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LSDefine
Simple English definitions for legal terms
borrowed capital
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A quick definition of borrowed capital:
Definition: Borrowed capital refers to money that is borrowed by a company or organization to help them run their business. This can include money borrowed to pay for things like salaries, equipment, or other expenses. Sometimes, a company may choose to keep some of the money they make instead of paying it out to shareholders as dividends, and this money can also be used as borrowed capital to help the company operate.
A more thorough explanation:
Definition: Borrowed capital refers to funds that are lent to a corporation or other entity to finance its operations. This can include cash dividends that are declared by a corporation but temporarily retained (with stockholder approval) to provide operating funds.
Example 1: A company needs to purchase new equipment to expand its operations, but it doesn't have enough cash on hand to make the purchase. The company decides to borrow money from a bank to finance the equipment purchase. This borrowed money is considered borrowed capital.
Example 2: A corporation declares a cash dividend to its shareholders, but instead of paying out the dividend, the corporation decides to temporarily retain the funds to provide operating funds. This retained cash is considered borrowed capital.
These examples illustrate how borrowed capital can be used to finance a company's operations or provide temporary funding. It is important for companies to carefully manage their borrowed capital to ensure they can meet their financial obligations and maintain a healthy financial position.