The legal reserve must be restored in the same way if it decreases for any reason. (Legal reserve) A percentage of a corporation`s net profit must be set aside annually to build up the legal reserve until it reaches a certain amount. The Commercial Code stipulates that the percentage is the same as for limited liability companies: 7% of net profit and the minimum legal limit is one fifth of the share capital. Law on reserves Article 123.- The amount allocated annually to constitute the legal reserve of the limited liability company; It will amount to seven per cent of net profit and the minimum legal limit of this reserve will be one fifth of the share capital. By way of derogation from the provisions of this Article, no contrary provision or agreement may be invoked; the directors are jointly and severally liable for compliance and are therefore obliged to return all or part of the legal reserve; if, for any reason, it does not exist or exists only partially; without prejudice to the right of directors to reoffend against those who received the money. Strict compliance with this principle is granted to partners, creditors or the public prosecutor. » The percentage and amount of the legal reserve are determined by the Commercial Code for each form of company. The percentage and amount of the statutory reserve shall be determined by this Code for each branch of activity. The legal reserve must be restored in the same way if it decreases for any reason. Art. Article 124: Two-thirds of the amounts entered in the legal reserve must be available; or invest in Salvadoran or Central American commercial securities, which are easy to make; The other third can be invested depending on the purpose of the business. Legal reserve: The law requires companies to allocate a percentage of the profits generated in all financial years. They are part of the balance sheet and are presented in Group 11 of the General Financial Information Plan. With these legal reserves, we create a guarantee against creditors, as they act as a buffer against corporate insolvency.
From Billin, the online invoicing program for SMEs and freelancers, we offer you more information about accounting and financial conditions. The legal reserve is constituted by the mandatory endowment by law, it can be general or specific, depending on the type of companies that equip it. For joint-stock companies with variable capital, it is found in the Commercial Code in Article 295; which redirects to Articles 123 and 124 as follows: Legal reserve: It is not required by law, but the articles of association of the company oblige it to make this contribution. Apart from this legal obligation, a company could contribute more than 10% to this type of reserve, in addition, the general meeting can approve the creation of other types of reserves when drawing up the annual accounts, because it decides on the distribution of the company`s profit. A company must distribute the results up to the upper limit of 20% of the share capital as follows: If the legal reserve is endowed, we reduce the profits that we will distribute between the partners, because this percentage must be paid before the distribution of dividends. The legal reserve is part of a company`s own funds and is also used to make payments that can be instantaneous. The legal reserve is the part of retained earnings that we give on a mandatory basis and whose purpose will be to meet future obligations. Voluntary reserves: In this case, the company itself voluntarily decides on this type of contribution, is constituted from retained earnings and appears on the balance sheet. Before constituting this type of reserve, they must constitute the legal reserve and the statutory reserve. The Commercial Code and the doctrine of the Supersociedaden lead to the conclusion that all commercial companies, with the exception of S.A.S., would be obliged to acquire this position.