Question 538. - Please give full explanation of the meaning of paid-up capital, and reserve. What is meant by double liability, as regards shareholders of a bank?

Answer. - By paid-up capital is meant the amount paid in by subscribers in payment of the bank's stock when it is issued. Bank stock cannot be subscribed at less than par and payment must be made in cash. If issued at a premium the par value only is counted as paid-up capital. The excess over par, if the stock is issued at a premium, can, by resolution of the directors, be set aside as a rest or reserve fund within the meaning of that expression in the Bank Act. If the bank earns a substantial amount over the dividends paid to shareholders, all expenses and bad and doubtful debts having been provided for, the directors can set aside such part of that surplus as they see fit into rest or reserve fund. The rest or reserve fund is not required by the Bank Act to be invested in any particular securities and can be intermingled with the general assets of the bank.

Section 125 of the Bank Act tells exactly what double liability is, namely, that in the event of the property and assets of the bank being insufficient to pay its debts and liabilities, each shareholder of the bank shall be liable for the deficiency to an amount equal to the par value of the shares held by him, in addition to any amount not paid up on such shares.