Share capital

The CRRF is one of only two Capital Reserves actually mentioned by name (the other is the Share Premium Account)

The CRRF (like the Share Premium Account) is not available for distribution by way of dividend but is held as long-term financing of a company

A company is required to create a CRRF on the occasion when the company redeems (buys back from the members for cancelation) some of its shares. As a result of that redemption, the amount previously calculated as the ‘creditors’ buffer fund’ (share capital + undistributable reserves) is reduced because the share capital figure is reduced

How did the company finance the redemption? Well, maybe the company had cash surplus to its requirements so decided to buy back some shares from the members. Alternatively, the company could raise cash by having an issue of shares (probably a different class from the shares about to be redeemed) and then use the proceeds of that issue to finance the redemption

And that’s where the CRRF comes in. The Companies Act states that ‘where a company redeems some shares, the company shall transfer to the CRRF (out of profits which would otherwise be available for distribution) an amount equal to the nominal value of the shares redeemed less the proceeds of any fresh issue made to finance the redemption’

And that’s what is meant when we talk about the CRRF

OK?
The Capital Redemption Reserve Fund has only one use … to finance the issue of fully paid bonus shares to existing members …

…whereas the Share Premium Account has four available uses, the major one of which is to finance the issue of fully paid bonus shares to existing members