15 Capital and reserves
‘I love the creativity. I love the ability to create a capital structure that is appropriate for a company, no matter what field it happens to be in.’
Henry Kravis, US businessman and co-founder KKR & Co.
In a nutshell
Capital and reserves is the owners’ ‘equity’ in a business. It is equivalent to net assets in a balance sheet.
(Share) capital reflects capital contributions made by investors.
Reserves can be of two types:
- ‘Revenue’ reserves – profits set aside for specific or general purposes.
- ‘Capital’ reserves – balances set aside because of regulatory or accounting requirements.
The distinction between capital and revenue reserves is important in law. Share capital plus capital reserves represent the creditors’ ...