# Paid-Up Capital: Definition, How It Works, and Importance

> **Definition**
>
> Paid-up capital refers to the equity capital that has been fully paid by shareholders in exchange for ownership interests.

## What Is Paid-Up Capital?

When shareholders buy stock, the money they pay directly to the issuing company is paid-up capital. It is created when a company sells its shares on the [primary market](https://www.investopedia.com/terms/p/primarymarket.asp) directly to investors, usually through an [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp). When shares are bought and sold among investors on the [secondary market](https://www.investopedia.com/terms/s/secondarymarket.asp), no additional paid-up capital is created as proceeds in those transactions go to the selling shareholders, not the issuing company.

### Key Takeaways

*   The primary market is the only place where paid-up capital is received, usually through an initial public offering.
*   Funding for paid-up capital is arrived at from two sources: the par value of stock and excess capital.
*   Paid-up capital is the amount paid by investors above the par value of a stock.
*   Equity financing is represented by paid-up capital.

![Paid-Up Capital](https://www.investopedia.com/thmb/opEpoGDVwMw7SfP5Xl9260z6NSk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/paidupcapital.asp-final-46ec06676a584bc4b0eb1f2d9f65a73f.png)

*Paid-up capital can be a signal of a company's financial health. — Investopedia / Julie Bang*

## Understanding Paid-Up Capital

Paid-up capital, also called paid-in capital or [contributed capital](https://www.investopedia.com/terms/c/contributed-capital.asp), is arrived at from two funding sources: the [par value](https://www.investopedia.com/terms/p/parvalue.asp) of stock and excess capital. Each share of stock is issued with a base price called its par. Typically, this value is quite low, often less than $1. Any amount paid by investors that exceeds the par value is considered additional paid-in capital or paid-in capital in excess of par.

In the shareholders' equity section of the [balance sheet](https://www.investopedia.com/terms/b/balancesheet.asp), the par value of issued shares is listed as common stock or preferred stock. Share capital may appear as:

*   Paid-up capital to represent funds already received from investors
*   [Called-up capital](https://www.investopedia.com/ask/answers/073015/what-difference-between-calledup-share-capital-and-paidup-share-capital.asp) to represent funds due to the company
*   Paid-in capital to represent funds that satisfy the full purchase price of the shares  
    

## Paid-Up Capital vs. Authorized Capital

When a company wants to raise equity, it cannot simply sell off pieces of the company to the highest bidder. Businesses must request permission to issue public shares by filing an application with the agency responsible for the registration of companies in the country of incorporation.

> **Important**
>
> In the United States, companies wanting to "go public" must register with the Securities and Exchange Commission (SEC) before issuing an initial public offering (IPO).

The maximum amount of capital a company is given permission to raise via the sale of stock is called its [authorized capital](https://www.investopedia.com/terms/a/authorized-share-capital.asp). Typically, the amount of authorized capital a company applies for is much higher than its current need. This is done so that the company can easily sell additional shares down the road if the need for further equity arises. Since paid-up capital is only generated by the sale of shares, the amount of paid-up capital can never exceed the authorized capital.

## What Is an Example of Paid-Up Capital?

If a company issues 100 shares of common stock with a par value of $1 and sells them for $50 each, the shareholders' equity of the balance sheet shows paid-up capital totaling $5,000, consisting of $100 of common stock and $4,900 of additional paid-up capital.

## What Is Par Value?

Par value is the face value of a stock. It's on the stock certificate and in the company's corporate charter.

## What Is Nominal Value?

Nominal value is the same as par value.

## What Is Paid-Up Capital Comprised of?

Paid-up capital is made of two components: the par value of the stock (the par value multiplied by the number of shares owned by the shareholders) plus the excess over par.

## Where Is Paid-Up Capital on the Balance Sheet?

Paid-up capital is listed in the equity section of the balance sheet. There's two lines on the balance sheet: one is for stock par value, and the other is for the additional amount of paid-up capital over par. Total paid-up capital is the sum of these two lines.

## The Bottom Line

Paid-up capital represents money that is not borrowed. A company that is fully paid-up has sold all available shares and thus cannot increase its capital unless it borrows money by taking on debt. A company could, however, receive authorization to sell more shares.

A company's paid-up capital figure represents the extent to which it depends on [equity financing](https://www.investopedia.com/terms/e/equityfinancing.asp) to fund its operations. This figure can be compared with the company's level of debt to assess if it has a healthy balance of financing, given its operations, business model, and prevailing industry standards.

> **Article Sources**
>
> 1.  U.S. Securities and Exchange Commission. "[Going Public](https://www.sec.gov/education/capitalraising/goingpublic)."
>     
> 2.  Cornell Law School. "[Par Value](https://www.law.cornell.edu/wex/par_value)."