Additional paid-in capital is an account in the equity section of a balance sheet. It represents the additional amount paid for the company’s shares over the par value of the shares. Additional paid-in capital only arises when a person buys shares directly from the company. The price paid for shares bought in the secondary market does not affect additional paid-in capital.Usually, stock par value is intentionally kept low, often at $.01 per share. Thus the amount paid for a share bought from the company is mostly additional paid-in capital. Additional paid-in capital can apply to both common and preferred shares. Assume ABC Inc. offers 10 million shares to potential shareholders. The shares have a par value of $5. Assume the shares are sold for $12 per share, which is $7 per share over the par value. ABC receives $120 million from this offering. This sale will be reflected on two different lines of the equity section in ABC’s balance sheet. The common stock line will reflect the portion ABC received for the par value ($50 million). The remaining $70 million will be reflected in the additional paid-in capital account line.