What are retained earnings

Retained earnings


Briefly & simply explained:

Revenue reserves understandably & concisely defined

Revenue reserves are amounts that are formed from the annual surplus of a corporation. These are therefore undistributed surpluses that count towards the company's equity.

At Corporations lead to annual surpluses Increase in equity. It is a question of reserves from profits, but not from the operations of the company. Capital also makes profits, not just business. The retained earnings are about them, too Bankruptcy protection to make accessible. Corporations are founded to put this capital at risk for the business idea. The partners are not personally liable, but a secured capital stock. The mere profits from these investments are intended to pursue the same purpose, although they do not constitute income from operations. Naturally, these are also variable and never stay the same. Under certain circumstances there could even be losses.

The completeness and traceability of the declaration therefore include the Share capital the capital reserve and then the revenue reserve. The separation of the amounts and a comprehensible breakdown are important.

Also the Types of retained earnings were finally enumerated by the legislator in the Commercial Code: Up to ten percent of the share capital, 5% of the remaining annual surplus is always included Public companies and limited partnerships based on shares to be included in the reserve. If the 10% is complete, it can be ended. In the total, however, you can include the capital reserve. That is the legal reserve.

But “controlling interests or those of companies with a majority stake” must also be shown. The law means the formation of reserves of the amount that this ruling partner, who in turn can be a company, will have to pay. In the event of a sale or withdrawal, the reserve based on this must also be released.



In addition, such reserves must actually be created that have been agreed in accordance with the Articles of Association - i.e. voluntarily. This also corresponds to the protection of outsiders, who must of course be able to rely on the correctness of a statute. In addition, there are various reserves that have not been recorded, which to a certain extent correspond to a “catch-all” that would otherwise not be recorded. But this is very special and does not need to be explained in more detail here. However, one should know that it exists.
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