Giving advances on profits in Macau

João Nuno Riquito and Ricardo
Vera-Cruz

[email protected] and [email protected]

It has been four years since Law 16/2009 added Section 432-A to the Macau Commercial Code, thus establishing the possibility of limited companies by shares executing advances on account of profits.

Part of the reasoning behind this possibility is the idea of increasing the attractiveness of investments in companies´ share capital. Traditionally, companies can distribute profits once a year, generally in the beginning of the year. However, most jurisdictions allow companies to proceed with the distribution of future profits, although they also set out certain requirements to do this.

In Macau, Section 432-A authorises the distribution of advances on account of profits of the fiscal year provided that: (i) the articles of association establishes this possibility, (ii) the advance is proposed by the board of directors, (iii) a mid-term balance is elaborated, (iv) the mid-term balance demonstrates the existence, at the time of its elaboration, of amounts available for distribution, (v) the mid-term balance is certified by an auditor or an audit firm, (vi) the supervisory board or the sole supervisor expresses a favourable opinion, (vii) the amounts distributed as advances do not exceed half of the amounts available for distribution and, (viii) there is only one advance per fiscal year and only in the second half of the fiscal year. Companies generally face four common problems when proceeding with advances.

Competence

The first problem normally faced by companies is to know who is the corporate body competent to resolve the advance and if there are limitations to this competence.

Section 432-A follows the general rule that the corporate body competent to resolve matters regarding distribution of profits is the shareholders general meeting (Section 100 of the Commercial Code). However, the competence of the general meeting to resolve the distribution of advances on account of profits is subject to a proposal of the board of directors and previous approval by the supervisory board. This means the board of directors must, at their own discretion, propose to the shareholders the execution of an advance and terms of the same, together with the supervisory board or sole supervisor favourable opinion. The shareholders can either accept or reject the proposal, but not modify it.