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The part of share capital which can be called up only on the winding up of a company is called:
- a)Authorised Capital
- b)Called up Capital
- c)Capital Reserve
- d)Reserve Capital
Correct answer is option 'D'. Can you explain this answer?
Verified Answer
The part of share capital which can be called up only on the winding u...
Reserve Capital It is that portion of uncalled share capital which shall not be capable of being called up except in the event and for the purpose of the company being wound.
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The part of share capital which can be called up only on the winding u...
Understanding Reserve Capital
Reserve capital is a specific portion of a company's share capital that is only called upon during the winding up of the company. This concept is crucial for shareholders and company management to grasp, especially in the context of financial stability and obligations.
What is Reserve Capital?
- Reserve capital refers to the portion of the issued capital that shareholders agree can only be called up in case of liquidation.
- It is not available for general use until the company is in distress or is being wound up.
Characteristics of Reserve Capital
- Limited Callability: The company can only call up this capital in the event of winding up, meaning it is a safety net for creditors.
- Protection for Shareholders: Shareholders retain more control over their investments during normal operations since they are not obligated to pay for this capital until absolutely necessary.
- Regulatory Aspect: Reserve capital must be clearly stated in the company’s articles of association to ensure all parties are aware of its existence and conditions.
Importance of Reserve Capital
- Financial Stability: It provides companies with a cushion to meet liabilities if they face financial difficulties.
- Creditor Assurance: Creditors have a level of assurance that additional funds can be accessed if the company is liquidated, improving their confidence in lending.
In conclusion, reserve capital plays a vital role in the financial framework of a company, ensuring that there are resources available during critical times while safeguarding the interests of both shareholders and creditors.
Reserve capital is a specific portion of a company's share capital that is only called upon during the winding up of the company. This concept is crucial for shareholders and company management to grasp, especially in the context of financial stability and obligations.
What is Reserve Capital?
- Reserve capital refers to the portion of the issued capital that shareholders agree can only be called up in case of liquidation.
- It is not available for general use until the company is in distress or is being wound up.
Characteristics of Reserve Capital
- Limited Callability: The company can only call up this capital in the event of winding up, meaning it is a safety net for creditors.
- Protection for Shareholders: Shareholders retain more control over their investments during normal operations since they are not obligated to pay for this capital until absolutely necessary.
- Regulatory Aspect: Reserve capital must be clearly stated in the company’s articles of association to ensure all parties are aware of its existence and conditions.
Importance of Reserve Capital
- Financial Stability: It provides companies with a cushion to meet liabilities if they face financial difficulties.
- Creditor Assurance: Creditors have a level of assurance that additional funds can be accessed if the company is liquidated, improving their confidence in lending.
In conclusion, reserve capital plays a vital role in the financial framework of a company, ensuring that there are resources available during critical times while safeguarding the interests of both shareholders and creditors.
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The part of share capital which can be called up only on the winding u...
Reserve Capital: It is that portion of uncalled share capital which shall not be capable of being called up except in the event and for the purpose of the company being wound.
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