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Definitions, Meaning Explained, Examples


When investors buy shares of stock directly from the issuing company, funds received by the company increase "paid-in capital," a component of Owners Equity on the Balance sheet.

Actual paid-in capital for newly issued shares can be very different from stated par value for the same stock.

"Paid-in capital" (or "contributed capital") is a Balance sheet item, showing funds that stockholders have invested through the purchase of stock from the issuing company.

When investors buy shares directly from the company, that is, the company receives and keeps the funds as contributed capital (paid-in capital). When they buy shares on the open market, of course, funds go to the investor selling them.

Paid in Capital Adds to Owners Equity

"Contributed capital" ("paid-in capital") is one of the two main categories on the Balance sheet under "Owner’s equity." The other is "Retained earnings." Contributed capital, in turn, has two main components:

  • "Stated capital," which is the stated, or par value of the issued shares of stock. The stated capital appears on the example Balance sheet below in the sum of values listed as "Preferred stock" and "Common stock."
  • "Additional paid-in capital," which represents money paid to the company above the par value.

Explaining Paid-in Capital in Context

Sections below show how paid-in capital items appear on the Balance Sheet and describe the creation of new paid-in capital in context with related accounting and finance terms, including the following:

Paid-In Capital
Contributed Capital
Stated Capital
Par Value
Initial Public Offering
Balance Sheet
Owners Equity
Preferred Shares
Common Shares



Related Topics

  • For a complete introduction to Owners Equity on the Balance Sheet, see Owners Equity.
  • The article Stock Bond Par Value explains the meaning of Par for new stock share issues.
  • See Balance Sheet, for a complete introduction to Balance sheet structure, contents, and role in financial reporting.

Acquiring Contributed Capital
Investors Pay Issuers in More Than Par

At a public stock offering, the difference between a stock share par value and the actual market price can be substantial. Par value for a stock is an accounting convention for the "price" initially set by the company. The concept came into use as a way of letting companies announce to the public that they will sell no shares below a certain price (par), to assure investors that no one will receive a more favorable offer.

At a company's IPO (Initial public offering), however, the market price can rise far above par, especially if the investing public has high expectations for company growth and company performance. The same difference may appear at the company's secondary, and subsequent stock offerings to the public. In brief, par value says little about the market's confidence in the company or potential future stock prices. What investors are willing to pay, more than par, however, is viewed as an indicator of future performance. For this indicator, they can look to the separate components of contributed capital on the Balance sheet.

Paid in Capital on the Balance Sheet

Contributed capital (paid in capital) entries on the Balance sheet show up under Owner's Equity, as shown in the lower part of the Exhibit 1 Balance sheet, below.

Grande Corporation                                   Figures in $1,000's
Balance Sheet at 31 December 20YY   
Current Assets
   Short-term investments
   Accounts receivable
   Notes receivable short-term
   Prepaid exp, insurance, def taxes
          Total Current Assets
Long-Term Investments and Funds
Property, Plant & Equipment
Intangible Assets
Other Assets
                    Total Assets




Current Liabilities
Long-Term Liabilities
                    Total Liabilities

Contributed Capital
   Preferred stock
   Common stock
   Contributed capital excess of par
          Total Contributed Capital

Retained Earnings
          Total Owners Equity




          Total Liabilities and Equities

Exhibit 1. A Balance sheet with Contributed Capital listed under Owners Equity.