Contributed Capital: Definition & Understanding | [Your Company Name]

Contributed capital is one part of the owner's equity portion of a balance sheet. It is a measure of the amount of money initially invested in a company through the purchase of stock directly from the company. It does not include stock bought from other investors on the secondary market.

Retained Earnings

The other portion of owner's equity on a balance sheet is retained earnings. "Retained earnings" is defined as the portion of the income a company generates that it does not distribute to shareholders as dividends.

Paid in Capital

Contributed capital is also known as "paid in capital."

Calculating Contributed Capital

Contributed capital is the combination of the par value of stock plus any additional amount paid by investors over and above par value. Par value is often set very low for common stock.

Initial Public Offering (“IPO”)

When a company issues an IPO, the money used to purchase those initial shares can be invested by the company to grow the business.

Secondary Market

After an IPO, shares are traded in the secondary market. When stock is purchased on a stock exchange at a fluctuating listed price, it is usually being purchased from another stockholder not the company itself.