Glossary Capital Contribution Related Content. Cash or assets given to an entity in exchange for an equity interest or as part of an ongoing obligation, or capital commitment, to fund the entity. The par value is merely an accounting value of each of the shares to be offered and is not equivalent to the market value that investors are willing to pay. When companies repurchase shares and return capital to shareholders, the shares bought back are listed at their repurchase price, which reduces shareholders' equity.
Preferred shares sometimes have par values that are more than marginal, but most common shares today have par values of just a few pennies. Because of this, "additional paid-in capital" tends to be representative of the total paid-in capital figure and is sometimes shown by itself on the balance sheet. It's important to distinguish that capital contributions, which are an injection of cash into a company, can come in other forms besides the sale of equity shares. For example, an owner might take out a loan and use the proceeds to make a capital contribution to the company.
Businesses can also receive capital contributions in the form of non-cash assets such as buildings and equipment. These scenarios are all types of capital contributions and increase owners' equity.
However, the term contributed capital is typically reserved for the amount of money received from issuing shares and not other forms of capital contributions. In other words, contributed capital includes the par value—or nominal value—of the stock, found in the common stock account, and the amount of money over and above the par value that shareholders were willing to pay for their shares—the share premium—found in the additional paid-in capital account.
The common stock account is also known as share capital account, and the additional paid-in capital account is also known as the share premium account. Both of these accounts added together equal the total amount stockholders were willing to pay for their shares. Stock Trading. Tools for Fundamental Analysis. Financial Analysis. Dividend Stocks. Contributed capital refers to the cash paid-in by the shareholders when they buy shares of a company. However, technically it can take several other forms such as transferring ownership of assets, land, property, or equipment to the company.
It comprises two components; paid-in capital and share premium. Common stocks and preferred stocks are recorded at the face or par values in the books. At the time of issuing these stocks, investors are ready to pay a premium above the par values. The premium paid is called the share premium. The amount equivalent to face values or par share prices is recorded as common equity.
The total of these makes the total contributed capital. Either way, shares are issued to raise capital from the market. Capital contributions can also be received in the form of non-cash items such as land, property, or equipment. For example, Apple, Inc. Only direct issuances from the company to investors are recorded on the books.
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