Paid-in surplus definition
/What is a Paid-In Surplus?
A paid-in surplus is the incremental amount paid by an investor for a company's shares that exceeds the par value of the shares. If there is no par value, then the entire amount paid is classified as paid-in surplus. This amount is recorded in a separate equity account , which appears in the balance sheet of the issuer . The concept only applies to shares bought directly from the issuer, and not to shares traded between investors.
Examples of Paid-In Surpluses
Here are several examples of paid-in surpluses:
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Paid-in surplus from an initial public offering . A company conducts an initial public offering (IPO) and sets a par value of $1 per share, but the shares are sold to investors at $10 each. The $9 difference per share is recorded as paid-in surplus.
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Paid-in surplus from a secondary offering . A company issues additional shares in a secondary offering at a price above par value. If the par value is $2 per share but the shares are sold at $8 each, the $6 per share difference is added to the paid-in surplus account.
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Paid-in surplus from exercised stock options . Several employees of a business exercise stock options at a price higher than the par value of the underlying shares. If the par value is $1 and the employees exercise options at $7 per share, the $6 difference is recognized as paid-in surplus, increasing the company’s equity.
Terms Similar to Paid-In Surplus
The paid-in surplus is also known as additional paid-in capital .
