At the end of each accounting period (usually December 31), every limited liability company must prepare financial statements. These are the familiar reports that we prepare together with the corporate income tax return (CIT).

However, the second obligation is less well known – it is not enough to simply compile and submit the financial statements. According to the Commercial Code, the company must also approve them within one year and notify the tax office of this approval.
For example, if you prepare financial statements as of December 31, 2024, you must approve them by December 31, 2025, at the latest.

Who approves the financial statements and how

• Single-member company – the financial statements are approved by this member in the form of a sole member decision.
• Company with multiple partners – the financial statements are approved by the general meeting.

Both the shareholder's decision and the minutes of the general meeting have a precisely defined structure and contain the date, which is then reported to the tax office.

What is being decided

The following points are usually addressed when approving financial statements:

1. Approval of financial results – the reported profit or loss is approved. 
2. Creation of a statutory reserve fund (ZRF) – every limited liability company must have a reserve fund amounting to 10% of its registered capital (ZI). Each year, at least 5% of profits are transferred to this fund until this threshold is reached. If the year was loss-making, the fund is not created.
3. Distribution of profits or settlement of losses:
   • First, the ZRF (5% of profit) is created.
   • Then a decision is made as to whether the profit will remain in the company, be used to cover losses from previous years, or be paid out to shareholders as dividends.
   • Dividends may only be paid after any losses from previous years have been fully covered.  
4. If the company has incurred a loss, a decision is made as to whether the loss will be transferred to the "unpaid loss from previous years" account, covered by profits from previous years, or paid by the shareholders themselves.

What documents are required

• Minutes from the general meeting or shareholder decision – these documents are not submitted anywhere, but must be stored in the company's documentation.
• Notification of the date of approval of the financial statements – submitted to the tax office on the prescribed form.

What happens if the obligation is not fulfilled

If the company fails to approve the financial statements within the specified period or fails to create a statutory reserve fund, the court may also decide to dissolve it.
In addition, there is also the threat of fines from the tax office for failure to comply with the reporting obligation.

Practical example

ABC, s. r. o. (with a registered capital of €5,000) had a profit of €8,000 in 2024. The general meeting decided:

• €400 (5%) goes to the statutory reserve fund,
• €2,000 will be used to cover losses from 2023,
• The remaining €5,600 will be retained by the company as retained earnings.

All these decisions were recorded in the minutes and the date of approval was notified to the tax office.

Checklist: Procedure for approving financial statements

1. Prepare financial statements.
2. Convene a general meeting or prepare a decision of the sole shareholder.
3. Approve the financial results (profit/loss).
4. Create a reserve fund from profits if its amount is not yet 10% of the registered capital.  
5. Determine how profits will be handled or how losses will be covered.
6. Write up the minutes/decision.
7. Notify the tax office of the date of approval of the financial statements.

Frequently asked questions (FAQ)

When must the financial statements for 2024 be approved?
By December 31, 2025, at the latest.

Do the financial statements have to be sent anywhere after approval?
No, only a notification of the date of approval is sent to the tax office.

Need help?

If you do not yet have the minutes of the general meeting or the shareholder's decision, we will be happy to help you prepare them. Together with you, we will assess the options for distributing profits or covering losses and prepare a notification for the tax office.