The principle of annual legal obligation for a non-trading company
At least once a year, the manager of a non-trading company must report to the partners on his or her management of the company, and draw up an overall written report on the company's activities during the year just ended (C. civ., art. 1856).
This report generally includes an objective presentation of earnings trends, significant past and future events, and a proposed allocation of earnings.
This obligation applies to all non-trading companies, regardless of their tax status, business activity or capital structure. Non-trading companies that do not prepare annual financial statements are also affected.
The Company's bylaws lay down the precise terms and conditions for this reporting and approval of the report (communication deadline, consultation method, majority, etc.), and generally provide for the transmission of ancillary documents to the associates, such as a special report on regulated agreements, the annual financial statements and the text of proposed resolutions.
The challenges
- Formal approval of this report and the annual financial statements constitutes approval of the General Manager's management of the Company (discharge);
Failure to present the financial statements constitutes mismanagement on the part of the General Manager, and may give rise to civil and criminal liability. - Approval of the financial statements, earnings, associates' current accounts and the allocation of earnings and/or distributable reserves among associates helps to avoid any subsequent disputes and provides security for associates in the event of an event such as death or divorce;
- The rendering of accounts contributes to the social life of the company, and the absence of a general meeting is one of the criteria that the tax authorities may take into account when recognizing the fictivity of a non-trading company (resulting in the reintegration of any real estate assets into personal assets, with immediate taxation of the capital gain, and the joint and several liability of the partners);
- The accounting entry for the allocation of income must faithfully reflect the decision of the shareholders. Consequently, in the absence of minutes, no allocation can be made from an accounting point of view.
- In the case of dismembered shares, it is essential to seek professional advice, given the specific rules applicable (voting rights, financial rights, etc.) and, more generally, the asset strategy to be adopted where appropriate.
How to proceed?
Your chartered accountancy firm is at your side to help you through the process.
A complementary annual legal mission to draw up all the mandatory legal documents, depending on the exact form of your non-trading company and its activity, can be set up.
Don't hesitate to ask your EXCO accountant or legal department for more information.
