Legal Definitions - paid-in capital

Paid-in capital refers to the total amount of money or other assets that investors have directly contributed to a company in exchange for ownership shares. It represents the funds a company receives from selling its stock to shareholders, as opposed to capital generated through its ongoing business operations (like retained earnings) or borrowed funds (debt).

Here are some examples to illustrate paid-in capital:

• Example 1: Startup Funding

  Imagine "GreenTech Solutions," a new company developing eco-friendly gadgets. To launch their product and cover initial costs, they sell 200,000 shares of stock to a group of venture capitalists and angel investors at $5 per share. The company receives $1,000,000 from these sales.

  This $1,000,000 is GreenTech Solutions' paid-in capital. It's the direct investment made by the owners (shareholders) into the company in exchange for their ownership stake, providing the foundational funds for the business.

• Example 2: Public Stock Offering

  "Horizon Pharmaceuticals," an established publicly traded company, decides to build a new research facility. To finance this expansion, they issue an additional 500,000 shares of common stock to the public, selling them at $75 per share. The company successfully raises $37,500,000 from this offering.

  The $37,500,000 received by Horizon Pharmaceuticals from the sale of these new shares is added to its paid-in capital. This represents new investment from shareholders directly into the company's equity, increasing the capital base available for its strategic initiatives.