The General Meeting is an integral part of every company’s management and plays a crucial role in its financial health and transparency. Whether it’s approving financial statements, deciding on profit distribution, or selecting an auditor, each step requires thorough preparation and clear communication. This article provides a detailed overview of organizing a general meeting and the key aspects you should not overlook. Dive into the article to discover how effectively conducted general meetings not only meet legal requirements but also enhance the trust and satisfaction of owners or shareholders.
Frequency and Timing of the General Meeting
The General Meeting (GM) is an integral part of every company’s life and should be held at least once a year. It usually takes place within six months after the end of the accounting period, meaning by June 30th at the latest. In exceptional situations, such as unforeseen events or urgent matters needing resolution, a GM may be called earlier. Deciding not to convene a GM can lead to various legal consequences, which are better avoided.
Approval of Financial Statements
One of the main tasks of the General Meeting is to approve the financial statements, which provide an overview of the company’s financial condition and performance over the past period. Additionally, the GM approves the distribution of profits or the covering of losses. Another important agenda item is the approval of the company’s annual report and the election of an auditor if the company is audited.
Profit Distribution
Profit distribution is an important part of the decisions made at the General Meeting. Profits can be redistributed among partners in the form of dividends, which are paid directly to individual shareholders. Alternatively, profits can be used to increase the company’s capital stock or to create and supplement reserve funds, which are used to cover future risks and needs of the company. It is important to realize that just because a company made a profit last year does not mean that paying dividends is a good idea. The company needs to have sufficient funds in bank accounts to make payments. If the company plans higher expenses in the coming months or has a low bank balance for other reasons, careful consideration is needed before paying dividends to ensure the company has sufficient funds available afterward. If the company decides not to use the option of paying dividends to company owners, nothing happens since it is possible to approve profit distribution at other regular (convened annually) or extraordinary (convened anytime) general meetings.
Legal Reserve Fund
The legal reserve fund is a mandatory part of every company’s balance sheet. This fund is designed to cover potential future losses and unforeseen financial risks. Companies are required to regularly replenish this fund by 5% of the net profit until it reaches a legally prescribed amount, which represents 10% of the capital stock. Again, it is important to realize that the legal reserve fund represents only an accounting operation, and the funds accounted for in the legal reserve fund do not need to be transferred to another bank account or specifically separated on existing bank accounts.
Dividends and Withholding Tax on Dividends
When paying dividends to shareholders (physical persons – residents of the Slovak Republic), the company must withhold and remit withholding tax at a rate of 7% (applies to profits generated in accounting periods until the end of 2023), respectively 10% (from January 1, 2024). This tax is applied to the entire amount of dividends paid and it is the company’s responsibility to ensure its proper remittance to the tax administrator. The taxpayer must remit the withheld tax by the 15th day of the month following the month in which the dividends were paid. In addition, it is necessary to send the “Taxpayer’s Notice of Withholding and Remittance of Withholding Tax” form to the Tax Administration within the same deadline. If a legal entity owns the company, dividends are generally not subject to withholding tax in most cases.
Announcement of Approval of Financial Statements
After the financial statements are approved at the General Meeting, the company must announce this fact in the register of financial statements. This step is necessary for the legal validity of the financial documents and ensures the transparency of the company’s financial management. Registration of the statements is also important for fulfilling legal obligations to regulatory authorities. Many companies decide to approve the financial statements at the General Meeting before filing the tax return (thus by March 31 or June 30) for practical reasons. In such cases, it is not necessary to submit a separate Announcement of Approval of Financial Statements, as the submitted financial statements already include information about the approval.
Other Important Points
In addition to the points mentioned above, companies should also pay attention to several other aspects. When approving financial statements, it is important to protect creditors and monitor signs of crisis or bankruptcy in the company to avoid legal problems.
A clear overview and structured management of the general meeting and financial statements are fundamental steps in ensuring transparency and trust in your company. It is important not onlyto adhere to legal standards, but also to understand their impact on your daily business operations. Your success in business can significantly reflect proper decision-making at the General Meeting and effective financial management. If you need help preparing or processing financial statements or have other questions about your company’s financial management, Capila is here to assist. Our services and expertise ensure not only compliance with all regulatory requirements but also the prosperity of your firm. For any inquiries, please contact us at this address: [email protected]
