Inactivity of business entities
The explanation we will talk about in this text is primarily related to bringing this topic closer to the owners and managers of the alleged inactive companies who believe that they have the grounds to submit a statement of inactivity instead of financial statements (Inactivity of business entities).
According to the Law on Accounting, business entities have the obligation to submit financial statements to the Business Registers Agency. Financial statements are legally prescribed statement forms, the documents used by business entities to display their performance results, asset status, liabilities and receivables, capital. Depending on the business size, they will submit a full set of financial statements or basic performance data shown in the form of an income statement, balance sheet and statistical report.
According to the latest amendments to the Law on Accounting, which entered into force on January 1, 2022 and refer to the submission of financial statements for the year 2021, only one deadline, which replaces the previous two deadlines referring to the submission of financial statements for statistical purposes (the deadline was February 28) and final statements (the deadline was June 30) is in use. Now, there is a single deadline – March 31. The amendments are also related to the scope of the financial statement, which depends on the business size, so that the additional obligation to submit notes along with the financial statement has been imposed on micro-sized legal entities and entrepreneurs who keep business records.
The question we frequently encounter in practice is how and what shall do the business entities, which have nothing to show in these statements.
The answer is: to submit a statement of inactivity.
But (there is always a but) the key question is: when a business entity is considered inactive?
When it comes to entrepreneurs, they can suspend their activity or obtain the dormant company status and then they have to submit the statement of inactivity. When it comes to companies, this inactivity option does not exist; the law does not recognize the dormant status of legal entities and this is why companies rarely have the possibility to submit the statement of inactivity.
The Article 44 Paragraph 6 of the Law on Accounting predicts the following:
“Legal entities i.e. entrepreneurs who did not perform business activities nor have data on assets and liabilities in their business records, shall submit a statement of inactivity for the reporting period to the Agency not later than March 31 of the following year instead of a regular annual financial statement.
In this provision, there can be seen two conditions for the submission of the statement of inactivity instead of financial statements:
Condition no. 1 – that a company did not perform any business activities;
Condition no. 2 – that there are no data on their assets and liabilities in their business records.
Except when it comes to starting a business, these conditions are difficult to meet in practice.
When it comes to the first condition, we are talking about business activities related to procurement, sales, getting a bank loan, borrowings from the founder or another creditor, payment of liabilities to suppliers, collection of receivables from buyers, payment of salaries or contracted compensations to natural persons, payment of contracted liabilities. In other words, the first condition can be met only if the company does not go through any business changes.
Note: the fact that in this year you are going to pay the fee for the reception and processing of the statement of inactivity for the year 2021 to the Business Registers Agency means that you have gone through a business change indicating that you do not meet the first condition in 2022.
When it comes to the second condition, it means that the company does not have any assets or liabilities, which is hard to imagine in practice. Apart from capital assets and supplies of goods, rights, licences, receivables and current account balance are also considered assets. When it comes to liabilities, they do not include only the liabilities towards suppliers, creditors, state, employees, but also the liabilities towards the founders.
So, in practice, it is hard to imagine that there is a company which has not been performing any business activities during an entire calendar year or does not have any assets or liabilities. This can be explained by many examples, such as:
– no sales or procurement;
– no employees;
– no business premises lease;
– no obligation to pay founder’s contributions;
– no obligation to pay compensation to managers;
– no liabilities related to the current account maintenance fees, etc.
The necessary and sufficient condition for performing a business activity is to have at least one bank statement confirming the reimbursement of the account maintenance fees. In this case, there is no statement of inactivity.
If the conditions for the submission of the statement of inactivity are met, a legal entity submits this statement i.e. a legal representative unconditionally and undeniably, under substantive and criminal liability, confirms with his electronic signature that the business entity has not performed any business activities and that there are no data on assets and liabilities in the business records. The statement is signed only by the legal representative, which means he cannot authorize anyone else to submit the statement of inactivity. The statement is digitally signed by the legal representative and submitted to the Business Registers Agency in electronic form, via their application for the financial statement submission.
Every company is a separate entity and it shall be observed and analyzed as such. This is why these things require help, this is, among other things, why people hire bookkeepers, and this is why you have the CF team at your disposal.