What Is Contributed Capital?

Contributed capital, also known as paid-in capital, is the cash and other assets that shareholders have given a company in exchange for stock. This is the price that shareholders paid for their stake in the company.

Contributed capital may also refer to a company's balance sheet item listed under stockholders' equity, often shown alongside the balance sheet entry for additional paid-in capital.

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Paid-Up Capital

Understanding Contributed Capital

Contributed capital is the total value of stock that shareholders have bought directly from the issuing company. It includes the money from initial public offerings (IPOs), direct listings, direct public offerings and secondary offerings – including issues of preferred stock. It also includes the receipt of fixed assets in exchange for stock and the reduction of a liability in exchange for stock.

Contributed capital can be compared with additional paid-in capital and the difference between the two values will equal the premium paid by investors over and above the par value of the company's shares. Preferred shares sometimes have par values that are more than marginal, but most common shares today have par values of just a few pennies. Because of this, "additional paid-in capital" tends to be representative of the total paid-in capital figure and is sometimes shown by itself on the balance sheet.

Key Takeaways

  • Contributed capital, also known as paid-in capital, is the cash and other assets that shareholders have given a company in exchange for stock.
  • This is the price that shareholders paid for their stake in the company.
  • Contributed capital is reported in the shareholder’s equity section of the balance sheet and usually split into two different accounts: common stock and additional paid-in capital account.

Calculating Contributed Capital

Contributed capital is reported in the shareholder’s equity section of the balance sheet and usually split into two different accounts: common stock and additional paid-in capital account. In other words, contributed capital includes the par value – or nominal value – of the stock, found in the common stock account, and the amount of money over and above the par value that shareholders were willing to pay for their shares – the share premium – found in the additional paid-in capital account.

The common stock account is also known as share capital account, and the additional paid-in capital account is also known as the share premium account.

Example of Contributed Capital

For example, a company issues 5,000 $1 par value shares to investors. The investors pay $10 a share, so the company raises $50,000 in equity capital. As a result, the company records $5,000 to the common stock account and $45,000 to the paid-in capital in excess of par. Both of these accounts added together equal the total amount stockholders were willing to pay for their shares. In other words, the contributed capital equals $50,000.