What is the difference between Capital Reserve and Reserve
Capital?
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Answer Posted / mihir vankani
If the board of directors feels that in future the company
may not need the share capital which is not yet called up,
the company may pass a special resolution in the general
meeting of the shareholders stating that it will not demand
for the uncancelled amount on shares unless and until the
company is liquidated. This particular amount of
uncancelled share capital in this case is known as RESERVED
CAPITAL.
If we consider RESERVED CAPITAL from the view point of
creditors, it becomes a very big security. But from the
view point of the shareholders, this may be considered as a
liability. Offcourse, the amount is not called up till the
company's liquidation; thus, so far shareholders are not
worried.
THERE MUST BE A PROVISION IN THE ARTICLES OF ASSOCIATION OF
A COMPANY REGARDING RESERVED CAPITAL.
Lets talk about CAPITAL RESERVE now. Capital reserve is a
fund created from a special type of profit. Plz note that
revenue profit is NOT considered a part of this one.
Capital reserve examples are as follows:
1. Share premium received for issuing shares at premium.
2. Debenture premium
3. Profit realised after revaluation of company assets.
Normally, capital reserve is utilised to write off
fictitious assets.
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