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The obligation of commercial companies to prepare annual accounts

In practice, annual accounts are indispensable to provide a minimum level of information on the main accounting, financial management parameters and operations of commercial companies. The annual accounts are also intended to present, as of the closing date of each financial year, a faithful picture of the assets, the financial situation and the accounting profits of the companies' business activities. By comparing this data from these documents, from one period to the next, you can assess, at least in numerical terms, development over time. They are therefore an essential decision-making tool aiding the diverse interests of any interested party (directors; shareholders; investors; government authorities; creditors, such as bankers, suppliers; customers; competitors; commercial courts and potentially other judicial authorities, responsible for preventing and dealing with companies in difficulty) near or far through access to the company's business data as well as their financial, accounting and management situation. Taken in isolation, the annual accounts essentially contain several sets of simple indicators of accounting levels. They therefore appear to be insufficient to understand whether or not the company is managed effectively under their dynamic aspect. These documents are not capable of showing the root causes of the reported amounts and their possible developments over the short, medium or long term. This is particularly the case when it comes to re-positioning the parameters of companies' financial and accounting position in the most general context of their operations, with respect to developing their internal capacities (management effectiveness, adaptability of employees etc. ) and their external environment (customers, suppliers, investors etc. ). This is why the annual accounts must be accompanied by significant additional documents, including, primarily, the annual financial review (or management report).

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The minutes of general meetings for approval of the annual accounts of commercial companies

Once a year, the annual accounts for the last financial year, i.e., the balance sheet, the profit and loss statement and the notes, must be approved of the Annual General Meeting. More specifically, in most commercial companies (SA, SAS, SNC, SCS, SA, SARL etc. ), the members of the executive bodies are liable to heavy criminal and civil sanctions for management error, if they breach the obligation to submit annual accounts for approval by the partners or shareholders. For this reason, the members of these executive bodies must demonstrate that they have indeed submitted the company's annual accounts for the preceding financial year for approval by the partners or shareholders, who generally meet in Annual General Meeting, by drawing up minutes of the general meeting. The approval of the annual accounts is therefore strictly regulated. By approving these annual accounts, these partners or shareholders implicitly demonstrate that the documents concerned contain data that has been prepared on a true and sincere basis. They also presume that, as of the closing date of each financial year, these annual accounts reflect a faithful picture of the assets, the financial position and the book profit (or loss) for the companies' business. More generally, the approval of the annual accounts represent the indispensable tool to provide a minimum of information on the main accounting parameters, financial management and operations of commercial companies. They are therefore an essential decision making tool aiding the diverse interests of any interested person (directors; shareholders; investors; government authorities; creditors, such as bankers, suppliers; customers; competitors; commercial courts and potentially other judicial authorities, responsible for preventing and dealing with companies in difficulty) near or far, through access to the company's business data as well as by their financial, accounting and management position. For all these reasons, it is vital that the annual accounts must be approved in strict compliance with the statutory requirements.

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File : The minutes of general meetings for approval of the annual accounts of commercial companies

Part 2

What should be included in the minutes for approving annual accounts?

Reporting what was said and done during a general meeting that approves the annual accounts follows contrasting regulations that are common to the various major types of commercial companies as well as the special characteristics of some of these companies. Two resolutions (i.e., decisions formalised in the minutes) are essential, namely approving the annual accounts and allocating the profits of the financial year.

General framework for the minutes

For an SARL:
 
The minutes of the general meeting should include the following information:
 
  • The date and place of the meeting;
  • The surname, forename and job title of the general meeting's chair person;
  • The surname and forename of the shareholders present or represented (by proxies), mentioning the number of shares held by each of them;
 
Good to know: Within the limits set by law and provided the articles of association permit it, the shareholders are deemed present at any annual general meeting when they participate remotely in debates and vote during the meeting via digital means (including videoconferencing). However, this assumption of presence is totally excluded for general meetings that deliberate on annual accounts (annual and/or consolidated), given that for this type of general meeting, any participation by electronic means is, itself, excluded.
 
- The documents and reports submitted to the general meeting (mainly, the following documents: the AGM invitation and the auditors report on the annual accounts, documents which are mandatory, provided that at least one auditor has been appointed by the company, regardless of whether this appointment is mandatory or voluntary; the annual accounts; the annual management review prepared by management);
 
- A faithful and objective summary of all the debates, excluding therefore, inter alia, any analysis of the discussions that preceded the adoption of decisions;
- The text of the resolutions put to the vote, on the understanding that it is necessary to detail not only the resolutions definitively adopted but also those that have been rejected;
- The result of the votes.
 
In the SA, one of the most common 'share' companies:
 
The minutes of the general meeting should include the following information:
 
  • The date and place of the meeting;
  • The invitation method;
  • The agenda, in other words, the clear statement of various items submitted to the general meeting,
  • The composition of the committee, i.e., the identity of the chairman and the meeting's two scrutineers and the secretary;
  • The number of shares participating in the vote;
  • The quorum reached (i.e., the number of shareholders actually present or represented in relation to the minimum number of shareholders present or represented for the meeting to continue validly);
  • The statement of the documents and reports submitted to the General Meeting (in the case of a General Meeting called to adjudicate on the approval of the annual accounts, it must primarily list the following documents that directly concern the meeting's primary purpose, that is to say, approving the annual accounts: the invitation for the statutory auditor(s); the annual accounts; the annual management review of the executive body; the report of the supervisory board on the results of the management control of the company, for companies with an executive board and a supervisory board; the auditors' report on the annual accounts);
  • A faithful and objective summary of the entire proceedings. This summary will notably exclude any analysis of the discussions that preceded the adoption of decisions. However, it will include: the chairman's speech; any new information communicated to the general meeting in relation to the documents previously made available; each of the shareholders' interventions in the form of oral or written questions and the answers; all the comments of the shareholders who have requested that they appear in the minutes unless the General Meeting raises an objection in view of it being contrary to the interests of the company (but in this case, the minutes must, at least, note this objection) ;
  • The text of the resolutions put to the vote, including not only the resolutions definitively adopted but also those that were rejected;
  • The result of the votes.
 
For SNC's :
 
The minutes of the general meeting should include the following information:
 
  • The date and place of the meeting;
  • The full name of the shareholders present or represented by proxy, provided that this is permitted by the articles of association;
  • - The documents and reports submitted for discussion (mainly, the following documents: the invitation and the auditors report on the annual accounts, documents which are mandatory, provided that at least one auditor has been appointed by the company, regardless of whether this appointment is mandatory or voluntary; the annual accounts; the annual management review prepared by management);
  • A faithful and objective summary of all the debates, excluding therefore, inter alia, any analysis of the discussions that preceded the adoption of decisions;
  • The text of the resolutions put to the vote, including not only the resolutions definitively adopted but also those that were rejected;
  • The result of the votes. 
 

The resolution to approve the annual accounts for the last financial year

The executive body of each of the forms of commercial companies must, once a year and no later than six months after the end of the last financial year,submit the annual accounts for this period to the vote of their partners or shareholders, in principle, in a general meeting. 
 
Good to know: As an exception, in companies that have only one owner, i.e. containing only one partner (for example, the EURL) or a single shareholder (for example, the SASU), the annual accounts are approved merely by filing the annual accounts with the registry office of the commercial court. 
 
Specifically, the executive body will propose to the General Meeting to vote on the draft resolutions, i.e. the decisions, in the form previously sent to its partners or shareholders with the invitation or placed at their disposal at the registered office (e.g., for an SA). The approval of the annual accounts must be included in these resolutions.
The text of this resolution must always be drafted by the executive body for the annual accounts to be approved by the partners or shareholders of the company.
 
The approval resolution must only include the main elements listed below, and in the following order:
  • The inventory of the last financial year;
  • The annual accounts: (the balance sheet, the profit and loss statement and the notes) for the period.
  • The final discharge to the executive bodies for the proper performance of their term of office and/or their management for the said financial year (for example, in an SARL, the final discharge concerns the manager ; in the SA with a board of directors, the final discharge concerns the board directors etc. ).
However, during the General Meeting, the partners or shareholders have the power to either approve, amend or reject the annual accounts. The resolution adopted may therefore either be one of approval, modification, or rejection. For example, if there is an error, omission or duplication, the partners or shareholders are never obliged to accept the annual accounts in this state. They may therefore either request their modification, or reject them by adopting a rejection resolution, by first making sure they request the amendment (i.e., the modification) of the initial draft resolutions. 
 
The following documents do not have to be approved by the General Meeting but only cited in the resolution, especially in order to prove that the partners or shareholders have considered them. It is therefore supposed to give a free and informed declaration on:
 
- Te annual financial review covering the last financial year (for each type of commercial company, regardless of whether it is publicly traded) as well as, if appropriate, the profits table for the last five financial years.
 
Generally, the annual financial review permits company directors (e.g., the manager of the SARL) or the bodies responsible for management (e.g., the board of directors in the case of a limited company (SA)) to report to the company's General Meeting, on their management and the company's situation during the preceding financial year. The annual financial review together with the annual accounts are frequently very informative. This report also includes, among other things, the company's research and development activities, important events that have occurred between the end of the financial year and the date on which the review was prepared, as well as the foreseeable developments for the company in the short term.
 
Good to know: The EURL and SASU are exempted from preparing the annual financial review, when, on the one hand, their sole shareholder, a physical person, is only responsible for management or chairmanship and that, on the other hand, the company does not, at the end of a financial year, exceed two of the three following thresholds: balance sheet total: €1.000,000; turnover exclusive of VAT: €2,000,000; average number of permanent employees during the year: twenty.
 
With regard to the profits table for the last five financial years, only the SA and SCA, among commercial companies, regardless of whether they are listed, are required to prepare this document. It must be enclosed with the financial review. It shows the company's profits for each of the last five financial years (or for each of the years ended since the company was established or merged with another company, if the number of these periods is less than five). This table will notably include the following elements:
 
  • Financial position at year end (share capital, number of shares issued, number of bonds that can be converted into shares);
  • Overall profits for the current operations (turnover excluding VAT; profit before tax, depreciation and provisions; income tax; profits after taxes, depreciation and provisions; amount of distributed profits);
  • Profit for operations for each share (profit after tax but before depreciation and provisions; profit after taxes, depreciation and provisions; dividend paid to each share);
  • Staff (number of employees; payroll total; amount paid under social benefits etc.).
- The report of the supervisory board, for the SA with an executive board and supervisory board as well as for the SCA. This report contains the supervisory board's comments on corporate governance, the annual financial review and on the company's annual accounts. For example, it may highlight irregularities in the annual accounts;
- The auditors' report on the annual accounts. This report is mandatory in all commercial companies, whenever at least one statutory auditor is appointed for a company, regardless of the compulsory or voluntary nature of this appointment. In this document, the auditor gives a report of its work. It(they) notably outline observations on the regular nature, sincerity and faithful image of annual accounts. When it considers that these criteria have been met, the auditor therefore certifies the truthfulness and the sincerity of the annual accounts as well as the faithful image that they provide of the company's annual accounts. If the auditor expresses reservations with respect to certifying the annual accounts or if it refuses to certify them, it should give reasons for these reservations or refusal.
 

Resolution on the allocation of profits or losses for the period,

 
The partners or shareholders may decide to approve or refuse the allocation of profits for the last financial year, proposed by the company's executive body (for the SA, either the board of directors, executive board and supervisory board, for the SARL, the manager(s) etc. ).
 
What is meant by the profits of the last financial year?
 
The profits are listed in the profit and loss statement, one of the annual accounts, as well as on the liabilities side of the balance sheet, more specifically, under equity. It equates to the difference between the income and expenses for the year.
 
This is the profit or loss resulting from the company's operations during the preceding financial year and calculated at the closing date of this period.
 
A profit is recorded when the balance between the income and expenses for the year is positive. Conversely, when the balance between these two elements is negative, this results in a loss.
 
What is meant by allocating the profits of the last financial year? 
 
When the company records a loss, this loss is, in principle, allocated by taking an accounting decision:
  • Either to carry this loss forward in the account "balance brought forward", on the liabilities side of the balance sheet, under equity, by deducting from the total of other accounts with a net situation (capital, reserves etc.),
  • Or allocating this loss to the reserve accounts (including the legal reserve): it is "placed in reserve". 
 
When the company records a profit, this profit is, in principle, allocated by deciding how this profit will be used:
 
  • by the company itself, by recording all or part of the profit for the financial year in question to the account "balance brought forward" (this is a temporary account, in which the annual general meeting of partners or shareholders prefer to place this sum for the AGM of the following year to decide on its final use);
  • And/or by its partners or shareholders, in the form of dividends; 
 
However, the following two separate elements must be known:
 
  • The "distributable profits", which corresponds to the amount of profits in question, after deducting the losses of previous years as well as the amounts allocated to reserves (including at least, for the most part, to the reserve known as the legal reserve, which corresponds to the compulsory reserve levied on the profits of the financial year to increase the company's equity, primarily in order constitute creditor guarantees and the company's investment capacity, as well as to cope with potential losses);
  • The "distributable sums", that is to say, the amount deducted from the company's reserves (which it may dispose of freely, except, in principle, the legal reserve).
 
Good to know: Dividends must be deducted mainly from the distributable profit for the year.
 

Reminder of the company's position with respect to the dividends for the last three financial years

The minutes of the annual general meeting to approve the annual accounts must include essential information concerning the distribution of dividends. In effect, it must mention the company's position in relation to paying out or not paying out dividends for each of the three financial years preceding the last financial year.
 
However, if, for example, there has been only one financial year prior to the last financial year, due to the company's recent creation, the company's position for this first financial year should be mentioned.
 
The information on whether or not the company has paid out dividends may be included in the final part of the profit allocation resolution for the last financial year or may be the subject of a specific resolution. 
 
Whatever the case, the content of this information will vary depending on whether or not the dividends were paid:
- When dividends have, indeed, been paid, this information, usually presented in the form of table, including, for each financial year, the amount of the dividend actually distributed per share and the corresponding tax rebate or credit note;
- If no dividend was paid for all three financial years, or only for one or two of them, this information must also be included in the minutes.
 
Filing annual accounts online
Obligation to file annual accounts
Drawing up minutes for a General Meeting
Obligation of commercial companies to prepare annual accounts