The legal reserve is the accounting account, which represents profits that are not distributed to shareholders so that they are intended to cover any losses©incurred© in a future financial year[2]. In the same vein, Elãas points out that the legal reserve “represents distributed profits or profits of any kind, excluded from distribution and allocated to specific future purposes, thus giving the company greater economic and financial solidity” © [3]. In other words, it is the total amount resulting from the sum of deductions from the distributable profits of a public limited company during one or more economic periods used to settle possible losses©. Thus, the legal reserve of the company in this case is $ 1000, which must be accumulated on the basis of this reserve in order to increase the impact share compared to a possible negative year. Therefore, the legal reserve consists of 10%, which the company accumulates from the accounting profits it has, for example, only the net assets that the company earned from the last liquidated year is taken. Initially, a legal reserve is the amount of assets that the company stores by removing a small percentage of its net capital and adding it to past values to generate registered capital that serves as support in case of financial problems during annual production. In accordance with Article 202 of the General Companies Act, the capital increase may result from: new contributions, capitalization of loans against the company, including the conversion of bonds into shares, capitalization of profits, reserves, profits, capital premiums, relational surpluses, other cases provided for by law. In the event that one of the shareholders subsequently decides to dispose of his shares, this capitalisation of the legal reserve must be recorded as the calculable cost of the shares at their nominal value, falls within the scope of subsection (c) of article 21 (2) of the Income Tax Act; therefore, the foregoing is based on the jurisprudential criterion established in Tax Court Order No. 04124-3-2016.

Taking into account that the legal reserve must be accumulated in the share capital that, as defined above, the company stores as a method of hedging to support possible damages; The maximum limit that the statutory reserve may have would be one-fifth of the net share capital of the company. In accordance with Article 229 of Law No 26887 on general company law (hereinafter referred to as “general company law”) [4], the legal reserve may have a limit equal to one fifth of the share capital. The amount exceeding this limit does not have the legal reserve condition. Similarly, according to the above-mentioned article, for the purpose of creating this account, there is an obligation to allocate to it at least ten per cent of the distributable profit of each year, less income tax. Finally, among other things, the statutory reserve can be capitalized to increase the capital of the company; And on the other hand, it is a condition that has reached its upper limit for the capital premiums to be distributed. There is an obligation to allocate at least 10% of each year`s distributable profit, less income tax, to “statutory reserves”. According to the above rules, the legal reserve comes from the profits generated by the company, which are not distributed by law, since they must be built up for such a purpose as compensation for losses. Assuming that a given company has earned a total of $10,000 net in the last year, 10% of this amount is deducted from this annual amount, which is directed to the reserve, as it is calculated that this percentage can cover possible negative figures that this company may have the following year. Perhaps one of the most practical examples is the observation of the behavior of the legal reserve within a company: after all, the legal reserve can be activated to increase the capital of the company; And this in itself is a prerequisite for it to have reached its ceiling so that capital premiums can be distributed. The value of the legal reserve is the sum of all the accounting profits that this company has after this sum has already been liquidated without taxes or tax payments, 10% of this sum is available to be destined for the tax reserve of this company. The legal reserve is one of the most commonly used economic instruments, as it allows companies to create and maintain economic support that meets all eventualities. It should be borne in mind that in the event that the company decides to capitalize the legal reserve, in this case it must replace it with future profits; The legal reserve is an economic sacrifice for shareholders, so its registration cannot be omitted, nor can all distributed profits.

The legal reserve, in accordance with Article 229 of Law No. 26887, General Company Law; It may have an upper limit of 20% of the share capital. In view of the above, while share capital is no longer a guarantee vis-à-vis third parties, it appears that the legal reserve is far from being a mechanism for covering losses©or strengthening the financial soundness of a company. A quick look at reality and taking into account the fact that a large number of public limited companies have a share capital of S / 1,000, it can be seen that in many cases the legal reserve becomes at most an amount equal to S / 200.00 – the fifth part of its share capital. In this context, it is worth considering whether this amount can really fulfil the purpose of the legal reserve; That is, whether such a reserve could serve as a guarantee for creditors and cover future losses©. Undoubtedly, the answer is no; since it is clear that, in the event of losses©suffered by the company, this amount cannot even cover half of a worker`s living wage± Or it is highly doubtful that it will serve in any way to reduce the administrative, legal, tax or other costs that a company might incur. As explained above, the legal reserve is a tool that many companies use to obtain financial support for new investments or productions that may destabilize their economy. In view of the above, the legal requirement to set aside reserves should be abolished or at least relaxed so that reserves for possible losses©of an undertaking can be constituted by the same undertaking in the traditional way. That is, it is the shareholders and managers of the company themselves who decide the most effective way to plan their finances [9]. This will not only eliminate a paternalistic and invasive measure in public limited companies, but also©allow the Peruvian legal system to be a competition jurisdiction, which, together with other measures, will facilitate local and foreign investments [10].

This is called the legal reserve for everything that a company must necessarily accumulate in order to bear possible damages that may occur in the future. The legal reserve is constituted by the mandatory endowment by law, it can be general or specific, depending on the type of companies that equip it.