(1) The capital reserve and the retained earnings that it is intended to convert to capital stock must have been recognised as “capital reserve” or “retained earnings” in the most recent annual financial statement and, where the resolution is based on a different balance sheet, also in that balance sheet, or they must have been recognised as an allocation to said reserves in the last resolution adopted as to the appropriation of the surplus for the year or of the net income. Subject to the stipulations made in subsection (2), other retained earnings and the allocations made to same may be converted to capital stock in their full amount; the capital reserve and the legal reserve as well as the allocations to same may be converted to capital stock only insofar as they are higher, in the aggregate, than one tenth of the capital stock thus far or whichever higher portion of same is specified in the by-laws.
(2) The capital reserve and the retained earnings as well as the allocations made to same may not be converted insofar as the balance sheet serving as the basis recognises a loss including a loss carried forward. Retained earnings and the allocations made to same that are determined for a specific purpose may be converted only insofar as this is compatible with their intended purpose.