Order of profit distribution According to the Company Law of People's Republic of China (PRC) and other relevant laws and regulations, the net profit realized by an enterprise in the current year should generally be distributed according to the following contents, order and amount:
1. Calculate the profit available for distribution
Combine the net profit (or loss) of this year with the undistributed profit (or loss) at the beginning of the year to calculate the distributable profit. If the profit available for distribution is negative (that is, loss), subsequent distribution cannot be made; If the profit available for distribution is positive (that is, the accumulated profit of this year), subsequent distribution will be made.
2. Withdraw statutory surplus reserve fund
On the premise that there is no accumulated loss at the beginning of the year, the statutory surplus reserve fund shall be withdrawn according to 10% of the after-tax net profit. When the statutory surplus reserve fund reaches 50% of the registered capital, it can no longer be withdrawn. The extracted statutory surplus reserve fund is used to make up the losses of previous years or to increase capital. However, the statutory surplus reserve fund retained after capital increase shall not be less than 25% of the registered capital.
3. Withdraw any surplus reserve fund.
The standard of any surplus reserve fund shall be decided by the shareholders' meeting, and if necessary, it may be used for distribution with the approval of the shareholders' meeting.
4. Pay dividends to shareholders (investors) (distribute profits)
The undistributed profits of an enterprise in the previous year can be incorporated into the current year's distribution. Make up the losses of previous years before profit distribution, or make up with surplus reserve fund.
Net profit refers to the amount after deducting income tax from the total profit of the enterprise in the current period, that is, the after-tax profit of the enterprise. Income tax refers to the tax that enterprises calculate and pay to the state according to the standards stipulated in the income tax law. It is the deduction of the total profit of the enterprise.
Refers to the company's retained profits after paying income tax according to regulations, which is also commonly known as after-tax profits or net income. The amount of net profit depends on two factors, one is the total profit, and the other is the income tax expense.