year is the General Meeting of Shareholders. An Ordinary General Meeting of Shareholders must take place within the first six months of each fiscal year in order to approve the accounts of the last fiscal year and to decide on the assignment of the profit (article 164 of the LSC).
Capital companies are compelled to deposit annual accounts at the corresponding Trade Registry according to their business address within one month after approval by the General Shareholders’ meeting (article 279 of the LSC).
Only some capital companies have to submit their annual accounts to auditing. Pursuant to article 263 of the LSC, companies who can deposit an abbreviated balance sheet are exempt from this obligation to audit their accounts. To make use of this exemption, two of the following requisites must meet: (i) the total of the items of the assets can’t exceed two million eight hundred and fifty thousand Euros; (ii) net revenues do not exceed five million seven hundred thousand Euros; (iii) the number of employees during the fiscal year does not exceed fifty (article 257 of the LSC).
Nevertheless, the company can – voluntarily – submit its annual accounts to an accounting checking.
Besides, even if the company is not obliged to audit its accounts in agreement with the aforementioned criteria, the shareholders, if they represent at least 5% of the share capital, can ask the corresponding Trade Registrar to appoint an auditor – who will be paid by the company – to carry out a verification of the annual accounts, as long as three months have not elapsed since the current fiscal year was closed (article 265 of the LSC).
Theoretically, there is no obligation to distribute any annual dividend to shareholders. The Shareholders’ General Meeting is free to approve – or not – a distribution of dividends. But the shareholder actually has a right to participate in the social profits. However, this tension has mitigated since the recent passing of the Law 25/2011 of August 1st, partially modifying the LSC, as it foresees the shareholder’s right to dissociate provided that: (i) he has voted in favor of the distribution of social profits during the Shareholders’ General Meeting, (ii) during this meeting, the distribution of at least one third of the profits derived from the running of the business during the last fiscal year has not been agreed on, in the event that these profits are legally distributable (article 348 bis of the LSC).
Two of the most frequent consequences of the current economic context are that, if there is a lack of balance in the assets of the company’s equity, the latter can either (i) fall into compulsory reduction of the share capital because of losses diminishing the net assets of the company under two thirds of the capital (exclusively for Public Limited Companies, Spanish “Sociedades Anónimas”), or (ii) incur into a compulsory winding up if the net assets of the company are reduced to less than half of its share capital. If this last situation is not corrected, the company’s administrators will risk two main consequences: (i) joint and several objective liability: the administrators will be joint and severally liable for the obligations incurred into by the company since the moment they know (or should know) of the legal cause of winding up (article 367 of the LSC); (ii) subjective liability: if the creditors of the company urge the bankruptcy proceedings of the latter, these proceedings could be declared blameworthy if the company is facing a winding up process. It means that the administrators could face a possible liability consisting in having to partially or completely cover the company’s deficit (article 164 and 172 bis of the Bankruptcy Law 22/2003 of July 9th).
The most direct consequence if the annual accounts have not been deposited within one year of fiscal year closing is that the company’s registry sheet will be closed for any further entry (article 378 of the Trade Registry Regulations).
The administrators also have the duty to act diligently when they take care of the company’s matters. For that reason, as they are obliged to issue the annual accounts the way it was described above, they can be held accountable for non-diligent performance of their duties if the accounts are not issued, pursuant to articles 225 and 253 of the LSC.
However, this responsibility can only be claimed by the shareholders if they can prove that the lack of formulation of the annual accounts has caused any damage.
Ruth Cortés Galán