It represents your investment in a company and can be used to calculate your equity stake if you want to sell shares or get out of an investment.
Paid-in capital appears on a company’s balance sheet as an asset.
It provides you with some rights as a shareholder; for example, it entitles you to any dividends paid out by the firm.
It’s also known as contributed capital, which is a part of the capital structure of a company.
Paid-in capital formula
Paid-in Capital = Total Stockholder Contributions – Retained Earnings
- Total Stockholder Contributions is the total amount of money contributed by stockholders over time.
- Retained earnings are stockholder contributions made prior to issuing new common shares or acquiring other companies.
Paid-in capital is different from book value and shareholders’ equity, which are other ways to measure your investment in a business.
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