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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 obligation of commercial companies to prepare annual accounts

Part 4

Sanctions for failure to prepare the annual accounts

The breach of the obligation to prepare annual accounts could lead to severe criminal and/or civil penalties

Criminal sanctions

Depending on the major types of commercial companies, the following persons are liable to a fine of 9,000 euros for failure to prepare the annual accounts,:

  • In the SA, the Chief Executive Officer and the directors or the Chairman and the members of the executive board, depending on whether the company has a board of directors or an executive board;
  • - In the SAS (simplified joint stock companies), by the Chief Executive Officer and the directors designated for this purpose in the articles of association;
  • - In companies with managers (SNC, SCS, SCA and SARL), by the managers.

In addition, the offence of failing to prepare the annual accounts can trigger an avalanche of other criminal sanctions against the executive bodies mentioned above:
- For failing to send the company's annual accounts to shareholders or partners as part of their entitlement to be kept informed;
- And/or for failing to present the annual accounts for the annual approval of the shareholders or partners within the statutory time limits.

Finally, when these annual accounts are inaccurate, i.e., that they do not give a true picture of the results of the operations for the financial year, or of the company's financial position and assets, the executive bodies may be liable to severe prison sentences and fines.

Civil sanctions

The failure of the executive bodies to prepare the annual accounts as well as the other failures (failure to send the annual accounts to the partners or shareholders; failure to present the annual accounts at the AGM for approval and presenting annual accounts that do not give a true picture of the company's position) can lead to a claim for damages against the parties in breach of these obligations, under civil liability proceedings.
However, this entitlement is only valid if one or more of these claimants in the proceedings against the directors, can demonstrated that the mentioned breaches have cause a real personal prejudice.
Similarly, if a judicial proceedings are commenced, especially by one or more partners or shareholders against the directors, for the prejudice caused to the company (in this case, we refer to it as a "action sociale" (company action) or "action ut singuli") , due to one and/or more of the shortcomings mentioned, these claimants must prove that the company has actually suffered these prejudices.