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:
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.
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.
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.