The concept of legal reserve can be used to name assets that a financial institution must deposit in the central bank as warranty from his passive . The amount of this reserve varies according to each legislation, although it is usually a percentage applied to a certain concept.
Thanks to the legal reserve, the customers Banks have greater protection. If a bank cannot meet its obligations due to its liabilities, the legal reserve is a safe conduct for bank users to access their money.
The legal reserve is also the one that must have a anonymous society (company ) according to current regulations. In some countries, the legal reserve must correspond to 10% of the company's last fiscal year profit until it reaches at least 20% of its share capital. This legal reserve is used to compensate losses if the firm does not have other reserves for this purpose.
That is, therefore, we could establish that the legal reserve is part of the benefit that a company in question has obtained and that has not been distributed, since it has as a clear objective both the self-financing to that one and also increasing the value that it can to have.
It is very important, therefore, that the corresponding seats related to the legal reserve be carried out in the entity in question. Specifically, when making such annotation, the benefits that have been obtained during the corresponding year will be determined and immediately the amount of those corresponding to the 10% legal reserve will be made clear.
Specifically, all these data and figures must be clearly established in the accounting book that the company has. It is also necessary to emphasize that the rest of the benefits that are not aimed at forming that legal reserve item, can be dedicated, for example, to what is known as voluntary reserves or to the distribution among the people of the entity that have shares .
The aforementioned volunteers become the reserves that, once complied with the established laws and with the possible distribution of dividends, are freely available so that the company in question can make use of them when it needs it or when it creates it. timely. Specifically, it is perfectly established that they can be used for any purpose that the entity's leaders consider important.
The purpose of the legal reserve, therefore, is the protection of capital of the company in case of possible losses. Companies cannot freely dispose of these reserves or use them for whatever they wish, but their sole purpose is to respond to losses.
It is important to keep in mind that legal reserves are items created and required by the law ; that is, they do not depend on the will of the entrepreneur. He cannot refuse to create such reserves nor is he entitled to dispose of the money according to his interests, since the mechanism is governed by specific regulations.