Paid in capital

Paid in  capital (also called contributed capital) is a balance sheet item, showing what has been invested by stockholders through purchase of stock from the corporation (not through purchase of stock on the open market from other stockholders). When investors buy shares directly from the company, that is, the company receives and keeps the funds as contributed capital (paid in capital). When shares are bought on the open market, of course, funds go to the investor selling them. 

Contributed (paid in capital) capital is one of the two main categories on the balance sheet under owner’s equity (the other is retained earnings). Contributed capital, in turn, has two main components:

• Stated capital, which is usually defined as the stated, or par value of the shares of stock that have been isssued ( the stated capital is listed on the balance sheet below is the cum of values listed for as "Preferred stock" and "Common stock.").

• Additional paid-in capital, which represents money paid to the company above the par value. 

Contributed capital (paid in capital) entries on the balance sheet show up under Owner's Equity, as shown in the lower part of this example:

Grande Corporation    Balance Sheet at 31 December 2011   Assets    Current Assets ............................... 9,609    Long Term Investments & Funds ................ 1,460    Property, Plant & Equipment .................. 9,716    Intangible Assets............................. 1,222    Other Assets..................................    68      Total Assets....................................... 22,075   Liabilities    Current Liabilities..........................  3,464    Long Term Liabilities........................  5,474      Total Liabilities .................................  8,938   Owners Equity    Contributed Capital      Preferred stock...................... 3,798      Common stock......................... 4,184      Contributed capital in excess of par. 1,457        Total contributed capital...............   9,439    Retained Earnings ..........................   3,698      Total Stockholder's Equity......................... 13,137       Total Libabities and Equities..................... 22,075

Stated capital is the sum of the stock par values listed, "Preferred stock" and "Common stock."

Contributed Capital and Stock Offerings

At a public stock offering, the difference between a stock's par value and the actual market price can be large. Par value for a stock is an accounting convention for the price intiially set by the company. The concept came into use as a way of letting companies announce publicy that thay will sell no shares below a certain price (par), so as to assure investors that no one will receive more favorable prices.
At a company's IPO (Initial public offering), however, the market price can rise far above par, especially if the investing public has high expectations for company growth and company performance.The same difference may appear at the company's secondary, and subsequent stock offerings to the public. In brief, par value says little about the market's confidence in the company or potential future stock prices. What investors are willing to pay, in excess of par, however, is viewed as an indicator of fufture performance. For this indicator, they can look to the separate components of contributed capital on the balance sheet.