Reserve capital

Reserve capital is a part of capital of the company that is available for drawing. Reserve capital hasn't been called up, which enables owners to draw it in case of necessity, e.g. company liquidation. Reserve capital is created out of authorized capital. It is not disclosed. There is no legislative requirement to create it.

In some countries, using or drawing reserve capital requires special resolution passed by at annual general meeting. Thus it is a formalized process.

Reserve capital in banking

Reserve capital in banking is known also as capital buffer. The financial institution is required to hold minimum capital in central bank of the country in order to preserve liquidity.

Reserve capital vs. capital reserve

Reserve capital should not be mistaken for capital reserve. Capital reserve is part of profit kept by the company for a defined purpose.

References

  • Eberlein, E., & Madan, D. B. (2010). [Unlimited liabilities, reserve capital requirements and the taxpayer put option].
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