Capital impairment is the case when the company lost its
asset
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can b ...
, so the asset is lower than the
stock
Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the Share (finance), shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporatio ...
of a company. One way to avoid capital impairment is
reduction of capital without any compensation. Impaired capital may occur when a company incurs losses that result in negative retained earnings, also referred to as a retained deficit. Retained earnings can be reduced by dividend distributions; therefore, excessive dividend payments may contribute to a negative balance. In some jurisdictions, incorporation laws restrict companies from issuing dividends until any retained earnings deficit is resolved.
See also
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Bankruptcy
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the deb ...
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Reduction of capital
References
Corporate law
Financial capital
Equity securities
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