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Simple English definitions for legal terms
capital surplus
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A quick definition of capital surplus:
Capital surplus is the extra money a company has after it has paid all its debts and expenses. It can come from things like selling stock for more than it's worth or getting donations. This money is different from the money the company has earned from its business. It's like having extra money in your piggy bank after you've paid for everything you need. The company can use this extra money for things like buying new equipment or expanding its business.
A more thorough explanation:
Definition: Capital surplus is the excess of a corporation's net worth beyond the par value of its capital stock. It is a type of surplus that is not earned from the accumulation of profits, but rather created by financial reorganization or gifts.
Examples:
- Paid-in surplus: This is the surplus gained by the sale, exchange, or issuance of capital stock at a price above par value. For example, if a company issues 100 shares of stock at $50 per share, but the par value is only $10 per share, the paid-in surplus would be $4,000 ($50 - $10 = $40 x 100 shares).
- Donated surplus: This is the increase in the shareholders' equity account resulting from assets (such as stock) contributed to a corporation. For example, if a shareholder donates 50 shares of stock to a company, and the par value is $10 per share, the donated surplus would be $500 (50 shares x $10 per share).
- Appropriated surplus: This is the portion of surplus earmarked for a specific purpose. For example, a company may set aside a portion of its surplus for research and development or to pay off debt.
These examples illustrate how capital surplus is different from earned surplus, which is the surplus gained from a company's profits. Capital surplus is created through financial transactions or gifts, and can be used for various purposes such as investments or paying off debt.