Introduction
The legal basis for the incorporation and existence of the limited liability corporations or 'de naamloze vennootschap' ('NV') is laid down in the Code of Commerce of Aruba and the articles of incorporation. The Code of Commerce of Aruba ('CCA') is rarely visited by the average entrepreneur. During the incorporation process the notary (usually) goes through the process of explicitly pointing out to the (new) entrepreneur what his/her corporate responsibilities are as noted in the articles of incorporation. However, those articles of incorporation tend to disappear in a dusty drawer or safe after the incorporation process and usually do not resurface unless asked for by a lawyer, banker or accountant. The obligation to keep a proper administration (read: financials) is one of those obligations ' in both the Code of Commerce and the Articles of Incorporation ('AOI') ' that tend to be overlooked by the entrepreneur, but remains an important aspect of proper corporate housekeeping. This memorandum covers a limitative number of pitfalls that can be easily avoided by the entrepreneur by doing some basic corporate housekeeping. For purposes of this memo I will limit myself to those aspects of the NVs with relation to the obligation regarding the yearly financials.

The law in theory
Section 73 of the CCA requires every N.V. to keep proper bookkeeping and records and to prepare a balance sheet and a profit and loss statement within eight (8) months after the previous year, signed by the managing-director (and if applicable the supervisory board of directors) and present it to the General Meeting of Shareholders ('GMS').

The obligation of the managing-director to present the financials to the GMS can be traced back in section 106 of the CCA. Failure of the managing-director to comply with said obligation can result in personal liability of the managing-director, in which case the N.V. can - perhaps at a later date or after the dismissal of the managing-director - take legal action against the (former) managing-director for the damages in question.

Section 116 of the CCA contains a liability for the managing-directors and the members of the supervisory board of directors in the event that a trustee ('curator') discovers that the financials were misrepresented by the directors of a corporation. In that event the trustee can take legal action against the directors on behalf of the creditors.

Section 117 of the CCA further stipulates that the liability of the managing-director also includes damages suffered by third parties who have relied upon the financials which 'at the time ' gave (or gives) a distorted picture of the financial condition of the N.V. Such third parties could be: lending institutions that have relied on the financials presented as a basis for credit, leasing companies or in the event of stock/bond offerings.

Relevance to the Aruban entrepreneurs
In the introduction of this article I alluded to the fact that entrepreneurs tend not to observe these legal obligation unless asked by lawyers, bankers or accountants. However fulfilling these obligations can greatly reduce potential liabilities, especially in today’s economy where business mergers, acquisitions, takeovers and bankruptcies play a more active role than in the 'good old days'.

In the 'good old days' entrepreneurs could 'afford' not to have and document general meetings of shareholders, approve financials etc., because 'it didn’t matter anyway it is my business'-attitude. The traditional role of an entrepreneur who is the managing-director and 100% shareholder is becoming less common.

Alternatively, a 100% shareholder may choose to hire an 'outside' managing-director to maximize shareholders’ value, or a business may be sold or taken over bringing about changes in the directorship of the N.V.

In today’s economy any entrepreneur/managing-director needs to be more diligent than ever in order to mitigate personal liabilities, some of which may come back to hunt the managing-director long (in some cases many years) after the managing-director has 'moved-on to the next challenge'. Such an unforeseen liability could have a heavy impact on the financial position of the (former) director.

Good corporate housekeeping: a few valuable tips
Take some time from your busy entrepreneurial and operational schedule, and attend to some basic corporate housekeeping: maintain proper bookkeeping and records and have it set-up by your (certified) accounting firm; arrange for the financials to be prepared and finalized within the allotted time; hold a General Meeting of Shareholders within the allotted time and obtain and document the approval of the financials, consult your legal-, financial- or tax advisor on procedural matter.

Continue the good work, maximizing shareholders value in clean and diligent manner.

Note:
Although this article has been prepared carefully, it may only serve as a summary of the facts presented and its contents should not be relied upon blindly. The text is intended only as an overview of fundamental regulations of the subject and as such may contain inaccuracies and simplifications in its description of the applicable laws, regulations and case law. Application of rules and regulations in each case are on account of special circumstances and it is recommended that advise of counsel be sought in dealing with the application of the law.
© Copyright 2002 Gomez & Bikker law offices