The paid-up capital of a corporation represents the par value of all outstanding shares. The outstanding shares include both common shares and preferred shares. When researching a company, you can find both the par value and the number of shares outstanding in the shareholders' equity section of the balance sheet. The number of authorized shares will also be listed, but the authorized share total does not affect the paid-up capital calculation. The paid-up capital amount affects the occupation tax charged by the state in which the company is incorporated.
TL;DR (Too Long; Didn't Read)
Paid-up capital can be defined as the current par value of all outstanding shares within a company, including both common and preferred shares.
What Is Paid-Up Capital?
In finance, paid-up capital refers to the money shareholders give a business in exchange for stock in that company. Those shares are sold on the market, creating capital that has, in simplest terms, been paid in full. However, if investors then turn around and sell those shares on the secondary market, that money doesn't count toward paid-up capital, since none of it went directly to the business. The shareholder selling the stock gets the money in that case.
Calculating Paid-Up Capital
When preparing your balance sheet, you'll factor in the number of common shares, as well as the par value of the shares. Par value refers to the base price issued to each share. So to calculate your capital, you'll be multiplying the total number of common shares by the base price, or par value, of each of those shares. For example, if the company has 1 million shares outstanding with a par value of $3 per share, multiply 1 million by $3 to find the paid-up capital for the common shares is $3 million.
Once you have that figure, you'll also need to multiply the number of outstanding preferred shares by the par value of those shares. for example, if the company has 100,000 preferred shares with a par value of $15, multiply $15 by 100,000 to find the paid-up capital for the preferred shares is $1.5 million.
Getting a Total
The next step in the process is to add the paid-up capital for each type of stock issued by the company to find the total paid-up capital of the company. In this example, add the common stock paid-up capital of $3 million to the preferred stock paid-up capital of $1.5 million to find the total paid-up capital of the company equals $4.5 million.
Beware that a corporation may not have issued all of the stock that it is authorized to issue. For example, a corporation's certificate of incorporation may authorize the corporation to issue five million shares, but the corporation may only have four million shares currently outstanding. Any unissued shares do not count when calculating paid-up capital.
- Beware that a corporation may not have issued all of the stock that it is authorized to issue. For example, a corporation's certificate of incorporation may authorized the corporation to issue five million shares, but the corporation may only have four million shares currently outstanding. Any unissued shares do not count when calculating paid-up capital.