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Beginning of the year and where are my utilities?

It is very common that at this time of the year, precisely within the first three (3) months, the shareholders and/or members of the different types of companies in Colombia ask about the returns or the distribution of profits of the immediately preceding fiscal period. For this reason, Cuadro Legal would like to clarify some of the most general doubts that arise on this subject.

First of all, it must be understood that fiscal periods end on December 31 of each year, and each company has the first three months of the year to hold the ordinary shareholders’ meeting, at which the administrative bodies present the financial statements of each company. Once these are studied and approved by the shareholders’ meeting, it is determined whether or not there are profits to be distributed and the manner in which they are to be distributed.

It is important that a clear and simple procedure for distributing the profits generated in each accounting period is stipulated in the shareholders’ meeting or even in the bylaws or a private shareholders’ agreement. This profit distribution project should be made taking into account microeconomic factors specific to each company and should be done in a conscious and possible way for the company without affecting its cash flow. It is also important to take into account, before dividends are distributed, the legal reserves that must be made.

Once the profit distribution project is approved, this document will be fully enforceable for the corporation and both the corporation and the shareholders will be subject to the provisions of said legal document. Therefore, non-compliance may result in legal action by the shareholders against the company, and they may resort to the courts to enforce the payment of these sums of money.

Finally, it is worth noting that a company does not necessarily have to show a profit; it may be that the fiscal period shows a deficit, losses or simply that the balance sheet is zero. Therefore, it is important to review the company’s financial statements in detail in order to be certain whether or not it is entitled to profit sharing.

These are the reasons why Cuadro Legal, lawyers in Medellín always recommends the legal accompaniment of a lawyer in the preparation of the profit distribution project, to fully explain the scope of this and make clear to both the administrative bodies of the company and its shareholders the consequences, obligations and rights that are generated with the approval of this document. At Cuadro Legal, lawyers in Medellín, we have extensive experience in the development and accompaniment of both companies and shareholders in this particular matter.

Written by: Pedro Henao

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