What is the Meaning of Legal reserve | Definition and What is Legal reserve

Meanings, definitions, concepts of daily use

The legal reserve can be used in the context of accounting, to designate the assets that a financial institution must deposit with the Central Bank as collateral for its liabilities. The amount of this reserve varies depending on each legislation, although it is a percentage applied to a given concept.
Thanks to the legal reserve, of bank customers have greater protection. If a bank is unable to meet its obligations because of its liabilities, the legal reserve is a pass so that banking users have access to their money.
The legal reserve is also must have a Société anonyme (Enterprise) in accordance with the regulations in force. In France, for example, the legal reserve must correspond to 5% of the profit for the last year of the company until it reaches at least 10% of its share capital. The legal reserve is used to offset possible losses if ever the company has no other reservations to this effect.
That said, the purpose of the statutory reserve is to protect the capital of the company in the event of possible losses. Companies cannot freely dispose of these reserves or use them for everything that they want, the sole purpose being to meet losses.
It is important to note that the statutory reserves are created and required by law. In other words, they do not depend on the will of the contractor. It may not refuse to create such reservations and does not have the right to dispose of this money to its centres of interest, given that the mechanism is governed by specific rules.
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