Main consequences of the approval of management accounts in accordance with legal requirements
Renata Junqueira Morelli and Bruna Fernandes Caravela Flor Silva
Annually, within the first four months of the current fiscal year, companies are required to approve management accounts, financial statements, and decide how the possible results of the previous fiscal year that ended on December 31 are to be allocated.
Even though this procedure is a legal obligation, Brazilian laws do not provide for the imposition of any direct sanction in the event of noncompliance. However, failure to meet this obligation can have considerable indirect consequences that affect managers and partners, as well as the company itself.
One of the main indirect consequences is that this obligation also operates as a dual protection mechanism: on the one hand, it forces members to monitor more closely the conduction of business by the company’s managers, and, on the other hand, the approval of accounts represents the partners’ approval of the company’s management acts, therefore releasing managers from future liability.
Additionally, there are property consequences, because the profit and loss statement and the distribution of dividends must be preceded by the approval of the company’s management accounts. Any distribution carried out without this formality could be challenged and result in joint and several liability of the managers with respect to the restitution of amounts to the company.
Furthermore, this procedure equally protects the interests of the company before third parties, because it enables an analysis of the company’s economical and financial health. Lack of approval or an untimely approval of the company’s accounts can hinder or jeopardize the granting of bank loans, participation in bidding processes and solicitation of investors.