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Simple English definitions for legal terms
paid-in surplus
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A quick definition of paid-in surplus:
Paid-in surplus is the extra money a company gets when it sells its stock for more than its original value. This money is added to the company's net worth, which is the total value of everything it owns. Paid-in surplus is different from earned surplus, which is the money a company makes from its operations. Paid-in surplus is also called capital surplus or premium on capital stock.
A more thorough explanation:
Definition: Paid-in surplus is the extra money a company receives when it sells its stock for more than its par value. It is also known as capital surplus or premium on capital stock.
Examples:
- A company sells 100 shares of stock for $50 each, even though the par value of the stock is only $10. The company receives $4,000 ($50 x 100 shares) for the stock, but only $1,000 ($10 x 100 shares) is recorded as common stock. The remaining $3,000 is recorded as paid-in surplus.
- A company issues new shares of stock at a premium price to raise additional capital. The difference between the premium price and the par value of the stock is recorded as paid-in surplus.
These examples illustrate how paid-in surplus is created when a company sells its stock for more than its par value. This extra money is recorded as paid-in surplus on the company's balance sheet and can be used for various purposes, such as investing in new projects or paying off debt.