Reserves in the association according to § 62 AO
For associations (corporations) the formation of reserves is regulated in the tax code ( § 62 AO ). According to this, there are four options or obligations that clubs have to consider when creating reserves. These are regulated in paragraph 1 from nos. 1 to 4.
- Purpose fulfillment reserves (for specific projects with deadlines, e.g. construction work). This will be the most common.
- Replacement reserves (for assets that the association must use to implement the purpose of the articles of association).
- Free reserves “but no more than one third of the surplus from asset management and beyond that no more than 10 percent of the other funds to be used promptly in accordance with Section 55 (1) no.
- Reserve for the acquisition of company rights (to maintain the percentage participation in corporations).
Reserves for company shares
You have to create this reserve according to the much-cited § 272 (4) HGB. It is important, for example, in a holding company . As a counterparty, the amount of the reserve must correspond to an equal amount in the company’s shares in the fixed assets.
Cooperative reserves
In cooperatives, the reserves are precisely regulated in Section 7 GenG (Cooperative Law). This deals with the amount stipulated in the statutes with which the members can participate (business share) and in No. 2 with the amount of the statutory reserve to be formed. For this you have to use part of the annual surplus.
Reserves in corporations
The reserves in corporations are formed from equity and shown, for example, as profit carried forward, annual surplus or subscribed capital. This can be done either as an open reserve in a reserve account on the balance sheet or as a hidden reserve that is not visible on the balance sheet. Reserves can be stipulated by law (AG) or created according to the articles of association or voluntarily.
Tax-free reserves
You can build up tax-free reserves in all types of company. These are the special items with a reserve portion (see section above) for which you first have to pay a tax when you dissolve the special item. You need these reserves, for example, for replacement purchases or for the purchase of fixed assets.
Open reserves
In the case of corporations, you must show these reserves in accordance with the balance sheet regulations of Section 266 (3) HGB on the liabilities side as capital reserves or retained earnings . The capital reserves according to § 272 Paragraph 2 No. 1 to 4 HGB: include shares, bonds, preference shares or other additional payments. Revenue reserves are based on Section 272 (3) of the German Commercial Code (HGB) . Cooperatives must use their open reserves in accordance with Section 7 GenGform. In addition, earnings reserves are possible in accordance with Section 337 HGB in conjunction with Section 73 Paragraph 3 GenG. For all other types of company there is the possibility of creating the special items discussed above with a reserve portion for replacement purchases, grants for the production or purchase of fixed assets or as subsidies for small businesses.
Legal reserves at the UG: reinvestment
If you set up a UG (entrepreneurial company) , the provisions of the GmbH Act apply to the reserves of this type of company. There it is stipulated in § 5a (3) GmbHG that you have to set up a reserve in the balance sheet according to the HGB “which is to be included in a quarter of the annual surplus reduced by a loss carried forward from the previous year. So you can only distribute 75% of the profits and keep the rest. You may then only use the money for purposes according to § 57c GmbHG or to compensate for an annual deficit that you cannot cover with a profit carried forward from the previous year or to compensate for a loss carried forward from the Previous year that you cannot cover with an annual surplus.
The obligation to build up reserves in this way does not cease to exist until the shareholders decide to convert the equity into share capital. However, this must exceed 24,999 euros. You will then no longer have a UG, but will be renamed a GmbH. If business is bad and you do not generate any net income or the loss carryforwards just about offset the surplus, you do not have to set aside any profits in this financial year. The reinvestment is then no longer valid for this year.