The Evolution of Stated Capital.

Abstract The article examines the development of the stated capital concept in an attempt to gain better understanding of the legal view of permanent capital. The discussion begins with an investigation of the trust fund doctrine and extends to the major modifications in the concept of legal capital down to the present day. Stated capital is a legal limitation on stockholder withdrawals. As defined in law it is an absolute quantity, capable of direct computation, and not a residuum. Since only surplus beyond this amount generally is available for charges resulting from dividend declarations, creditors are provided a buffer which absorbs losses in asset values in the event of an insolvency. The stated capital concept is the cause of many differences between accounting and legal views of corporate net worth. In law, stated capital is determined by statutory formula and does not necessarily equal aggregate par or stated value of outstanding shares. In some instances, a stock split, reverse stock split or other similar capital readjustment does not result in a reduced stated capital, even though the aggregate par value of outstanding shares after the transaction is less than the former par or stated value aggregate.