The drafting, approval, and submission of the company’s annual accounts is one of the main legal obligations of commercial companies, such as limited liability companies and joint-stock companies.
These are different procedures but require some planning, knowledge, and compliance with various formalities that can lead to significant expenses, risks, and liabilities for the directors in case of non-compliance.
Besides the applicable regulations, which we will analyze later, these processes are usually regulated in the company bylaws and the shareholders’ agreement, since they may involve the recognition of rights or obligations towards shareholders, employees, or third parties, such as the distribution of dividends, the payment of phantom shares, or the obligation to liquidate the company.
However, some companies decide to ignore these obligations for various reasons, including the desire to hide business information from their competitors and clients, whether things are going well or badly.
What risks does a company assume by not drafting, approving, or submitting its annual accounts? What is its liability? How does this non-compliance affect directors, board members, and other executive positions?
Below you will find all the information you need.
Annual Accounts. What Are They?
Annual accounts are a set of accounting documents that compile the economic and financial information of a company during a given fiscal year. These documents include the balance sheet, the profit and loss account, the statement of changes in equity, the cash flow statement, and the notes to the accounts.
Depending on the size and characteristics of your company, the procedure to follow and the format of each of these filings can vary significantly, so it is necessary to get informed before starting them.
Likewise, if the company is required to audit its annual accounts or has decided to do so voluntarily, this requirement must be taken into account when executing each of the procedures.
Deadlines for Submitting Annual Accounts
The Capital Companies Act imposes on the company’s administrative body (for example, the directors or the board) the obligation to draft, within a maximum period of three months from the end of the fiscal year, the annual accounts, the management report, and the proposal for the allocation of results, as well as the consolidated accounts and management report. (Article 253 LSC). Therefore, if the fiscal year ended on December 31, 2024, the deadline to draft the annual accounts ends on March 31, 2025.
If you have not drafted the annual accounts within the legally established deadline, it is important to take measures to fix this. Therefore, we recommend drafting the annual accounts as soon as possible. Although sanctions or fines may be imposed for the delay, it is better to file the accounts late than not at all.
Some companies decide to backdate their minutes of drafting or approval of annual accounts, that is, approve them outside the legal timeframe by indicating an earlier date. This is malpractice that in some cases can even constitute a crime, so we do not recommend acting in this way.
Once the annual accounts have been drafted, the general meeting must approve them within six months following the end of the fiscal year. Therefore, if the fiscal year ended on December 31, 2024, the accounts must be approved by June 30, 2025.
It is important to note that the company bylaws may establish a longer notice period than that provided by law, so this period must be taken into account when calling and holding the general meeting.
The annual accounts, once approved, must be filed with the Commercial Registry of the company’s domicile, together with the certification of the shareholders’ meeting resolutions approving said accounts and the allocation of results.
The deadline for submitting the annual accounts is one month from their approval. Therefore, if the annual accounts are approved on June 30, 2025, they must be filed before July 31, 2025 (Art. 365 RRM and Art. 279 LSC).
Consequences of Non-Compliance with the Approval of Annual Accounts
Failure to comply with obligations related to the submission of annual accounts can have serious consequences for companies and their directors or board members, including the following:
- Failure to submit, within the established deadline, the aforementioned documents will lead to the imposition on the company of a fine ranging from 1,200 to 60,000 euros by the Accounting and Auditing Institute, following the initiation of proceedings according to the procedure established by regulation, in accordance with the provisions of the Law on the Legal Regime of Public Administrations and Common Administrative Procedure. (Article 283 LSC)
- When the company has an annual turnover exceeding 6,000,000 euros, the fine limit for each year of delay will increase to 300,000 euros. (Article 283 LSC).
- If one year passes from the date of the fiscal year-end without the deposit of the duly approved annual accounts in the Registry, the Commercial Registry will be closed. This means that the Registrar will not register any act that takes place after that date until the deposit is made beforehand. Exceptions include titles related to the dismissal or resignation of Directors, Managers, General Directors, or Liquidators, and the revocation or resignation of powers, as well as the dissolution of the company and the appointment of liquidators, and entries ordered by the judicial or administrative authority (Article 378.1 of the Commercial Registry Regulations). For example, statutory amendments, capital increases, changes of address, and other decisions that directly affect the company’s relationship with third parties and may cause liability for directors or board members will not have access to the registry.
- The failure to submit the annual accounts by the director means that they have not acted with the due diligence of an orderly entrepreneur (Article 225 LSC). This non-compliance may result in liability for company debts, so other shareholders, employees, and creditors could directly claim payment of their debts from the non-compliant directors and board members.
- If the company is insolvent, the director’s lack of diligence in submitting the accounts will also increase the liability of directors and board members in the event of insolvency proceedings, since the Insolvency Law establishes that failure to draft the annual accounts, not auditing them if obligated, or failing to file them in the Commercial Registry in any of the last three fiscal years prior to the insolvency declaration, are considered grounds for culpable insolvency.
- Finally, failure to draft, approve, or file the annual accounts can cause a breach of the obligations assumed in the shareholders’ agreement by the directors or board members; such breach may have various consequences, from the loss of shareholdings to the obligation to indemnify the company or the assumption of personal liability arising from those debts.
Article written by:
Luis Gosálbez
Managing Partner Metricson
About Metricson
Metricson is a pioneer in legal services for innovative and technology companies. Since its inception in 2009, it has advised more than 1,400 companies from 14 different countries, including startups, investors, large corporations, universities, institutions and governments.
If you would like to contact us for any aspect of legal advice, please do not hesitate to write to us at contacto@metricson.com. We look forward to talking to you!