Paid-in capital

Paid-in capital refers to the funds a corporation receives directly from investors in exchange for its shares. It represents the equity contributed by shareholders at the time of issuing stock, and is distinct from capital generated through retained earnings or donations.

Key Features of Paid-in Capital:

Source of Capital Comes directly from shareholders when they purchase common or preferred stock. Does not include profits earned by the company (retained earnings).

Components Paid-in capital typically includes: Additional Paid-in Capital (APIC): Amount paid by investors above the par value.

Role in Corporate Finance Provides funds for business operations, expansion, and investment. Forms part of the company’s shareholders’ equity on the balance sheet. Legal Significance Reflects the ownership stake of investors in the company. Protects creditors by indicating capital invested by shareholders.

Example: A company issues 1,00,000 shares with a par value of ₹10 each at ₹15 per share: Par value capital = 1,00,000 × ₹10 = ₹10,00,000 Additional Paid-in Capital = 1,00,000 × ₹5 = ₹5,00,000 Total Paid-in Capital = ₹15,00,000