Financial Statements and the Determination of Distributable Profits in Croatia

A significant principle in evaluating a company’s sustainability is the going concern principle, which assesses its ability to continue with its operations for the foreseeable future. Thus, adequate financial position and profitable business operations are preconditions for fulfilling going concern requirements, which leads to a prudent company’s capital management. However, this is insufficient for capital sustainability, considering that aggressive dividend policies lead to decreased capital. National laws and regulations play a significant role in preserving paid-in and accumulating earned capital, especially those regulations related to companies’ legal systems and accounting practices. This article provides a comprehensive overview of the Croatian legal system regarding the main aspects of regulations on dividend distributions on the one side and accounting recognition and measuring policies related to paid-in and earned capital on the other side. The results are beneficiary for the objectives of the ELI project Guidance on Company Capital and Financial Accounting for Corporate Sustainability related to “restating and modernising well-established provisions of European company law on: (i) distributions; (ii) equity capital maintenance; and (iii) non-distributable reserves, with a view to fostering and facilitating sustainable business conduct through responsible company capital management and financial accounting adjustments”.