Unrestricted Retained Earnings (URE) are the accumulated profits and gains realized out of the normal and continuous operations of the company after deducting therefrom the distributions of stockholders (legal capital) and transfers to capital stock (creditors) or other accounts (Memorandum Circular No. 11 Series of 2009); and which are not subject to restrictions such as:
- Not appropriated by directors for corporate expansion projects or programs;
- Not restricted by loan agreements;
- Not required to be retained under special circumstances
What interests do not restrict the URE?
Interests on legal capital and of creditors.
It is anything above legal capital (in favor of shareholders) and liabilities (in favor of corporate creditors thru Trust Fund Doctrine). In layman’s terms, it is “surplus profits.”
Spouses Turner vs. Lorenzo Shipping: Unrestricted Retained Earnings Ratio is the trust fund doctrine where the capital stock, corporation property, and assets are held in trust preferably for the corporate creditors. The creditors can assume that the BOD will not use assets to purchase its own stock as long as a corp has outstanding debts and liabilities.
URE must come from the earnings of business operations
These are profits from operations after deducting stockholders’ shares and capital stock distributions. Sources that are not considered “earnings of operations” are:
- Tax profits from a recoup of losses
- Revaluation of corporate assets such as land value appreciation
Why not consider tax profits and land valuations as part of URE?
They are, by nature, subject to fluctuations.
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