Case studies

"LexisNexis is great as I can find the answers I am looking for really quickly. I believe that nothing should be more than 6 clicks away - and the products from LexisNexis deliver on this standard"

Avensure

Access all 1 documents on Capital contribution reserve

GET ACCESS NOW

GLOSSARY

Capital contribution reserve definition

Published by a LexisNexis Corporate expert

What does Capital contribution reserve mean?

Arises when an irrevocable gift has been made to a company by a shareholder. This was relatively rare in the past, but now arises quite commonly where a parent company makes a long term loan to a subsidiary at a below market rate of interest. The difference between the face value of the loan, and its discounted value using a market rate of interest, is required to be credited to a capital contribution reserve.

Speed up all aspects of your legal work with tools that help you to work faster and smarter. Win cases, close deals and grow your business–all whilst saving time and reducing risk.

What is a capital contribution reserve?

What is a capital contribution reserve? A capital contribution reserve typically arises when an irrevocable gift has been made to a company by a shareholder (ie new shares are not issued in consideration). Such a payment often arises in the context of overseas companies, where a parent company makes a long term loan to a subsidiary at a below market rate of interest. The difference between the face value of the loan, and its discounted value using a market rate of interest, is required to be credited to a capital contribution reserve. The Privy Council (PC) case of Keller v Williams [2000] 2 BCLC 390 explored the context in which capital contributions might arise and how the funds might be used. The dispute centred on whether the funds paid were to be treated as capital contributions (as shown in the company's records) or as shareholders' loans. The PC, upholding the decision of the lower courts, held ‘…If the shareholders of a company...

See the 1 Q&As about Capital contribution reserve