Financial statements of limited liability companies: approval procedure and social obligations

The annual balance sheet, an integral part of a company's accounting, is one of the elements that every corporation subject to corporate income tax must provide. But what are the particularities of a limited liability company balance sheet?

Srls (an acronym for limited liability companies) are corporations with the following characteristics

• they have legal personality
• each shareholder enjoys rights and obligations according to the shares paid into the company

As we know, the annual balance sheet is a measurement that reflects the overall situation of a company at a given time, with the presentation of the company's balance sheet, financial and economic situation.

But what changes in the company financial statements? What is the approval process? What are the deadlines for its approval?

Let's answer these questions and review each concept step by step to better understand it, and ultimately help you practice accounting with rigour.

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Company financial statements: definition

The annual financial statements, as Article 2423 of the Civil Code specifies, provide a complete picture of the company's financial, asset and economic situation. Moreover, the article goes on to specify that the annual financial statements must consist of the:

• balance sheet
• profit and loss account
• cash flow statement
• explanatory notes

However, the annual financial statements undergo slight changes depending on the type of company that must prepare them and the closing entries.

In the case of a limited liability company, it takes on particular characteristics:

• it must be categorically drawn up by the company's directors
• it must be filed annually with the Companies Registry.

Approval procedure for the balance sheet of a limited liability company

The procedure for the approval of the annual accounts consists of three sequential stages with precise deadlines.

1) Preparation of the draft annual accounts

The directors of the company must compile each year

• the draft financial statements, consisting of the balance sheet, income statement, notes to the financial statements and cash flow statement. Only micro-enterprises and companies that draw up abridged financial statements are exempt from the presentation of the cash flow statement.
• the management report as specified in Article 2428 of the Civil Code

2) Filing of financial statements at the company's registered office

It is necessary that the draft financial statements and the management report remain deposited at the registered office of the corporation during the 15 days preceding the date of the shareholders' meeting and until it is validated, in order to allow the shareholders to view the documents.

3) Convening the Shareholders' Meeting to Approve the Financial Statements of the Joint Stock Company

Article 2364(2) of the Civil Code establishes the time limits for the shareholders' meeting to convene and approve the annual financial statements, i.e:

• within 120 days from the end of the financial year (ordinary deadline); therefore, the deadline is 30.04.2021 for companies with a tax period coinciding with the calendar year;
• within 180 days after the end of the financial year (extraordinary deadline); thus, the deadline is 29.06.2021 for companies with a tax period coinciding with the calendar year.

The possibility of approving the annual financial statements within the extraordinary deadline, i.e. 180 days, is only granted to corporations that fall under one of the scenarios provided for by the Civil Code:

• companies that are required to prepare consolidated financial statements;
• the presence of special requirements related to the structure and purpose of the company; in this case, the extraordinary deadline must be regulated by the company's internal articles of association.

In 2020, through the extension of Article 106 of the 'Cura Italia' decree (Decree-Law 18/2020), the state granted the possibility of approving the 2019 annual financial statements within the extraordinary deadline of 180 days for all companies due to the health emergency that occurred.

Documents to be attached

The annual balance sheet is not the only document to be filed with the commercial register . Together with it, each Srl company must provide:

• the Management Report ;
• the minutes of the shareholders' meeting or of the Supervisory Board that validated the financial statements;
• the report of the Board of Statutory Auditors, if any, and of the statutory auditor (only if different from the Board of Statutory Auditors).

The cost for the deposition of the balance sheet Srl

The Srl company must file and deposit the financial statements with the Company Registry by paying

• secretarial fees of € 62.70, reduced to € 32.70 for social cooperatives;
• stamp duty in the amount of € 65.

Are there companies exempt from paying these state taxes?

Innovative start-ups are always exempt from paying secretarial fees and stamp duty.

Small and medium-sized companies, on the other hand, are only exempt for the first five years after registration in the special section of the Registro delle Imprese.

Consequences for failure to file a balance sheet Srl

The Companies Registry has established a fine, which can range from a minimum of EUR 103 to a maximum of EUR 1032, in the event that a company fails to communicate and file the required documents with the aforementioned body. In addition, the penalty may be increased by one-third over the statutory amount if the failure to file concerns the annual financial statements.

What is the importance of the balance sheet Srl?

The Civil Code, in particular Article 2423, specifies the obligation for a company to prepare annual financial statements.

"The directors must draw up the annual financial statements, consisting of the balance sheet, the income statement, the cash flow statement and the notes to the financial statements."

But why is the preparation of the annual financial statements so important?

Article 2423 and the accounting principles provide us with the answer.

The annual balance sheet is the indispensable document for a true and fair view of the balance sheet and financial situation, as well as the income statement through the profit and loss account.

The annual financial statements prove useful so that the current situation of the company can be kept under control by

• shareholders who want to know the value of their shareholding in the company
• creditors who are interested in verifying the solvency of the company
• future lenders and investors who may be interested in investing in the company or buying shares in the listed company.

For this reason, the degree of clarity in the preparation of financial statements must be high so that interested persons can find out about the financial situation of the company. All financial statements must therefore follow the principles of clarity and truthfulness in order to be valid. If these principles are not respected, the financial statements may be unlawful.

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Differences between Srl and Spa Financial Statements

The main differences between an Srl and a Spa company lie in the dates of the approval process for a balance sheet.

As we have seen in the preceding paragraphs, it is first mandatory to convene a shareholders' meeting. And therein lies the difference between the two types of company. The models and convocation deadlines differ depending on whether the company is an Srl or a Spa.

Srl

1. The convocation must be made by registered letter , to be sent to the shareholders at least eight days before the date fixed for the meeting, to the address on the company register.
2. The registered letter must indicate the day, time, place and items to be discussed.

Spa

1. Unlisted companies :

   the convocation must be made by a letter of convocation sent to shareholders 8 days in advance , or by fax, e-mail or other means of communication guaranteeing proof of receipt

2. Listed companies :

   the convocation must be made by publication in the Official Gazette or in a newspaper indicated in the Articles of Association at least 15 days prior to the day fixed for the meeting.

Knowing how to draw up the company's financial statements and the deadlines to be met is fundamental to assessing the financial health of your company and managing your business in the best possible way, determining an effective strategy.

Hopefully, this article has provided you with the right tools and the necessary skills for the preparation and approval of the financial statements of a limited liability company.

So, is the annual balance sheet a topic that still causes you nightmares at night?