(1) A legal reserve is to be formed on the balance sheet of the annual financial statements to be drawn up pursuant to sections 242 and 264 of the Commercial Code.
(2) One twentieth of the surplus for the year, reduced by any loss carried forward from the preceding year, is to be allocated to the legal reserve, until the legal reserve and the capital reserve pursuant to section 272 (2) nos. 1 to 3 of the Commercial Code, in the aggregate, are at least equivalent to one tenth of the capital stock or whichever greater part of the capital stock is specified in the by-laws.
(3) Where the legal reserve and the capital reserve pursuant to section 272 (2) nos. 1 to 3 of the Commercial Code do not exceed, in the aggregate, one tenth of the capital stock or whichever greater part of the capital stock is specified in the by-laws, they may be used exclusively for purposes of:
1. offsetting a shortfall for the year insofar as this is not covered by profits carried forward from the preceding year and cannot be offset by reversing other retained earnings;
2. offsetting a loss carried forward from the preceding year insofar as this is not covered by any surplus for the year and cannot be offset by reversing other retained earnings.
(4) Where the legal reserve and the capital reserve pursuant to section 272 (2) nos. 1 to 3 of the Commercial Code exceed, in the aggregate, one tenth of the capital stock or whichever greater part of the capital stock is specified in the by-laws, the excess amount may be used for purposes of:
1. offsetting a shortfall for the year insofar as this is not covered by profits carried forward from the preceding year;
2. offsetting a loss carried forward from the preceding year insofar as this is not covered by any surplus for the year;
3. a capital increase using company funds pursuant to sections 207 to 220.
The appropriation pursuant to numbers 1 and 2 is not permissible if, concurrently, retained earnings are reversed for purposes of distributing the profits.