Contributed capital is simply the funds or capital that is collected from various investors. Sometimes referred to as paid-in capital, it is typically used for the purchase of stock issued by the company. It is important to note that this capital focuses on the investor purchase of shares of stock directly from the corporation, and not shares that are acquired from other investors. Within the accounting records maintained by the business, contributed capital will be listed in the owner’s equity.
In general, this capital is understood to be composed of two specific segments or components. Stated capital represents the par value of the shares of capital stock that were acquired by investors directly from the company. Additional paid-in capital refers to any capital received for the shares that is above and beyond the par or stated value of the shares.
Maintaining information on the status of contributed capital can be helpful for several reasons. First, the components assist the company in understanding the current relationship between direct investors, based on how many shares are retained and not released for trading on the open market. Second, by understanding if any capital has been generated above the par value can be a strong indicator of the perception of the stock on the open market. This aspect can be helpful if the company is considering issuing more shares to the market place or perhaps is thinking terms of a split.
Along with other key financial information, the current status of contributed capital is often a topic of discussion at shareholder meetings and other corporate sponsored settings where the financial stability and future prospects of the company are under consideration. In general, the desire is for this capital to remain a relatively stable amount from one financial period to another, experiencing incremental growth over time. When there appears to be no growth or even a decline reflected from one period to the next, corporations often take this as an indicator that something is undermining the confidence of the investors, and take steps to address the issues.
