Paid-up capital, also known as paid-in capital or contributed capital, refers to the portion of a company’s equity that has been paid for by investors in exchange for shares of stock. It represents the actual funds received by a company from its shareholders in exchange for ownership stakes.
When a company issues shares of stock, it sets a par value or nominal value for each share, which is the minimum price at which the shares can be issued. The amount paid by shareholders that exceeds the par value is considered paid-up capital.
Paid-up capital can come from various sources, including:
Initial Public Offering (IPO): When a company goes public and offers shares to the public for the first time, investors purchase shares at an offering price, contributing to the company’s paid-up capital.
Private Placements: Companies may raise capital by selling shares to private or institutional investors in private placement offerings.
Additional Paid-in Capital: If shares are issued at a price higher than their par value, the excess amount is recorded as additional paid-in capital.
Contributions from Shareholders: Shareholders may contribute additional funds to the company by purchasing newly issued shares or through other capital contributions.