Question

State whether the following statement is true.

The part of capital which is called up only on winding up is called reserve capital.

Answer 1

This statement is true.

Explanation:

Reserve capital refers to that specific portion of uncalled share capital that a company, through a special resolution, decides never to call up during its lifetime except in the event of winding up or liquidation. This capital is maintained strictly as a safety cushion to protect creditors’ interests and meet financial liabilities if the company were to close down. Because it is permanently locked for emergency use during liquidation, it can never be accessed for normal day-to-day business operations.