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What is a capital contribution reserve?

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Published by a ³ÉÈËÓ°Òô Corporate expert
Published on: 23 September 2021
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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

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Capital contribution reserve definition
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.

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