Provident funds are divided into statutory provident fund (surplus provident fund) and capital provident fund, not only listed companies, but all companies exist. According to the provisions of the Company Law, when distributing the after-tax profits of the current year, the company shall withdraw 10% of the profits and include it in the statutory reserve fund. Only when the accumulated amount of the statutory reserve fund of the company reaches more than 50% of the registered capital of the company can it be withdrawn. The statutory common reserve fund can be used to make up the losses of previous years, and it can also be transferred to increase the registered capital. Capital reserve mainly comes from the part of the company's shareholders who subscribe for shares at a premium. In rare cases, it may also be caused by other circumstances stipulated by the Ministry of Finance. Capital reserve can not be used to make up losses, but it can be used to increase registered capital.
Converting reserve fund into share capital could have expanded the company's share capital without additional capital contribution from shareholders. Of course, when the statutory reserve fund is converted into share capital, the natural person shareholders need to pay personal income tax, while the capital reserve fund is not.