Understanding Retained Earnings Available for Distribution in Business Law
Definition & Meaning
Retained earnings available for distribution refers to the portion of a company's net earnings that can be distributed to shareholders or investors. This amount is calculated by taking the undistributed net realized earnings and subtracting any unrealized depreciation on loans and investments. Essentially, it represents the profits that a business can share with its investors, including the Small Business Administration (SBA), or reinvest into the company.
Legal Use & context
This term is primarily used in the context of corporate finance and investment, particularly within small business investment companies. It is relevant in legal practices involving corporate governance, financial reporting, and investment agreements. Users may encounter this term when preparing financial statements or determining profit distributions. Legal templates from US Legal Forms can assist in managing these processes effectively.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A small business has realized earnings of $100,000 but has $20,000 in unrealized depreciation on its investments. The retained earnings available for distribution would be $80,000. This amount can be distributed to shareholders.
Example 2: A startup reports $50,000 in net earnings but has $10,000 in unrealized depreciation. The retained earnings available for distribution would be $40,000, which can be reinvested or distributed to investors. (hypothetical example)