[6] PerÓ, Mariano. â Unreserved: Against the binding nature of the legal reserve. Available in Right Focus at: bit.ly/3k8uDBs [cited 2020 Sep 10]. Another characteristic that emerges in the S.R.L. in Bolivian legislation is that this company, like companies, has a “legal reserve”, a sum of money that has a minimum of 5% and a maximum of 50% of deposits in the share capital. This reserve is built up after the first year, as there are no actual or liquid profits before that. The purpose of this legal reserve is to ensure compliance with the obligations contracted by the company, in particular if it is threatened with bankruptcy or if its sustainability as a commercial company is threatened. Article 169 of the Commercial Code stipulates that in the case of SA and SRL, the legal reserve must be at least 5% of the liquid and effective profit. In view of the above, the legal requirement to set aside reserves should be abolished or at least relaxed so that reserves for possible losses©of an undertaking can be constituted by the same undertaking in the traditional way. That is, it is the shareholders and managers of the company themselves who decide the most effective way to plan their finances [9]. This will not only eliminate a paternalistic and invasive measure in public limited companies, but also©allow the Peruvian legal system to be a competition jurisdiction, which, together with other measures, will facilitate local and foreign investments [10].

At least ten per cent of each year`s distributable profit, net of income tax, must be allocated to a statutory reserve until it reaches an amount equal to one-fifth of the capital. Exceeding this limit does not have the condition of legal reserve. The creation of this reserve must therefore also be reflected in the statutes of capital companies and limited liability companies. If the reserve is calculated on net profit, we need to clarify whether this is done before or after tax. Companies of any kind may also agree to the establishment of appropriate and prudent special reserves in accordance with prudent management. The percentage, limit and destination are agreed by the partners or by shareholders` meetings. On this basis, it can be concluded that the legal reserve does not currently fulfil the purpose for which it was regulated. In other words, it does not represent the idea behind the phrase “We must save bread for May”, as it is far from being a mechanism that provides financial strength to cover future losses©or a guarantee for creditors. On the contrary, it can be observed that the legal reserve is in fact a rapid regulation, since it restricts the possibility of distributing dividends to shareholders and moreover represents a paternalistic measure [8]. In accordance with Article 229 of Law No 26887 on general company law (hereinafter referred to as “general company law”) [4], the legal reserve may have a limit equal to one fifth of the share capital. The amount exceeding this limit does not have the legal reserve condition. Similarly, according to the above-mentioned article, for the purpose of creating this account, there is an obligation to allocate to it at least ten per cent of the distributable profit of each year, less income tax.

Finally, among other things, the statutory reserve can be capitalized to increase the capital of the company; And on the other hand, it is a condition that has reached its upper limit for the capital premiums to be distributed. Article 170: (FAILURE TO JUSTIFY RESERVATIONS). The directors, directors and trustees are jointly and severally liable for non-compliance with the provisions of the first part of the preceding article and, where applicable, are obliged to provide the company with an amount equal to the unconstituted reserve, which may repeat against the partners the amount unduly distributed. According to the Commercial Code of El Salvador, the legal reserve is obtained from the net profit of a company, a percentage must be set aside each year to constitute the legal reserve until it reaches a certain amount.29 March 2020 Adjustment of asset reserves based on the UFV sec. Detail The statutory reserve is a legally established form of mandatory savings©for commercial companies. This savings consists of the partial withholding of the profit made by the company, the purpose of which is to increase the assets of the company. The legal reserve is the mandatory part of the profits that must be accumulated. This means that, according to the law on capital companies, 10% of our profits must go into the coffers of the so-called legal reserve, which must have a size ± or 20% of the share capital. 1 Jul 2020 Will the legal reserve be used to save bread for the month of May? The legal reserve is the accounting account, which represents profits that are not distributed to shareholders so that they are intended to cover any losses©incurred© in a future financial year[2]. In the same vein, Elãas points out that the legal reserve “represents distributed profits or profits of any kind, excluded from distribution and allocated to specific future purposes, thus giving the company greater economic and financial solidity” © [3].

In other words, it is the total amount resulting from the sum of deductions from the distributable profits of a public limited company during one or more economic periods used to settle possible losses©. 169.- (LEGAL RESERVE). In the case of joint-stock companies, a reserve of at least five per cent of the actual and liquid profit generated must be established, up to half of the paid-up capital, unless otherwise provided by special laws. The reserve must be built up with the profits made before its distribution, if it has decreased for any reason. (Art. 347 HGB). This structure is due to the fact that the corporation tax (EUI) corresponds to the expenditure, but in the Bolivian case, the EUI is not deductible (DS 24051). Thus, we can use the following structure to simplify exposure in the income statement: In view of the above, if the share capital is no longer a guarantee for third parties, then it appears that the legal reserve is far from being a mechanism to cover losses©or to give a company greater financial strength. A quick look at reality and taking into account the fact that a large number of public limited companies have a share capital of S / 1,000, it can be seen that in many cases the legal reserve becomes at most an amount equal to S / 200.00 – the fifth part of its share capital. In this context, it is worth considering whether this amount can really fulfil the purpose of the legal reserve; That is, whether such a reserve could serve as a guarantee for creditors and cover future losses©. Undoubtedly, the answer is no; since it is clear that, in the event of losses©suffered by the company, this amount cannot even cover half of a worker`s living wage± Or it is highly doubtful that it will serve in any way to reduce the administrative, legal, tax or other costs that a company might incur.

This insufficiency of the legal reserve can be observed not only in public limited companies with a minimum share capital, but also©in other public limited companies. Proof of this is the current health emergency, in which many companies have not resorted to the statutory reserve account as the main financing or financial support mechanism to cover their debts to their employees or third parties to overcome the health emergency crisis. such as renting business premises, paying wages or suppliers, among others. Or, if they did use this account, it was far from insufficient. On the contrary, they opted for other methods©such as capital increases, bank financing or the loan©of the Reactiva Peru program.