Additional Paid-In Capital
Premium Received from Shareholders Above Par Value of Issued Stock
Additional Paid-In Capital (APIC), also known as Capital Surplus or Share Premium, represents the amount investors paid to a company for newly issued shares in excess of the stock's nominal (par) value. It reflects the extra capital contributed by shareholders beyond the minimal legal capital requirement and forms a key component of shareholders' equity.
Definition and Purpose
Additional Paid-In Capital arises when a company issues stock directly to investors at a price higher than the stated par value. Par value is a nominal amount (often $0.01 or $1) assigned to each share in the corporate charter.
The total proceeds from issuance are split: par value portion goes to the Common/Preferred Stock account, while the premium (excess) is credited to APIC.
APIC represents real economic capital contributed by shareholders, far exceeding the arbitrary par value in most modern companies.
How APIC Is Created
Primary sources of APIC include:
- Initial Public Offering (IPO) or secondary offerings where shares sell above par
- Private placements at a premium
- Exercise of stock options or warrants (difference between exercise price and par)
- Conversion of convertible debt or preferred stock (excess over par of new shares)
- Issuance of shares for acquisitions (fair value above par)
Example: Company issues 1 million shares with $0.01 par at $50 each. Common Stock increases by $10,000 (par); APIC increases by $49,990,000.
Balance Sheet Presentation
APIC appears in the shareholders' equity section, typically as:
- Separate line: 'Additional Paid-In Capital' or 'Share Premium'
- Sometimes broken down by class: 'APIC - Common Stock', 'APIC - Preferred Stock'
- Grouped under 'Paid-In Capital' with Common/Preferred Stock
It follows the stock accounts and precedes retained earnings in standard presentation.
APIC is permanent capital—most jurisdictions restrict its distribution to protect creditors.
Other Transactions Affecting APIC
- Stock-based compensation: Fair value of options/RSUs often credited to APIC
- Share repurchases: Excess over original issuance cost may reduce APIC
- Certain treasury stock transactions (resale above cost increases APIC)
- Warrant or option forfeitures/expirations
Movements are disclosed in the statement of shareholders' equity.
Legal and Regulatory Aspects
APIC serves as a legal capital buffer:
- Many states/countries prohibit dividends from APIC (only from retained earnings)
- Protects creditors by preventing return of contributed capital
- Can sometimes be used for stock dividends or share repurchases under specific rules
No-par stock companies often credit entire proceeds to a single 'Common Stock' account, effectively combining par and APIC.
Analytical Importance
APIC provides insight into:
- Historical fundraising success (high APIC = shares issued at premium)
- Dilution events (large increases signal new issuances)
- Equity compensation magnitude
- Capital structure strength (permanent vs. earned capital)
- Comparison across companies (especially vs. retained earnings)
Rapid APIC growth may indicate heavy dilution; low APIC relative to market cap suggests long-tenured shares.
Key Takeaways
Additional Paid-In Capital is the excess over par value received when issuing stock.
Represents real shareholder-contributed capital beyond nominal par.
Reported in shareholders' equity; restricted distribution in most jurisdictions.
Created primarily from share issuances at premium, option exercises, and conversions.
Distinguished from retained earnings (earned profits) as contributed capital.
Useful for assessing historical equity fundraising and dilution.
Additional Paid-In Capital
Premium Received from Shareholders Above Par Value of Issued Stock
Additional Paid-In Capital (APIC), also known as Capital Surplus or Share Premium, represents the amount investors paid to a company for newly issued shares in excess of the stock's nominal (par) value. It reflects the extra capital contributed by shareholders beyond the minimal legal capital requirement and forms a key component of shareholders' equity.
Table of Contents
Definition and Purpose
Additional Paid-In Capital arises when a company issues stock directly to investors at a price higher than the stated par value. Par value is a nominal amount (often $0.01 or $1) assigned to each share in the corporate charter.
The total proceeds from issuance are split: par value portion goes to the Common/Preferred Stock account, while the premium (excess) is credited to APIC.
APIC represents real economic capital contributed by shareholders, far exceeding the arbitrary par value in most modern companies.
How APIC Is Created
Primary sources of APIC include:
- Initial Public Offering (IPO) or secondary offerings where shares sell above par
- Private placements at a premium
- Exercise of stock options or warrants (difference between exercise price and par)
- Conversion of convertible debt or preferred stock (excess over par of new shares)
- Issuance of shares for acquisitions (fair value above par)
Example: Company issues 1 million shares with $0.01 par at $50 each. Common Stock increases by $10,000 (par); APIC increases by $49,990,000.
Balance Sheet Presentation
APIC appears in the shareholders' equity section, typically as:
- Separate line: 'Additional Paid-In Capital' or 'Share Premium'
- Sometimes broken down by class: 'APIC - Common Stock', 'APIC - Preferred Stock'
- Grouped under 'Paid-In Capital' with Common/Preferred Stock
It follows the stock accounts and precedes retained earnings in standard presentation.
APIC is permanent capital—most jurisdictions restrict its distribution to protect creditors.
Other Transactions Affecting APIC
- Stock-based compensation: Fair value of options/RSUs often credited to APIC
- Share repurchases: Excess over original issuance cost may reduce APIC
- Certain treasury stock transactions (resale above cost increases APIC)
- Warrant or option forfeitures/expirations
Movements are disclosed in the statement of shareholders' equity.
Legal and Regulatory Aspects
APIC serves as a legal capital buffer:
- Many states/countries prohibit dividends from APIC (only from retained earnings)
- Protects creditors by preventing return of contributed capital
- Can sometimes be used for stock dividends or share repurchases under specific rules
No-par stock companies often credit entire proceeds to a single 'Common Stock' account, effectively combining par and APIC.
Analytical Importance
APIC provides insight into:
- Historical fundraising success (high APIC = shares issued at premium)
- Dilution events (large increases signal new issuances)
- Equity compensation magnitude
- Capital structure strength (permanent vs. earned capital)
- Comparison across companies (especially vs. retained earnings)
Rapid APIC growth may indicate heavy dilution; low APIC relative to market cap suggests long-tenured shares.
Key Takeaways
Additional Paid-In Capital is the excess over par value received when issuing stock.
Represents real shareholder-contributed capital beyond nominal par.
Reported in shareholders' equity; restricted distribution in most jurisdictions.
Created primarily from share issuances at premium, option exercises, and conversions.
Distinguished from retained earnings (earned profits) as contributed capital.
Useful for assessing historical equity fundraising and dilution.
Related Terms
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