These types of reserves are those generated by profits that have not been distributed at the end of the year, whether by legal mandate, by determination of the articles of association or by the will of the shareholders. Every company is exposed to risks and losses that can affect its financial stability and equity, and remember that one of the legal causes of the dissolution and liquidation of a company is the decline of its assets below the threshold established by law, and this can be avoided if the company has built up sufficient reserves to cover these capital declines. QUESTIONS: I am a partner and shareholder of a joint-stock company (SA) and a limited liability company (SRL) dedicated to trading in general, I would like to know what the legal reserve is for. How is this done? Is there a legal provision in this regard and is it mandatory to have it in the assets of the company? The reserve system is legally structured in such a way that the company is obliged to strengthen the share capital, for which all shareholders are responsible, and the creditors of the shareholders. The resulting protection allows the company to carry out its activities without prejudice to third parties. This is why reserve funds can never be used to pay dividends to shareholders. The legal reserve covers losses if there are no other reserves for this purpose; The legal reserve is mandatory in joint-stock companies in accordance with the provisions of Article 452 of the Commercial Code, a situation that is not based on the simplified joint-stock company, since in this type of company the creation of the legal reserve is optional for the partners. If this reserve reaches this fifty percent, the company is not obliged to continue to transfer ten percent of the net profit to this account. If, however, it decreases, it must reuse the same ten per cent of these profits until the reserve reaches the fixed limit again. This means that, according to the law on capital companies, 10% of our profits must go into the coffers of the so-called statutory reserve, which must have a size of 20% of the share capital. If we want to consider an increase in the legal reserve, it would be that: It is important to mention that the legal reserve can in no case be distributed among the shareholders until the liquidation of the company, that is, the spirit of the legal reserve is to hold savings in bank accounts or investments.

The reality may be different, because there are companies that, although they have a significant amount in the legal reserve, do not have the money available in their bank accounts or investments. The obligation to constitute a legal reserve is provided for by the Commercial Code and applies to the following companies: ungenerated profits are those that have not actually been realized after the turn of the year, and the legal reserve may be affected. For example, if the share capital of the corporation is $100,000,000 and the legal reserve has accumulated $70,000,000, it means that the corporation has a legal reserve $20,000,000 higher than required by law, so you can take that $20,000,000 and give it the use intended by the meeting. According to the law, these correspond to twenty percent of the total available share capital. Therefore, the reserve fund must be replenished again and again to reach this share: if this value is not reached, ten percent of each year`s profits are used for this purpose. In the following text you will find everything you need to know about the legal reserve, what percentage they are formed, how the value of each individual reservation is determined, what maximum limit they must comply with and to what extent they can be used. Indeed, it is not possible to charge more than what is required by law, and the law only requires a reserve of up to 50% of the share capital. The legal reserve is a type of regulation in some companies, which is used in commercial law as a legal guarantee for the activities and operations carried out by the company, in the event that it is not responsible for it or must compensate its creditors for defaults or other economic and financial liabilities.