Legal basis: Article 166 of the Company Law of People's Republic of China (PRC), when distributing the after-tax profits of the current year, the company shall withdraw 10% of the profits and include it in the company's statutory reserve fund. If the accumulated amount of the statutory common reserve fund of the company is more than 50% of the registered capital of the company, it may not be withdrawn.
If the statutory reserve fund of the company is insufficient to make up for the losses of the previous year, the profits of the current year shall be used to make up for the losses before the statutory reserve fund is withdrawn in accordance with the provisions of the preceding paragraph.
After the company withdraws the statutory reserve fund from the after-tax profits, it may also withdraw the reserve fund from the after-tax profits upon the resolution of the shareholders' meeting or general meeting.
After-tax profits of the company after making up losses and drawing provident fund shall be distributed by the limited liability company in accordance with the provisions of Article 34 of this Law; A joint stock limited company shall distribute shares according to the proportion of shares held by shareholders, except that the articles of association of a joint stock limited company stipulate that shares shall not be distributed according to the proportion of shares held.
If the shareholders' meeting, shareholders' general meeting or the board of directors violates the provisions of the preceding paragraph and distributes profits to shareholders before the company makes up losses and withdraws the statutory reserve fund, the shareholders must return the profits distributed in violation of the provisions to the company.
The company's shares held by the company shall not be distributed.