What Is an Assignment of Benefits?

Profit distribution is the distribution of the total profits realized by the enterprise and the profits obtained from the associates within a certain period (usually annual) among the state and enterprises, and between enterprises. The process of profit distribution is generally divided into three stages: (1) The total profit realized by the enterprise plus the profit distributed from the associate, that is, the total income of the enterprise, based on this, before paying income tax and adjusting tax, according to It is stipulated that the tax-exempt items of joint ventures, creditors and enterprises of enterprises shall be deducted for the initial distribution. The tax-exempt items that are deducted mainly include: profits distributed to associates, profits returned to infrastructure loans and special loans, profits returned to borrowings, employee benefits funds and incentive funds withdrawn, profits to make up for losses in previous years, and various individual items in the enterprise. Profits (such as the net profit left to the enterprise's "three wastes" products, the profit left to the enterprise by foreign processing and assembly operations), etc. For enterprises implementing the contracted operating responsibility system, after the distribution of pre-tax profits, they should submit the contracted profits in the form stipulated in the contracting contract during the contracting operation period (submitting incremental profits to the contractor, submitting the profit base to the contract and overtaking the revenue, etc.) No more income tax and adjustment tax. The balance of the total income after deducting the initial distribution is the taxable income of the enterprise. (2) Based on the taxable income of the enterprise, calculate the tax payable according to the prescribed income tax rate and adjusted tax rate, and redistribute it between the state and the enterprise. The balance of taxable income after deducting taxable income is the retained profit of the enterprise. (3) Based on the retained profits of the enterprise, the retained profits of the enterprise shall be converted into various special funds at a prescribed rate. ^[1]

Profit Distribution

Principle of distribution according to law

The object of corporate profit distribution is corporate payment

1,

Statutory Provident Fund

The statutory reserve fund is drawn from the net profit and used to make up for the company's losses, expand the company's production and operation, or to increase its capital. When the company distributes the profit after tax for the current year, it shall draw a statutory reserve fund at a rate of 10%; when the accumulated amount of statutory reserve fund reaches 50% of the company's registered capital, it may no longer continue to withdraw.

The order of profit distribution is based on "

Socialist state enterprise

There are two main distribution methods: one is that the profits realized by the enterprise are divided between the enterprise and the country according to a certain proportion, and the specific methods are various; the other is that the profits realized by the enterprise pay various taxes according to law, and the remaining profits are left to the enterprise The specific methods are also different.

Chinese companies

Depending on the nature of the ownership of the enterprise, different forms of profit distribution are adopted.

The surplus reserve withdrawn by the enterprise in accordance with regulations shall be debited to the undergraduate account (extracting statutory surplus reserve, extracting arbitrary surplus reserve), and crediting the "surplus reserve-legal surplus reserve, arbitrary surplus reserve" account.

Reserve funds, enterprise development funds, employee awards and welfare funds withdrawn by foreign-invested enterprises in accordance with regulations shall be debited to the undergraduate account (withdrawal of reserve funds, enterprise development funds, employee awards and welfare funds), and shall be credited to "surplus reserve- Reserve Fund, Enterprise Development Fund "," Payable to Employees "and other subjects.

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Legal factor

When making profit distribution, enterprises should adhere to the statutory profit distribution procedures. They cannot distribute profits based on corporate capital. They cannot use the retained earnings of previous years to distribute profits without profit. They are all legal requirements that must be followed in the process of profit distribution.

The relevant requirements are mainly reflected in the following aspects:

Capital preservation constraint: stipulate that the company cannot use capital (including paid-in capital or equity and capital reserve) to pay dividends, the purpose is to maintain the integrity of the company's capital, protect the company's complete property rights foundation, and protect the rights of creditors

Capital accumulation constraint: It is required that the company must withdraw various provident funds according to a certain proportion and base. In addition, it requires that in the distribution of dividends, the principle of "no interest is not divided" should generally be implemented

Excessive cumulative profit constraint: If the company's surplus for the sake of tax avoidance greatly exceeds the company's current and future investment needs, additional tax will be levied.

Cash capacity factor

If an enterprise wants to distribute profits in the form of cash, it must consider the ability to pay in cash. Corporate profit does not necessarily mean that there is corresponding cash. In practice, companies often have a lot of accounting book profits, but cash is very scarce. This is because in the process of making profits, the company also purchases physical assets at the same time, so that the previous profit and the current profit are fixed into non-cash assets, which affects the liquidity of the assets.

Tax factor

The purpose of stock investment is to obtain dividends, or to obtain capital gains through low absorption and high sales. But for shareholders, the income tax paid by the two is different, and the tax burden on cash dividends is higher than the tax burden on capital gains.

Composition of shareholders

The shareholders of different strata, different income levels, and different investment purposes have different requirements for dividend distribution.

Debt factor

When a company borrows long-term debt, in order to protect its own interests, creditors may restrict the company's dividend.

Cost of capital factor

Among the various financing methods of enterprises, the capital cost of retained profits is the lowest and stable and reliable. It can also keep the company's strong external financing ability, and the company's asset-liability ratio can be maintained at a higher level. But too much emphasis on retained profits, too little dividend payment will also go negative, because the stock price may fall due to investor dissatisfaction and selling, and the company's reputation will be damaged, but it will affect the company's external financing capacity.

Business Expansion Factors

When the company is in the rising stage of development and has a wide range of investment opportunities, it needs a lot of development funds. At this time, the company can consider reducing dividend expenses, using most of the profits for expanding reproduction, and giving shareholders more satisfactory returns in the future. May be accepted by majority shareholders. When the enterprise is in ample and stable profit and there is no good opportunity for expansion, it may consider adopting a higher dividend to return to investors.

Inflation factor

In the period of inflation, the purchasing power of enterprises has declined. It was difficult to achieve the original plan to purchase fixed assets with depreciation funds as the source. In order to make up for the lack of funding sources, enterprises often use corporate profits to purchase long-term assets, so dividend payments will be lower.