a)
Statutory reserves
(i) General statutory reserve
It is compulsory to set out each year 5% of the annual net profits as general statutory reserves, until it reaches 20% of the paid-up capital.
The following amounts are added to the general statutory reserves even after it has reached the aforementioned legal limit:
- The portion which has not been expended for amortization, assistance or charity, out of revenues obtained in excess of the nominal value when issuing shares,
- The balance remaining on payments made on account of the price of canceled shares, after having closed the deficit resulting from the shares which have replaced the same,
- After having set aside the net profits a portion of 5% for shareholders, one tenth of the portion that has been decided to be distributed among persons having shares in the profits.
As long as the general statutory reserves have not exceeded one half of the basic capital they may be expended exclusively for covering losses, for taking the proper measures for maintaining the undertaking in times where business is not good for preventing unemployment or for reducing the consequences thereof.
(ii) Reserves and revaluation funds appropriated with respect to the
company's own shares acquired
In the case where the company acquires its own shares, the company is obliged to appropriate reserves that correspond to the acquisition values. These reserves may be cleared if the related shares have been transferred or disposed of.
In accordance with the regulation with regard to revaluation fund, reserves as included on the passive side of the balance sheet may be cleared if:
- They have been converted to capital and the related revalued assets have been depreciated,
- The related assets have been transferred.
b) Discretionary reserves
(i) General
The Company may decide to assign on a discretionary basis a portion of the net income to the limit established in the articles of association and by law. A provision may be specified in the articles of association indicating that:
- An amount exceeding 5% of the annual net income may be appropriated to reserves,
- General reserves may exceed 20% of the paid-up capital.
Appropriation of other reserves may also be specified in the articles of association and their spending and conditions may be determined.
(ii) Reserves to be appropriated in favor of employees and workers
The articles of association may stipulate provisions that enable the appropriation of reserves for the company managers, employees and workers in order to establish or sustain a charity organization or to be granted to a public organization.
It is obligatory to establish a charitable foundation and a cooperative by diverging the reserves and other assets which have been allocated to the charity. The charity foundation deed may state that the assets of the charity foundation may solely be the debt against the company.
c) Relation between dividend and
reserves
Dividend to be distributed to the shareholders cannot be determined unless general statutory reserves and discretionary reserves as specified in the articles of association are allocated.
The general assembly may decide to allocate special reserves other than those as specified in law and the articles of association in order to protect assets to the extent necessary and sustain the company and secure dividend distribution for the benefits of all shareholders.
