China Securities Regulatory Commission, Questions and Answers on the Standards for Information Disclosures by Companies That Offer Securities to the Public No.3 - Sources of Funds and Procedures for, and Information Disclosures Concerning, the Making up of Cumulative Losses

Issued: June 29 2001

Main contents: The Answers clarify that companies shall apply, in the following order, funds from their voluntary common reserve surplus, statutory common reserve surplus and capital common reserve (such as increase in equity price and cash donation) to make up their cumulative losses while statutory provident funds cannot be used to make up losses (Section One). The Answers also stipulate that the use of funds from the capital common reserve to make up losses must be approved by the shareholders' general meeting (Section Two). Section Three stipulates that dividend distribution and conversion of the capital common reserve to increase equity are not allowed before the cumulative losses of a company are fully made up.
Related legislation: Articles 177, 179 and 180 of the PRC, Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p21