- August 10, 2009
Legal Alert on Negative Net Assets
The general rule is that starting with the second financial year the net assets shall always be higher than, or equal to, the company’s share capital.
If, at the end of the second and each subsequent financial year of the company’s activity, net assets become less than the charter capital, the company will have to decrease its charter capital and register such decrease (paragraph 1 of Article 20.3 of the Law “On Limited Liability Companies”).
In any case, starting with the second financial year, the net assets cannot be less than the minimum charter capital, which is RUR 10,000 (Euro 220). Otherwise, a company shall be subject to liquidation.
If, at the end of the second and each subsequent year, the value of net assets of the company proves to be less than the minimum charter capital…the company shall be subject to liquidation.” (paragraph 2 of Article 20.3 of the Law “On Limited Liability Companies”).
Therefore, if a company does not have sufficient equity ratio, it will have to either:
- decrease its charter capital (charter capital cannot be decreased to be lower than the minimum charter capital, which is 10 000 RUR), or
- increase its net assets, or
- proceed with both
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