Core Viewpoint - The Ministry of Finance has issued a notice to clarify financial handling issues related to the Company Law and Foreign Investment Law, effective from July 1, 2024, focusing on the use of capital reserves to cover losses and the treatment of various funds in foreign-invested enterprises [1][4]. Group 1: Financial Regulations - The new Company Law mandates that capital reserves can only be used to cover losses after utilizing discretionary and statutory reserves, with specific conditions for using capital reserves [1][2]. - The notice specifies that non-monetary assets contributed as capital must be evaluated for pricing, ensuring proper asset assessment and internal governance [3][4]. - The notice emphasizes the need for board resolutions and shareholder meetings to approve the use of capital reserves for loss coverage, protecting shareholder rights [2][3]. Group 2: Treatment of Funds in Foreign-Invested Enterprises - Foreign-invested enterprises will transition from maintaining reserve funds to statutory and discretionary capital reserves, with specific management guidelines for these funds [4]. - The cancellation of the three funds (reserve fund, enterprise development fund, and employee reward and welfare fund) will alleviate financial pressure on foreign-invested enterprises, allowing for better liquidity and operational vitality [4][5]. - The new regulations aim to equalize the profit distribution system between foreign-invested and domestic enterprises, enhancing the business environment and stimulating innovation [4][5]. Group 3: Implementation and Compliance - Companies are advised to view the new regulations as a comprehensive test of corporate governance and internal control, emphasizing the importance of compliance and risk awareness [5][6]. - The Ministry of Finance plans to monitor the implementation of the notice and gather feedback from stakeholders to improve the effectiveness of the regulations [6].

Core Viewpoint - The Ministry of Finance issued a notification to clarify financial processing issues related to the implementation of the Company Law and the Foreign Investment Law, focusing on the use of capital reserves to cover losses, the evaluation of non-monetary assets for contributions, and the management of specific funds in foreign-invested enterprises [1][10]. Group 1: Use of Capital Reserves to Cover Losses - Companies can use capital reserves to cover losses based on audited financial statements from the previous year, with the limit being the negative retained earnings brought to zero [2][11]. - The notification specifies that companies must create a plan for using capital reserves to cover losses, detailing the loss situation, reasons for covering losses, and the source and amount of reserves to be used [3][11]. - Companies must notify creditors or publicly announce the decision to use capital reserves within 30 days of the shareholders' meeting resolution [3][11]. Group 2: Non-Monetary Asset Contributions - Companies must evaluate non-monetary assets contributed by shareholders according to relevant regulations and follow internal decision-making procedures for establishment, capital increase, merger, and division [4][12]. - Companies should consider various factors that may affect the realization of asset rights when accepting non-monetary contributions and may need to obtain legal opinions if necessary [4][12]. Group 3: Management of Specific Funds in Foreign-Invested Enterprises - Foreign-invested enterprises must convert surplus reserve funds into statutory and discretionary reserves, with specific management requirements for employee reward and welfare funds [5][13]. - From January 1, 2025, foreign-invested enterprises will no longer accrue reserve funds, development funds, or employee reward and welfare funds, and any accruals made after this date should be reversed [5][13].