Business Definition for: legal capital
legal capital
amount of stockholders' equity that cannot be reduced by the payment of dividends. It is defined by the par value of par-value issued stock or the stated value of no-par issued stock.
See also
stated value
,
par value
Related Terms:
per share value sometimes assigned to no-par stock by the corporation. It defines the legal capital of the corporation. It is the amount credited to the no-par capital stock account. A typical journal entry made for the issuance of stated value stock is given below:
|
Dr. |
Cr . |
| Cash (or other assets) |
XX |
|
| Capital stock (at stated value) |
|
XX |
| Paid-in capital in excess of stated value |
|
XX |
amount arbitrarily assigned by the corporate charter to one share of stock and printed on the stock certificate. The par value represents the legal capital per share. There can be no dividend declared that would cause the stockholders' equity to go below the par value of the outstanding shares. Par value may be a minimum cushion of equity capital existing for creditor protection. The par value is the amount per share entered in the capital stock account. It is usually significantly lower than the market price per share.
Referring Terms:
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