The importance of the annual approval of accounts for corporations and non-profit entities

It is imperative that private legal entities, whether for-profit or not-for-profit, have a representative or body in charge of conducting the administration of corporate or social activities, such as the signature of contracts and partnerships, representation before public agencies, the judiciary, among others.

The Brazilian legal system establishes that, at least once a year, the partners/shareholders/associates of the companies, associations and foundations must meet to discuss the activities carried out and their planning, to deliberate on the approval of the management accounts, the financial statements and the destination of the results of the fiscal year.

Considering the provisions of article 1.078 of the Civil Code and article 132 of the Corporation Law, the ordinary general meetings or assemblies must be held within the four months following the end of the fiscal year. In Brazil, the end of the fiscal year usually coincides with the end of the calendar year, so that the annual general meeting for approval of accounts must take place by April 30th of each year.

It is necessary to highlight that the relevance of the theme is justified because the approval of the annual accounts of companies and entities operates as a discharge for the acts performed by their managers and grants the legal entity adequacy to the rules in force, which can be a differential at the time of selling the company, receiving an investment, contracting loans or obtaining government concessions for public-private partnerships, and the like.

This is due to the fact that article 1.016 of the Civil Code determines that “directors are jointly and severally liable to the company and to third parties who have suffered damage due to their fault in the performance of their duties”. Therefore, upon approval of the accounts without restrictions by the general meeting, the officers are released from liability before the legal entity. This is the understanding established by the Superior Court of Justice¹.

This being so, it is extremely important that the legal provisions be complied with both for the benefit of legal entities and their managers.

LIMITED LIABILITY COMPANIES

In limited liability companies, it is a legal rule, as stated in article 1.078, paragraph 1 of the Civil Code, that the balance sheet and the statement of economic results must be made available to the non-managing partners up to 30 days before the annual meeting. For deliberations at the assembly, the balance sheet and the economic result statement must be read, then submitted, by the president, to discussion and voting, in which the members of the administration and, if any, of the fiscal council may not take part. The voting method must be specified in the minutes, which must be registered before the competent Board of Trade for it to take legal effect.

It is also worth mentioning that, by means of Deliberation JUCESP no. 02/2015, the Board of Trade of the State of São Paulo applies the understanding that large companies must obligatorily publish the annual balance sheet and financial statements for the last fiscal year, in a large circulation newspaper in the location of the company’s headquarters and in the State Official Gazette, under penalty of refusal to have its minutes registered regarding the partners’ meeting or assembly.

For legal purposes, a company or group of companies that present, in the previous fiscal year, total assets bigger than R$ 240,000,000.00 (two hundred and forty million reais) or annual gross revenue bigger than R$ 300,000,000.00 (three hundred million reais) is considered a large company, as stated in Law 11.638/07 in its article 3.

STOCK COMPANY

In joint stock companies, the managers must communicate, up to one month before the date set for the ordinary general meeting, by notices published at least three times, that the financial statements are available at the company’s headquarters, pursuant to article 133 of the Corporation Law, and publish them at least five days before the AGM, according to §3 of the legal provision.

Furthermore, § 4 and §5 of the mentioned article contemplate two hypotheses in which the publications within the above mentioned periods will be waived, namely (i) when the ordinary general meeting gathers all the shareholders (art.133, § 4); or (ii) when the company publishes the balance sheet and financial statements up to 1 (one) month before the date set for the ordinary general meeting (art.133, § 5).

Notwithstanding the waiver to meet the mentioned deadlines, it is important to highlight that the publication of the company’s balance sheet and financial statements must still be done before the ordinary general assembly. Afterwards, such statements must be filed with the competent Board of Trade.

It is worth mentioning that, according to article 124 of the Corporation Law, the closed capital company that has less than twenty shareholders, with net equity lower than R$1,000,000.00 (one million reais), may not publish the balance sheet and other financial statements, as long as they are, by certified copies, filed before the trade register.

As for the minutes of the ordinary general meeting, these must be registered before the Board of Trade and then published in the official gazette of the Union or of the State or the Federal District, depending on where the company’s headquarters are located, and in another newspaper of wide circulation published in the place where the company’s headquarters are located, according to article 289 of the S.A. Law, which establishes the publication rules.

Regarding the specificities of open capital companies, we point out that they must follow the guidelines of the Brazilian SEC (CVM) – Securities and Exchange Commission, such as those contained in the CVM/SEP Circular Letter 01/2021, from February 26, 2021, providing guidelines to be observed in the preparation of the financial statements for the fiscal year ending on 12.31.2020.

Furthermore, it is necessary to note that the delay in publishing the balance sheet and financial statements by open capital companies is considered a serious offence by CVM, subject to a daily fine.

NON-PROFIT ORGANIZATIONS

In case of non-profit entities, the provisions of article 1.078 of the Civil Code apply, so that the ordinary general meeting to take the accounts of the administration must also occur within four months after the end of the fiscal year, i.e., until April 30, 2021.

As for the financial statements and the proposal for allocation of the result, related to the ended fiscal year, these must be made available to members who do not exercise the administration of the entity, up to 30 days before the date scheduled for the assembly.

The non-profit legal entities must also, based on art. 2, § 2, of Federal Decree 6022/2007, which establishes the Public Digital Bookkeeping System, keep under their custody and responsibility the documents that make up their accounting and tax bookkeeping, including those entities that are immune and exempt.

After complying with such determinations, it is necessary for the minutes of the meeting to be taken to the competent Registry of Deeds and Documents in order for them to produce their legal effects.

FINAL CONSIDERATIONS

In view of the health calamity scenario, caused by the COVID-19 pandemic, in the year 2020, rules were edited and they allowed virtual meetings to be held (article 180-A of the Civil Code).

In view of this new reality, it is advisable that private legal entities adapt their respective bylaws/articles of incorporation in order to establish the possibility of holding virtual meetings, as well as the form and manner of resolutions at these meetings.

Furthermore, it is key to inform that so far there has been no deliberation made by the competent bodies about the extension of deadlines for the annual approval of accounts, as happened last year. The legal deadline of four months following the end of the fiscal year for the approval of accounts deserves attention, under penalty of the application of the penalties peculiar to each type of legal entity.

Finally, the legal team of Araújo e Policastro is available to assist you in the preparation of the corporate documents required for the Annual Approval of Accounts.

¹ STJ. REsp nº 1.313.725 – SP (2011/0286947-4). Relator: Ministro Ricardo Villas Bôas Cueva.