It is very common at this time of year—specifically within the first three (3) months—for shareholders and/or members of the different types of companies in Colombia to ask about returns or the distribution of profits from the immediately preceding fiscal year. For this reason, Cuadro Legal would like to clarify some of the most common questions that arise on this topic.
First, it must be understood that fiscal years close 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 each company’s financial statements. Once these are reviewed and approved by the shareholders’ meeting, it is determined whether there are profits to be distributed and the manner in which they will be distributed.
It is important that, within this meeting—or even through the bylaws or a private shareholders’ agreement—a clear and simple procedure is established to distribute the profits generated in each accounting period. This profit distribution proposal must be prepared taking into account microeconomic factors specific to each company, and it must be done in a conscious and feasible manner for the company without affecting its cash flow. It is also important to consider, before distributing dividends, the legal reserves that must be set aside.
Once the profit distribution proposal is approved, this document will be fully enforceable against the company, and both the company and the shareholders must comply with what is set out in said legal document. Therefore, failure to comply may give rise to legal actions by the shareholders against the company, and they may resort to the courts to enforce payment of these sums of money.
Lastly, it is worth noting that a company does not necessarily have to generate profits; the fiscal year may result in a deficit, losses, or the balance may simply be 0. Therefore, it is important to review the company’s financial statements in detail to be certain whether or not there is a right to a distribution of profits.
These are the reasons why Cuadro Legal, lawyers in Medellín, always recommends legal support from an attorney when preparing the profit distribution proposal, to fully explain its scope and to make clear to both the company’s administrative bodies and its shareholders the consequences, obligations, and rights that arise from the approval of this document. At Cuadro Legal, lawyers in Medellín, we have extensive experience in the development of and support for both companies and shareholders on this particular matter.
Written by: Pedro Henao
