Definition
Share Capital vs Reserves
Share capital is the par value of shares issued to owners, while reserves are accumulated profits and other surpluses; together they form shareholders' equity.
Share capital is the nominal (face) value of equity raised from shareholders, fixed at the par value times the number of shares. Reserves and surplus, including retained earnings, securities premium and revaluation reserve, usually dwarf share capital in a mature company.
The distinction matters for corporate actions: bonus issues capitalise reserves into share capital, while buybacks and dividends draw down reserves. The total of the two is the company's net worth, used to compute book value per share and ROE.
Related terms
- Bonus IssueA bonus issue is the free allotment of additional shares to existing shareholders, funded out of reserves, in proportion to their holdings.
- Retained EarningsRetained earnings are the cumulative profits a company has kept and reinvested rather than paid out as dividends, forming part of shareholders' equity.
- Shareholders' EquityShareholders' equity is the residual interest in a company's assets after deducting liabilities, comprising share capital, reserves and retained earnings.
- Reserves and SurplusReserves and surplus are the accumulated profits and other equity surpluses a company has built up, sitting alongside share capital within shareholders' equity.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.