Contributed Capital

Contributed capital (also called paid‑in capital) is the value of cash and other assets that investors provide to a company in exchange for equity. It represents the owners’ stake recorded in the shareholders’ equity section of the balance sheet.

What it includes

• Common stock recorded at par (nominal) value.
• Additional paid‑in capital (share premium): the amount investors paid above par value.
• Preferred stock, when issued, is typically included as part of contributed capital.
• Noncash assets or the forgiveness of a liability in exchange for stock are also treated as contributed capital when shares are issued for those items.

How it works

When a company issues shares (via an IPO, direct listing, direct public offering, or secondary offering), investors pay a price per share. The company records the par value in the common stock account and any excess as additional paid‑in capital. Contributed capital increases shareholders’ equity and reflects the capital investors supplied directly to the company.

Note: The term “capital contributions” is broader and can include owner injections from loans or noncash assets. In practice, “contributed capital” most often refers specifically to amounts received from issuing shares.

Impact of share repurchases

When a company buys back its own shares, it returns capital to shareholders and reduces shareholders’ equity. Repurchased shares are recorded at the repurchase price, which lowers the contributed capital and overall equity.

Calculation

Contributed capital = Common stock (par value) + Additional paid‑in capital

Example:
– Company issues 5,000 shares with $1 par value.
– Investors pay $10 per share.
– Common stock (par): 5,000 × $1 = $5,000
– Additional paid‑in capital: 5,000 × ($10 − $1) = $45,000
– Total contributed capital = $5,000 + $45,000 = $50,000

Key takeaways

• Contributed capital measures funds and assets investors directly give a company for equity.
• It appears in shareholders’ equity and is usually split into common stock (par) and additional paid‑in capital (premium).
• It increases with share issuances and decreases when the company repurchases shares.