Stated capital
Stated capital is the account a corporation keeps of what it has received for the shares it issues. The Canada Business Corporations Act and the Ontario Business Corporations Act each require a separate stated capital account for each class and series of shares.
An owner meets stated capital in the minute book and when a company buys back shares or issues new ones in a restructuring. Both statutes require a separate account for each class and series, and each adds the consideration received on issue, subject to exceptions in the Acts.
Where it matters
- Buy-backs: in the CBCA s.34(2) a payment to acquire shares is barred where there are reasonable grounds for believing the corporation is, or would after the payment be, unable to pay its liabilities as they become due, or the realizable value of its assets would be less than its liabilities and stated capital of all classes; ss.35 and 36 have exceptions.
- Reductions: CBCA s.38(1) allows a corporation to reduce its stated capital by special resolution, subject to s.38(3).
Not the same as paid-up capital
The Income Tax Act uses its own term, paid-up capital, when it deems a dividend on a redemption (s.84(3)). Ask the company’s accountant for both figures; they come from separate statutes. See deemed dividend and selling the shares of a private company.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of Canada (Department of Justice)GovernmentCanada Business Corporations Act, R.S.C. 1985, c. C-44
- 02Government of OntarioGovernmentBusiness Corporations Act, R.S.O. 1990, c. B.16
- 03Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
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