The general reserves

The law obligates joint-stock companies to form various reserves. One of these categories is the general reserves. These must be accumulated until they cover at least 20% of the paid-in share capital. In certain cases, further allocations to the general reserves must also be made.

The Allocations

‍The allocations to the general reserves are regulated in Art. 671 OR. As a principle, a joint-stock company must allocate 5% of its annual profit to the general reserves until they comprise 20% of the paid-in share capital. If there is still a balance sheet loss, it must be offset against the annual profit before the first allocation to the general reserves is made. In cases where the balance sheet loss is greater than the annual profit, no allocation to the general reserves will be made.

Even after reaching the 20% threshold, further allocations to the general reserves are to be made in certain cases. If shares or participation certificates are issued and a premium is achieved, meaning there is a surplus over the face value after deducting the issuance costs, this surplus must be allocated to the general reserves. Deviation from this rule is only permitted if it is used for depreciation or welfare purposes. Another case for allocations to the general reserves may occur if shares are not fully paid up. If these shares are legally taken away from a shareholder and subsequently fully paid up by another shareholder, the potential profit must also be allocated to the general reserves. The last reason occurs when profit shares exceeding a 5% dividend are distributed. In this case, 10% of these profit shares must be allocated to the silent reserves.‍

Use of the General Reserves

‍For the free use of the general reserves, they must cover more than 50% of the share and participation capital. Only then can the general meeting freely dispose of this portion of the general reserves. However, if the 50% mark has not yet been reached, these reserves may only be used in two cases. First, to cover a loss; second, for measures suitable for sustaining the company during times of poor business performance, counteracting unemployment or mitigating its effects.

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