Arkansas Code
Subchapter 6 - Corporate Finance
§ 4-26-616. Surplus, net profits, and valuation of assets

(a)
(1) “Earned surplus” or “retained earnings” means the portion of the surplus of a corporation equal to the balance of its net profits, income, gains, and losses from the date of incorporation or from the latest date when a deficit was eliminated by an application of its capital surplus or otherwise, after deducting subsequent distributions to shareholders and transfers to stated capital and capital surplus to the extent the distributions and transfers are made out of earned surplus.
(2) The portion of earned surplus represented by gains derived from an exchange of assets shall be restricted and not available for dividends until these gains are realized in cash or unless the assets received are currently realizable in cash.
(3) The proceeds of insurance upon the life of a shareholder or officer, when collected by the corporation as beneficiary, and where the premiums on the insurance policy have been paid by the corporation, shall be classified as earned surplus.
(4) Earned surplus shall include also any portion of surplus allocated to earned surplus in mergers, consolidations, or acquisitions of all or substantially all of the outstanding shares or of the property and assets of another corporation, domestic or foreign.

(b)
(1) “Capital surplus” means the entire surplus of the corporation other than its earned surplus and includes paid-in surplus; surplus, hereinafter called “reduction surplus”, arising from reduction of stated capital; and surplus, hereinafter called “revaluation surplus”, arising from a revaluation of assets made in good faith upon demonstrably adequate bases of revaluation.
(2) Capital surplus shall be determined in accordance with generally accepted accounting principles and classified according to its derivation on the books, balance sheets, and statements of the corporation.

(c)
(1) Surplus created by the cancellation of treasury shares in connection with a stated capital reduction or by the purchase and cancellation of redeemable shares shall be capital surplus.
(2) When a corporation has applied its earned surplus to the acquisition of treasury shares and these shares are subsequently disposed of for a consideration, the corporation may, at its option, restore to earned surplus, out of the consideration received and on a pro rata basis per share, all or part of the amount by which earned surplus was reduced at the time of acquisition of such shares. If the consideration received exceeds the amount by which earned surplus was reduced with respect to such shares, the excess shall be capital surplus.

(d) Subject to § 4-26-619(3), in computing earned surplus or net profits deduction shall be made for such obsolescence, depletion, depreciation losses, bad debts, and other items as accords with generally accepted accounting principles.
(e) The capital surplus of a corporation may be increased from time to time by resolution of the board of directors directing that all or a part of the earned surplus of the corporation be transferred to capital surplus.
(f) A corporation may, by resolution of its board of directors, apply any part or all of its capital surplus, other than revaluation surplus not currently realizable in cash, to the reduction or elimination of any deficit arising from losses, however incurred, but only after first eliminating the earned surplus, if any, of the corporation by applying the losses against earned surplus and only to the extent that the losses exceed the earned surplus, if any. Each such application of capital surplus shall, to the extent thereof, effect a reduction of capital surplus.
(g) A corporation may, by resolution of its board of directors, create a reserve out of its earned surplus for any proper purpose and may abolish any such reserve in the same manner. Earned surplus of the corporation to the extent so reserved shall not be available for the payment of dividends or other distributions by the corporation except as expressly permitted by this chapter.