What Is Paid-In Capital and How Do You Track It?

Paid-in capital (also called share capital or stated capital) is the total amount shareholders have invested in a corporation in exchange for shares. It's the permanent equity invested in the business, not borrowed, not earned, but contributed by owners in exchange for ownership.

How Paid-In Capital Works

When a corporation issues shares:

• The shareholder gives money (or other assets) to the corporation
• The corporation gives shares in return
• The amount paid goes into the paid-in capital account on the Balance Sheet

Example:

When you incorporated and issued yourself 1,000 shares for $1 each, $1,000 went into your paid-in capital account. If you later contributed $50,000 to the corporation in exchange for additional shares, paid-in capital increases to $51,000.

Paid-in capital does not change unless:

• New shares are issued (it goes up)
• Shares are repurchased or cancelled (it goes down)
• It is not affected by the business's profits or losses, that flows through retained earnings

Paid-In Capital vs. Retained Earnings

Both are equity, but they represent different things:

Together, they make up the total equity of the corporation.

How to Track It in QBO

Paid-in capital is tracked in the equity section of your Chart of Accounts, typically under accounts named:

• Share Capital
• Common Stock
• Paid-In Capital

Your NCO bookkeeper sets this up and records any share issuances. You don't need to update this account yourself. It only changes when new shares are formally issued or shares are repurchased.

Abnormal Procedures

You issued shares but never recorded the share capital in QBO.

This is common for businesses that incorporated without immediately setting up their books. Work with your NCO bookkeeper to add the opening equity balance. The amount will match what was recorded in the corporate minutes and your state filing when the shares were issued.

You want to issue more shares to bring in a new investor.

New share issuances require corporate formalities (a board resolution and updated cap table). The paid-in capital account increases by the amount the investor pays. Your NCO advisor should be involved in both the corporate and accounting steps.

A shareholder is leaving and wants their capital back.

Share repurchases have specific tax rules. A portion of the repurchase price may be treated as a dividend to the departing shareholder, with the remainder treated as a return of capital. This is not a simple transaction. Get advice from your NCO advisor before any shares are repurchased or redeemed.

FAQ

Is paid-in capital the same as book value?

No. Book value (equity) = paid-in capital + retained earnings. Paid-in capital is just one component. A business that started with $1,000 in share capital and has retained $500,000 in earnings has $501,000 in book value equity.

Can paid-in capital be negative?

No. You can't receive less than nothing for a share. However, the total equity section can be negative if retained earnings have accumulated losses large enough to exceed paid-in capital.

Does the original share issuance price matter long-term?

Yes. It forms part of the cost basis of the shares for capital gains purposes when shares are eventually sold. It also affects how distributions are characterized on the way out. This is why even a nominal $1 share issuance needs to be properly documented.

What if I never formally issued shares and just started operating?

A corporation cannot legally operate without shares being issued. If you incorporated but don't have formal share issuance documentation, work with your NCO advisor and a corporate attorney to put it in order. This is a common gap in owner-operated S-corps and C-corps set up quickly online.