Stated capital definition
/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.
Terms Similar to Stated Capital
Stated capital is also known as par value.
Related AccountingTools Courses
Stated Capital FAQs
What is the difference between par value and stated value?
Par value is a nominal amount assigned to shares in the corporate charter. Stated value is an amount assigned to no-par shares by the board or under applicable law. Both can determine stated capital, but par value is built into the share terms, while stated value is assigned for accounting or legal capital purposes.