Define: Capital Surplus

Capital Surplus
Capital Surplus
Full Definition Of Capital Surplus

Capital surplus refers to the excess amount of capital received by a company from the sale of its stock above the par value of the stock. This surplus is typically recorded on the company’s balance sheet as part of its shareholders’ equity. It represents the additional funds that the company has received from investors, which can be used for various purposes such as expansion, investment, or debt repayment. Capital surplus is a legal concept that is important for financial reporting and accounting purposes.

Capital Surplus FAQ'S

Capital surplus refers to the amount of money that a company receives from investors in excess of the par value of its stock. It represents the additional funds that a company receives when it issues shares at a price higher than their par value.

Capital surplus and retained earnings are both components of a company’s equity, but they represent different sources of funds. A capital surplus arises from the issuance of shares at a premium, while retained earnings are the accumulated profits of the company that have not been distributed to shareholders as dividends.

Yes, capital surplus can be distributed to shareholders as dividends, subject to the company’s bylaws and applicable laws. However, companies often prioritise the distribution of retained earnings as dividends before utilising capital surpluses for this purpose.

No, capital surpluses cannot be used to cover operating losses. It is primarily a source of funds for capital investments, such as acquisitions, research and development, or debt repayment. Operating losses are typically covered by retained earnings or other sources of working capital.

Yes, capital surplus can be used to repurchase company shares. This is known as a share buyback or stock repurchase program. By utilising its capital surplus for this purpose, a company can reduce its outstanding shares and potentially increase the value of the remaining shares.

The use of capital surplus is subject to the company’s bylaws, applicable laws, and any restrictions imposed by the shareholders or regulatory authorities. Companies must ensure that the use of capital surpluses is in compliance with these requirements.

No, capital surplus cannot be converted into share capital. Share capital represents the nominal value of the shares issued by a company, while capital surplus represents the excess amount received from investors. These two components of equity are distinct and cannot be interchanged.

Yes, capital surplus can be transferred to another company in a merger or acquisition. When two companies combine, the capital surplus of the acquired company becomes part of the equity of the acquiring company.

The tax treatment of capital surpluses depends on the jurisdiction and applicable tax laws. In some jurisdictions, capital surplus may be subject to taxation, while in others, it may be treated as tax-free reserves. It is advisable to consult with a tax professional or accountant to understand the specific tax implications of capital surplus in a particular jurisdiction.

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This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 23rd April 2024.

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