The capital available to a business at any time during its existence consists basically of (1) capital subscribed by proprietors, be they entrepreneurs, partners or shareholders, (2) amounts loaned for varying periods and (3) additions to capital resulting from profits made and retained or funds otherwise acquired in the normal course of business. Such additions are generally shown in the balance sheet of that business as reserves. Whether these reserves are available for distribution to the owners of the capital will depend on the circumstances of the business, the manner in which the reserves were acquired and the nature of the business organization. Special rules apply to limited companies. Reserves are often divided into capital reserves and revenue reserves.
Reference: The Penguin Business Dictionary , 3rd edt.