We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
Impaired Capital: A Comprehensive Guide to Its Legal Implications
Definition & Meaning
Impaired capital refers to a situation where the total value of a company's capital is less than the par value of its issued stock. This condition indicates that the company's financial health is compromised, as the capital invested by shareholders is not fully recoverable. In the banking sector, severe impairment may trigger a regulatory agency to issue a capital call, requiring the bank to raise additional funds or face potential liquidation.
Table of content
Legal Use & context
This term is primarily used in corporate finance and banking law. It is relevant in contexts such as:
Corporate governance, where companies must maintain adequate capital levels.
Banking regulations, which require financial institutions to meet specific capital requirements to ensure stability.
Users can manage related legal documents through tools like US Legal Forms, which provide templates for compliance and reporting.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
For instance, if a bank has issued stock with a par value of $100 million but its total capital is only $80 million, it is considered to have impaired capital. In this case, the bank may be required by a regulatory agency to raise $20 million to restore its capital.
Comparison with related terms
Term
Definition
Key Differences
Capital Deficiency
A situation where a company's liabilities exceed its assets.
Impaired capital refers specifically to the value of issued stock being less than par value, while capital deficiency relates to overall financial health.
Liquidation
The process of winding up a company's financial affairs and distributing assets.
Liquidation is a potential outcome of impaired capital, but it is not synonymous with the term itself.
Common misunderstandings
What to do if this term applies to you
If you suspect that your company is facing impaired capital, consider the following steps:
Review your financial statements to assess your capital status.
Consult with a financial advisor or legal professional to explore your options.
Consider using US Legal Forms to access templates for necessary filings or disclosures.
In complex situations, seeking professional legal help is advisable.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.