capital reserve

Here is the surprising part. A company can look at healthy money sitting in its account and still be forbidden by its own accounting rules from handing a single kobo of it to shareholders as dividend. That locked away money often lives in something called capital reserve.

Capital reserve is not the same as ordinary profit sitting in the bank. It usually comes from specific events, such as selling company shares above their face value, revaluing property upward, or receiving a grant tied to buying equipment. Because these gains did not come from the everyday business of trading goods or services, accounting rules treat them differently from trading profit. They get set aside to protect the company's financial base rather than being treated as spendable income.

Think of a Nigerian manufacturing company that lists on the Nigerian Exchange and sells new shares to the public at ₦15 each, when the shares carry a face value of ₦10. That extra ₦5 per share is called a share premium, and it gets pushed into capital reserve rather than counted as profit. The company can use that reserve to strengthen its balance sheet or absorb future losses, but it generally cannot pay it out as a cash dividend to shareholders the way it would with trading profit.

In the United Kingdom, a similar thing happens when a company revalues its office building and the value jumps up on paper. That paper gain goes into a revaluation reserve, a type of capital reserve, and stays there unless the asset is actually sold.

For someone sending money home from abroad, this matters if they hold shares in a Nigerian company and wonder why dividends seem smaller than the company's total reported gains. Some of that money is simply not available for distribution. It is locked in, by design, as a financial cushion.