Paid-in capital, also written contributed capital, is the total consideration a corporation received from investors in exchange for its stock. It is reported inside stockholders’ equity as two figures rather than one, the capital stock carried at par or stated value plus the additional paid-in capital that carries the consideration above that amount. Neither Regulation S-X nor the corporate return prints a caption by that name, so the figure is read as the sum of those two captions rather than off a single balance sheet line. That sum is not by itself a record of what investors paid, because the second caption also absorbs later credits that are not sales of stock to an investor (additional paid-in capital).
The Two Captions It Adds Up To
Regulation S-X carries the stock itself in class captions, non-redeemable preferred stocks at caption 28 and common stocks at caption 29, and it requires a separate caption for additional paid-in capital under other stockholders’ equity at caption 30, though a note to that caption lets additional paid-in capital be combined with the stock caption it applies to, if appropriate (17 CFR 210.5-02). The order the rest of the equity block runs in is in stockholder equity.
The corporate return splits it the same way. Schedule L carries the two classes of capital stock on line 22, preferred at 22a and common at 22b, with additional paid-in capital on line 23 (IRS, Form 1120, Schedule L). What the first line carries, par or stated capital rather than the cash the shares raised, is in capital stock, and what moves the second after issuance is in additional paid-in capital.
A Worked Aggregation
Say a corporation’s year-end equity carries the two balances below.
Capital stock, at par 8,000
Additional paid-in capital 292,000
Paid-in capital 8,000 + 292,000 300,000That total is what the two captions hold rather than what the corporation holds now, and what came in for the shares need not have arrived as cash. Investments by owners are increases in equity resulting from transfers to the entity from other entities of something valuable to obtain or increase ownership interests in the entity. Assets are the most common form, but such investments may also take the form of providing services or satisfying or converting liabilities of the entity (FASB Concepts Statement No. 8, Chapter 4, paragraph E71).
It also counts only what the corporation itself received. In an investment by owners the issuing entity always receives the proceeds or benefits, and a purchase of shares from another owner who is reducing or ending an interest does not affect the net assets of the entity (FASB Concepts Statement No. 8, Chapter 4, paragraph E73). A trade between two investors after the issue leaves both captions where they were.
Where a Firm Meets the Number
On a C corporation close the paid-in lines are tied out rather than computed. Schedule L on Form 1120 is titled Balance Sheets per Books, so lines 22 and 23 carry the balances from the trial balance the firm closed on rather than a figure recomputed on the return (IRS, Form 1120, Schedule L).
Not every C corporation completes it. Where total receipts for the tax year and total assets at the end of the tax year are both less than $250,000, the corporation is not required to complete Schedules L, M-1, and M-2 (IRS, Form 1120, Schedule K, question 13).
The schedule that follows keeps the earned side out of it. The year’s net income and its cash distributions run through Schedule M-2, the analysis of unappropriated retained earnings per books keyed to Schedule L line 25, rather than through line 22 or line 23 (IRS, Form 1120, Schedule M-2).
What Paid-In Capital Is Confused With
Paid-In Capital and Retained Earnings
Paid-in capital came from outside the business and retained earnings accumulated inside it, and both rules keep them apart. Regulation S-X asks for separate captions inside other stockholders’ equity for additional paid-in capital and for retained earnings, appropriated and unappropriated (17 CFR 210.5-02), and Schedule L prints the paid-in lines at 22 and 23 against the two retained earnings lines at 24 and 25 (IRS, Form 1120, Schedule L). The earned balance itself is retained equity, and the roll-forward that explains its movement is the statement of retained earnings.
Paid-In Capital and Paid-Up Capital
Paid in describes what came in for the shares, and paid up describes whether the whole consideration for them has arrived. Delaware turns on that difference in its partly paid shares provision, which requires the total amount of the consideration to be paid and the amount paid thereon to be stated, and allows a dividend on partly paid shares only on the basis of the percentage of the consideration actually paid thereon (8 Del. C. § 156). The difference is worked through in additional paid-in capital.
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