# Contributed Capital: Definition, How It's Calculated, and Example

> **Definition**
>
> Contributed capital represents the combined worth of money and assets investors provide to a company when purchasing its shares.

## What Is Contributed Capital?

Contributed capital, also known as [paid-in capital](https://www.investopedia.com/terms/p/paidincapital.asp), is the funds shareholders allocate to a company in return for equity. Investors make capital contributions when a company issues equity shares based on a price that shareholders are willing to pay for them. The total amount of contributed capital or [paid-in-capital represents their stake](https://www.investopedia.com/ask/answers/073015/how-do-dividend-distributions-affect-additional-paid-capital.asp) or ownership in the company.

Contributed capital is part of stockholders' equity, shown on the balance sheet. It comprises common stock and additional paid-in capital, also known as [contributed surplus](https://www.investopedia.com/terms/c/contributedsurplus.asp). If the company has issued preferred stocks, this line item is also shown in this section of the balance sheet and is part of contributed capital.

### Key Takeaways

*   When investors buy shares from a company, they put in money and assets that become part of contributed capital.
*   This is the price that shareholders paid for their stake in the company.
*   Contributed capital is reported in the shareholders' equity section of the balance sheet and is usually split into two different accounts: common stock and additional paid-in capital account.

![Contributed Capital](https://www.investopedia.com/thmb/tx0n0yP8pUs4ztSPLh3imEdZAuM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/ContributedCapital_final-2c6bd9e5853d4ef39c59c66fe38d39c6.jpg)

*Contributed capital is important for companies looking to raise money without taking on debt, especially in their early growth stage. — Investopedia / Xiaojie Liu*

## Understanding Contributed Capital

Contributed capital is the total value of the stock that shareholders have bought directly from the issuing company. It includes the money from initial public offerings (IPOs), direct listings, direct public offerings, and secondary offerings, including issues of preferred stock. It also includes the receipt of fixed assets in exchange for stock and the reduction of a liability in exchange for stock.

Common stock can be compared with additional paid-in capital, and the difference between the two values will equal the premium paid by investors over and above the [par value](https://www.investopedia.com/terms/p/parvalue.asp) of the company's shares. Common stock is recorded at a nominal amount called the 'par' value. 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.

### Capital Contributions

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.

> **Important**
>
> When companies repurchase shares and return capital to shareholders, the shares bought back are listed at their repurchase price, which reduces shareholders' equity.

## Calculating Contributed Capital

Contributed capital is reported in the shareholders’ equity section of the balance sheet and is usually split into two different accounts: common stock and additional paid-in capital account. 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 the share capital account, and the additional paid-in capital account is also known as the [share premium account](https://www.investopedia.com/terms/s/sharepremiumaccount.asp).

## Example of Contributed Capital

For example, a company issues 5,000 $1 par value shares to investors. The investors pay $10 a share, so the company raises $50,000 in equity capital. As a result, the company records $5,000 to the common stock account and $45,000 to the paid-in capital in excess of par. Both of these accounts added together equal the total amount stockholders were willing to pay for their shares. In other words, the contributed capital equals $50,000.