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Pursuant to the Company Law of China, the profit distribution plan of a limited liability company shall be formulated by the company's board of directors (Article 67), and then deliberated on by its shareholders' meeting (Article 59). For a company limited by shares, its profit distribution methods shall be specifically stipulated in accordance with its articles of association (Article 95). Article 210 of the Company Law further requires that, prior to profit distribution, the company shall first set aside 10% of its profits as the company's statutory common reserve. The company may cease to make such set-aside when the accumulative amount of its statutory common reserve accounts for more than 50% of its registered capital. The company's statutory common reserve and current year profits shall first be used to offset the company's losses from previous years. Thereafter, upon a resolution of the shareholders' meeting (or general meeting of shareholders for a company limited by shares), the company may further set aside a discretionary common reserve from its after-tax profits. After all losses are offset and all required common reserves are fully set aside, the company may distribute the remaining profits. A limited liability company shall distribute profits in proportion to the capital contributions actually paid by its shareholders; where distribution is not made in such proportion, consent of all shareholders shall be obtained. A company limited by shares shall distribute profits in proportion to the shares held by its shareholders, unless otherwise stipulated in its articles of association.

The aforesaid non-distributable statutory reserve and discretionary reserve drawn from profits are similar in nature to the capital reserve obtained by a company when issuing shares at a premium. They are intended to make up potential losses of the company, expand its production and operation, or be converted into an increase in the company's registered capital, so as to protect the interests of the company's creditors where necessary (Article 214).

Paragraph 1 of Article 89 of the Company Law of the People's Republic of China stipulates that where a limited liability company fails to distribute profits to its shareholders for five consecutive years, while it has been continuously profitable over the said five years and meets the conditions for profit distribution as prescribed by law, a shareholder who votes against such resolution at the shareholders' meeting may request the company to purchase his or her equity interest at a reasonable price. Where the shareholders' meeting adopts a resolution on profit distribution, the board of directors shall effect the distribution within six months from the date of adoption of the shareholders' meeting resolution (Article 212).

Article 15 of the *Interpretation (IV) of the Supreme People's Court on Issues Concerning the Application of the Company Law of the People's Republic of China* released in 2017 further provides that, where certain shareholders abuse their shareholder rights in violation of the law, resulting in the company's failure to distribute profits and losses inflicted on other shareholders, the other shareholders may still petition the people's court to order the company to distribute profits even if they cannot produce a valid resolution of the shareholders' meeting or the general shareholders' meeting that sets out a specific profit distribution scheme. This is regarded as the establishment of China's principle of compulsory judicial profit distribution, as well as a demonstration of greater emphasis on the protection of rights and interests of small and medium-sized shareholders. In line with the principle of shareholder equality, this rule prohibits any shareholder from privately distributing the company's profits by virtue of their controlling position or the convenience of their office, and provides for judicial intervention to resolve disputes when the company falls into a deadlock over profit distribution and is unable to form a valid resolution on the relevant matter.

In comparison, Section 830 of the UK Companies Act first explicitly defines that profits available for corporate profit distribution refer to the accumulated, realized profits of the company that have not been previously distributed nor contributed to the company's capital, minus the accumulated, realized losses that have not been previously deducted. Subsequently, Section 831 of the UK Companies Act further specifies the net assets that a public company (excluding private companies) shall maintain when making profit distributions. The net assets of a company refer to the total assets of the company minus its total liabilities. When distributing profits, a public company shall ensure that its net assets will not become negative after the completion of the relevant profit distribution, and shall not be less than the sum of its paid-up capital and undistributable reserves. The "undistributable reserves" mentioned herein include: (1) Share premium account, that is, the amount actually received by the company when issuing shares that exceeds the total par value of the shares; (2) Capital redemption reserve, namely the amount of the company's share capital deducted after the relevant company repurchases shares (if any), which is actually still part of the company's capital that the relevant company must maintain after share repurchase to safeguard the interests of creditors; (3) Unrealized profits minus unrealized losses; and (4) Amounts non-distributable as stipulated in the company's articles of association or other resolutions. For both public companies and private companies, there are no provisions on statutory reserve under the UK Companies Act, but a company may make a resolution on its own not to distribute specific profits, which is similar to the discretionary reserve under the Companies Act of China.

Subsequently, when distributing profits, both private companies and public companies shall first submit their annual financial statements. Where the amount of the relevant profit distribution exceeds the total profit of the company as set out in the latest annual financial statements, a separate provisional financial statement shall be prepared to prove that the said profit distribution is reasonable and lawful. The relevant financial statements shall set out such information as the company's profits, losses, assets, liabilities, share capital and reserves, among others (Articles 836-840).

Under the common law cases of the United Kingdom, there are further provisions on the distribution of company profits. Traditionally, UK laws focus more on protecting the interests of company creditors, rather than providing comprehensive protection for shareholders' right to profit distribution. For example, if an employment contract between a company and its shareholder who also acts as the director is deemed by the court not to be intended for payment of reasonable remuneration but for profit distribution, the court will declare the relevant employment contract unenforceable for the purpose of protecting creditors. In addition, unless a company signs relevant agreements with other related companies at a reasonable market price, it shall not transfer company capital other than profits or any corporate assets to its shareholders or affiliated companies. Take the classic case *Aveling Barford Ltd v. Perion Ltd [1989] B.C.L.C. 626* as an example: a company with huge accumulated losses but not insolvent transferred part of its core assets at a price below the market value to another company controlled by its controlling shareholder pursuant to a shareholders' meeting resolution. This transfer was identified as unauthorized return of capital, for it did not constitute a legitimate profit distribution as the company was in a state of loss; meanwhile, the below-market price of the transferred assets and the absence of a reasonable agreement also meant that it could not be recognized as a proper intra-group asset transfer, which harmed the potential interests of the company's creditors.