ABSTRACT
This chapter discusses the implications of reserves in the capital structure of a public enterprise. The reference is to non-specific reserves which represent retained profits. The institutional conventions governing the capital structure are such that, while loans earn interest almost automatically and equity earns dividends when declared, the reserve component does not bring in a reward to the government as owner. Accumulating reserves can tempt the managements into "conspicuous" expenditures in the sense of over-generous employee benefits and "social expenditures". Some balance is probable if a system is devised for moderating reserve retentions through increased profit payments to the government. The reserve resources themselves stay in the enterprise - a point that should be pleasing to the managements, though under a different name, viz., share capital. The measure presupposes certain procedural steps, permissive articles of association, high enough or increased ceilings of authorised capital, and board-and-shareholder resolutions.
