What is Stated Capital?

Stated capital is the aggregate par value of all shares outstanding. A corporation must retain the stated capital; it cannot be distributed to shareholders as dividends. Companies commonly adopt a $0.01 stated value for their shares in order to minimize this requirement. Many states allow corporations to have no stated value on their shares. Any funds paid to a corporation in excess of stated capital are classified as additional paid-in capital.

Example of Stated Capital

A corporation issues 1,000 shares of common stock with a par value of $1 per share at a price of $10 per share. The par value of the shares is recorded as stated capital. The calculation is as follows:

1,000 shares × $1 (par value) = $1,000 stated capital

The excess amount over the par value would be recorded as additional paid-in capital. The calculation is as follows:

1,000 shares × ($10 - $1) = $9,000 additional paid-in capital

Thus, the company would record $1,000 as stated capital and $9,000 as additional paid-in capital in its equity section of the balance sheet.

Accounting for Stated Capital

When an issuer sells shares, the stated capital portion of the sale will be recorded in either the common stock account or the preferred stock account (depending on the nature of the shares being sold). Any portion of the sale price that exceeds the stated capital is recorded in the additional paid-in capital account.