Every year, companies prepare their annual financial statements and decide what to do with the remaining profit or loss. In principle, stock corporations have several options for Appropriation of profits.
As a private company, the aim of every stock corporation is to meet the expectations of its shareholders. This is achieved, for example, through an increase in the share price or the distribution of a profit. Distributable profit is generally free cash flow that is not required for the repayment of liabilities. This profit ensures the liquidity of a company. With aumico a scalable and advantageous financial reporting can be integrated, on the basis of which an optimal use of profit can be calculated.
Appropriation of profit through allocation of reserves
The retained earnings to be appropriated are derived from a profit carried forward from the previous fiscal year and the current year's profit. The Board of Directors proposes an appropriation. This in turn is decided by the General Meeting of Shareholders. If an auditor is involved, the auditor must first check whether the intended appropriation of profit complies with Swiss law and the Articles of Association. The appropriation of profits is an important component of corporate governance and must comply with legal requirements and the interests of shareholders and the Board of Directors.
Prior to the distribution of a dividend or a bonus, the legal reserve allocations must be observed. These are referred to as the first and second allocations to the statutory retained earnings. Reserves are reserves which the company has set up on the basis of statutory provisions or also on a voluntary basis. Reserves serve primarily to financial security of a company. If the corporation creates reserves from the annual profit, the reserves can be increased. On the other hand, they decrease if a company reports an annual loss and offsets it with the funds from reserves.
After the statutory reserve allocations have been met, the General Meeting of Shareholders may approve the distribution of a dividend to the shareholders shareholders. The amount of the dividend proposed by the Board of Directors and approved by the Annual General Meeting. The The distribution of bonuses to the Board of Directors must also be approved by the Annual General Meeting.
Ordinary allocation
For the ordinary allocation to the statutory retained earnings, a distinction is made between the first and the second allocation. The first allocation according to Art. 671 para. 1 of the Swiss Code of Obligations, the minimum allocation in relation to the share capital and is fulfilled within a certain period of time. Once these payments have been made, they can no longer be reclaimed. A stock corporation must 5 % of the annual profitas long until the general reserve reaches 20% of the paid-up share and participation capital. has pay into the reserve. This does not include income from the proceeds of the issue of new shares or other securities. The profit carried forward is not included and any loss carried forward can be deducted in advance from the annual result.
In addition, each company must make a second allocation in order to strengthen its own financial situation. This is made in accordance with Art. 671 para. 2 item 3 CO in the amount of 10% of all distributed amounts exceeding 5% of the share and participation capital entitled to dividends. The second allocation must be made until such time as this 50 % of the nominal share and participation capital. has been reached. An exception applies to holding companies, which are exempt from the allocation.
Extraordinary allocation
In addition, extraordinary allocations must be made to the statutory capital reserve. According to Art. 671 para. 2 item 1 CO, this includes a premium from the issue of shares and participation certificatesif this is not used to cover fixed issue costs. Furthermore, capital gains and book profits from the reduction of the share capital are also included.
In addition, the articles of association may provide for further allocations to the reserves (Art. 672 CO and Art. 673 CO). Statutory reserves are in principle be formed under the voluntary retained earnings. At the request of the Board of Directors, the General Meeting of Shareholders may ultimately decide on further allocations to reserves. These are to be recognized under voluntary retained earnings.
Advantages of a profit appropriation plan
A profit appropriation plan addresses legal and business management issues. In particular, it shows which amount is subject to resolution by the general meeting of shareholders and which shares of the profit are retained by the company.. Furthermore, it shows which balance will be carried forward to the new account and which shares will be distributed.
In order to prepare a profit distribution plan, statutory and voluntary reserve allocations as well as basic dividend and super dividend must be deducted from the balance sheet profit. The profit distribution plan is often also the basis for calculating dividends. It shows entrepreneurs how much liquid assets are available for distribution and how they can be distributed.
Entitlement to profit distribution
Pursuant to article 660 paragraph 1 of the Swiss Code of Obligations, a shareholder a is entitled to an appropriate share of the profits of the company. At this point, however, the protection of creditors and equity must always be ensured. The latter is considered a security measure for the creditors. In practice, the distribution of profits is also an area of corporate decision-making, as the board of directors sets guidelines for the payment of dividends. In addition to profit-related dividend policies, constant dividend policies and mixed forms can also be observed.
The prerequisites for the payment of a dividend are that the corporation has generated a profit in the financial year, has sufficient funds at its disposal and that these funds are not subject to a distribution ban. A fundamental distinction can be made between two types of dividends. The Basic dividend is a distribution, the amount of which maximum 5% of the share capital of the share capital. If the amount of the dividend exceeds 5% of the share capital, it is called a super dividend. Use the innovative tool from aumico and automate the preparation of the annual financial statement. On this basis, you can conveniently create a correct profit appropriation plan.
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