PrimeGlobal member firm Joanknecht lays out the steps to take when answering the question "When should I file my financial statements?"
Every Dutch legal entity (private limited company, public limited company or cooperative, as well as foundations and associations that run a business) must, pursuant to the law, file annual financial statements with Trade Register. That sounds simple, but the road to that goal can sometimes be winding. In this blog I explain the consecutive steps to be taken regarding the question: ‘When should I file my financial statements in the Netherlands?’
Preparation of financial statements
The management board of a legal entity is responsible for the preparation of the financial statements. This also includes the preparation of a management report (unless the entity qualifies as a small or micro enterprise).
The management of a public limited company or limited liability company must prepare the annual accounts within 5 months of the end of the financial year. The cooperative is given one month longer by law to prepare the annual accounts.
If the financial year is equal to the calendar year, the financial accounts 2019 of a private company have to be prepared by management no later than 31 May 2020.
Request for postponement
In special circumstances (a term that has not been specified by law), it may occur that the management needs more time to prepare the annual accounts. In that case, management must request permission from the shareholders meeting or members meeting. The shareholders meeting of a private or public limited company can grant the management a maximum of 5 months extension. The members meeting of a cooperative may extend the period within which the management must prepare the annual accounts by a maximum of 4 months. Regardless of the legal form, the maximum period for drawing up an annual account is therefore 10 months after the end of the financial year.
If the financial year is equal to the calendar year and the shareholders meeting grants maximum delay, the financial statements 2019 of an entity have to be prepared by management no later than 30 October 2020 .
Make it available for inspection
The board files the prepared (but not yet determined) financial statements (and, if applicable, the management report) for the shareholders and other persons entitled for inspection at the offices of the company.
The financial statements of medium-sized and large* companies must be audited by an auditor after they have been prepared by the management. If management of such company does not engage an auditor to audit the financial statements, the financial statements cannot be adopted by the shareholders meeting. The law states that the shareholders meeting may only adopt the financial statements after it has taken note of the auditor’s report.
All statutory directors of the legal entity must sign the annual statement. If the company has a supervisory board, all supervisory directors must also put a signature on the annual accounts. If one of the directors or supervisory directors is unwilling or unable to sign the annual statement, the reason for this must be explained in the financial statements. The law does not specify a period within which the financial statements must be signed.
The shareholders’ meeting or the members’ meeting must adopt the prepared and signed financial statements. The law does not determine when this must be done. In case of a medium-sized or large* company, the financial statements can only be adopted after the shareholders’ meeting has taken note of the auditor’s report. If the shareholders’ meeting adopts the financial statements, this does not automatically mean that the management is discharged for the policy pursued; a separate decision is required for this.
Filing of the adopted financial statements is the responsibility of the management. Within eight days after the shareholders’ or members’ meeting adopted the financial statements, the financial statements must be filed with the commercial register of the Chamber of Commerce. The management of a micro, small or medium-sized* legal entity may make use of a number of filing exemptions. Small companies* for example only need to file a balance sheet (without a profit-and-loss account) and medium sized companies* are, amongst others, exempt from filing the management report.
The law stipulates that the management must file the financial statements without delay within 2 months after the statutory period for preparing the financial statements (5 months, possibly extended by a maximum of 5 months) has expired , even if the shareholders or members did not (yet) adopt the financial statements. It must then be stated on the financial statements that these have not been adopted.
Finally, the law stipulates that the financial statements of a legal entity must be filed no later than 12 months after the end of the financial year.
In other words, an entity whose financial year coincides with the calendar year, must ensure that the financial statements 2019 are filed at the trade register of the Chamber of Commerce no later than 31 December 2020, even when the financial statements have not (yet) been adopted by the shareholders’ meeting or members’ meeting. If the financial statements are adopted after 23 December, management has less than eight days to file them, since the financial statement should indeed be filed no later than on 31 December.
Private companies where management and ownership coincide
If all shareholders are also directors of the company, the law stipulates that the signing of the annual accounts by all directors (and, if applicable, supervisory directors) counts as adoption of the financial statements and also as discharge of the directors (and, if applicable, supervisory directors). A condition is that all (other) persons entitled to attend shareholders’ meetings (such as holders of depositary receipts and pledgees) have been given the opportunity to take note of the prepared annual accounts and have agreed to this method of adoption.
In this context it is important to emphasize that the law makes a distinction between the preparation of the financial statements and making it available for publication (this must be done within 5 months) and the signing of the financial statements for which the law does not specify a term. Although it is obvious that the moment of signing will not be long after the preparation, it is also logical that this moment is not the same as the moment of preparation. After all, if those moments were to coincide, then other persons entitled to attend the meeting would not have the opportunity to take note of the prepared annual accounts before agreeing to the abridged adoption procedure. In addition, in the case of a (medium) large company, shareholders would not have the opportunity to take note of the auditor’s report.
In this situation, too, the annual accounts must be filed within 8 days of adoption. That is the moment of signing by directors and supervisory directors. It also applies that the annual statement must be filed without delay if it has not been adopted within 2 months after the statutory period for the preparation of the annual statement (5 months, possibly extended by 5 months) has expired.
This simplified procedure is always applicable by virtue of the law, if all shareholders are also directors, unless this is explicitly excluded in the articles of association. The history of law and the prevailing legal opinions (case law is not available on this point) show that explicit exclusion is necessary; old articles of association (from before October 2012) that incorporate the then applicable statutory regulations do not exclude the simplified procedure.
Risks of not filing or filing too late
The law shows that the management of a legal person has a maximum of 10 months to prepare annual accounts. For financial years that are equal to the calendar year, the annual accounts must therefore be ready no later than 31 October of the following year. As a matter of fact, the law does not impose any sanctions for exceeding this period.
The annual statement must be filed within 8 days after it has been adopted, but (for a financial year that is the same as the calendar year) no later than 31 December of the following year. Not or late (i.e., not within 12 months of the year) filing of financial statements is an economic offense for which a fine in the fourth category (up to € 20.750 in 2019) can be imposed. In addition, stakeholders can demand compliance with the financial statement obligations and in the most extreme case the Chamber of Commerce can proceed to dissolve the legal entity.
Another important risk concerns the possible joint and several liability for management. Not or late filing of the financial statements is in fact considered as improper management (“mismanagement”) in case of an inquiry procedure by the Enterprise Section of the Amsterdam Court of Appeal or in case of bankruptcy. In such situation, directors can be held jointly and severally liable for the debts or the deficit of the legal entity.
In practice we sometimes come across that companies wish to file a “provisional” or “draft” annual statement if they have not been able to prepare the annual statement in time. However, this is not possible and the Chamber of Commerce usually refuses such documents.
For the protection of the management, the law offers the possibility to file non-adopted annual accounts if the general meeting has not adopted the annual accounts in time (within 12 months after the end of the financial year). However, these are not preliminary financial statements, but the final financial statements signed by the management. It must be stated on these financial statements that it has not been adopted by the general meeting .
By depositing a “provisional” or “draft” financial statements , the management therefore incurs an additional risk. Not only the obligation to file has not been fulfilled, also the duty to prepare the financial statements in time is not met.
This blog was written on personal title by Edwin Vogel, audit partner at Joanknecht and lecturer in external financial reporting at Nyenrode Business Universiteit. The content of this blog was last tested by the author on 26 November 2019 against the applicable laws and regulations.
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