For the purposes of reserved fund (including the statutory reserve and capital reserve) uses, under the "Company Law" Article 169, it states: a company's fund is used to cover the company's losses, expanded operations or increase the company's capital. However, the capital reserve shall not be used to set off losses.
Under the statutory, when the surplus reserve transfers into capital, the balance of the reserve shall not be less than the company's registered capital before it increased by transferring 25 percent.
As such, when the statutory reserve fund transfers into capital, it shall not be less than a certain percentage, because of the capital maintenance requirement. Under the "Company Law", Article 168, it stipulates that : for a limited company, the amount in excess of the par issue price, that is isued at a premium on share, the State Finance Department requires that it should be included in capital reserve and other income that should be classified as capital reserve.
"More than the issue price of par value of a share is resulted in a premium payment" is one of the source as stated by the State Financial Department under the State Council, other incomes includes the capital reserve fund and asset valuation for the value added, premium income from sale of assets, merger proceeds of other companies’ balance of assets, receiving the gift of property income and so on.