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Simple English definitions for legal terms
impaired capital
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A quick definition of impaired capital:
Impaired capital is when a company's money and assets are not enough to cover what they owe to others. It's like having less money in your piggy bank than what you promised to give to your friends. This can be a big problem for businesses because they need money to keep running. It's important for companies to keep track of their finances and make sure they have enough money to pay their bills.A more thorough explanation:
Impaired capital refers to corporate funds that are less than the sum of a corporation's legal capital and its liabilities. Legal capital is an amount equal to the aggregate "par" or stated value of all outstanding shares of a corporation. In other words, impaired capital means that a company's assets are not enough to cover its debts and obligations.
For example, if a company has $100,000 in legal capital and $150,000 in liabilities, but only $120,000 in assets, then it has $30,000 in impaired capital. This means that the company is in a financially unstable position and may have difficulty meeting its financial obligations.
Impaired capital can be a warning sign for investors and creditors, as it indicates that a company may be at risk of bankruptcy or insolvency. It is important for companies to maintain a healthy balance sheet and ensure that their assets are sufficient to cover their liabilities.