What Is a Resolution on the Use of the Annual Surplus?

A resolution on the use of the annual surplus is a formal decision made by the shareholders or board of directors regarding how the profits of the company should be utilized after a fiscal year. It can also be a part of financial statement resolution. The surplus typically results from the company earning more revenue than its expenses during the year.

Once the surplus is identified, the decision needs to be made on how to allocate it. This can involve:

• Reserves: Setting aside funds for future projects, risk management, or company needs.
• Dividends: Distributing a portion of the surplus to shareholders as a reward for their investment.
• Reinvestment: Using the surplus to reinvest in the company, expand operations or launch new projects.

Advantages of a Circular Resolution for Annual Surplus Decisions

Using a circular resolution to decide on the use of the annual surplus has its perks:

• Time savings in voting: You don’t need to wait for everyone to be available for a meeting. Shareholders can vote on the resolution remotely, speeding up the decision-making process.
• Precise documentation: The circular resolution clearly documents the decision, providing a solid record of how the surplus was used and avoiding misunderstandings later on.

Legal Requirements for Circular Resolutions on the Use of Profits

Legal requirements for resolutions on the use of profits typically depend on the company’s jurisdiction and its articles of association. However, it generally requires shareholder approval to decide how to distribute or allocate profits.

According to Germany GmbHG, the following are applicable:

Appropriation of Profits (§ 29)

§ 29 outlines how profits should be distributed. Shareholders can allocate profits to reserves or carry them forward, and distribution is typically proportional to shares unless stated otherwise in the partnership agreement. Managing directors can also move revaluation reserves to profit reserves with shareholder consent.

Submission of Financial Statements (§ 42a)

According to § 42a, managing directors must submit the annual financial statements and management report for shareholder approval within the first eight months of the financial year (or eleven months for small companies). This ensures timely decision-making on profit distribution.

Shareholders’ Meeting and Circular Resolutions (§ 48)

Under § 48, circular resolutions allow decisions without a physical meeting if all shareholders agree in writing. This makes it easier to make decisions quickly and efficiently, especially in the case of profit distribution.

Circular Resolution Template on the Use of Profits

Using fynk’s template for a circular resolution on the use of profits is a simple way to ensure that everything is done properly. Here are a few reasons why using our template is a good idea:

• Protected Voting and Signing: Your votes and electronic signatures are securely encrypted to prevent any unauthorized alterations.
• Instant Notifications: Receive real-time updates when shareholders cast their votes or sign the document.
• Simple Sharing and Collaboration: Easily share the resolution template with stakeholders, allowing them to review and access it from anywhere.
• Time Efficiency: Save time by avoiding the need for in-person meetings or lengthy email exchanges.

The template also specifies the voting process, deadlines, and formal requirements for adopting the resolution, ensuring legal compliance and transparency.

FAQs

Can I use a circular resolution for other financial decisions besides the use of annual surplus?

Yes, you can use circular resolutions for various financial decisions, such as approving budgets, capital allocations, or other important financial strategies. It’s a flexible tool that works well for any decision that needs shareholder approval without the need for a formal meeting.

Is a circular resolution legally binding for the use of profits?

Yes, as long as the resolution follows legal procedures and is properly signed and approved by the shareholders, it is legally binding.

What if the company doesn’t have enough surplus to distribute?

If there isn’t enough surplus, shareholders may decide not to distribute any dividends or may choose to allocate the available funds to reserves or other company needs. The decision will depend on the company’s financial situation and strategy.