What Is Paid-In Capital and How Do You Track It?

Paid-in capital (also called share capital or stated capital) is the total amount shareholders have invested in a corporation in exchange for shares. It's the permanent equity invested in the business — not borrowed, not earned, but contributed by owners in exchange for ownership.

How Paid-In Capital Works

When a corporation issues shares:

• The shareholder gives money (or other assets) to the corporation
• The corporation gives shares in return
• The amount paid goes into the paid-in capital account on the Balance Sheet

Example:

When you incorporated and issued yourself 100 shares for $1 each, $100 went into your paid-in capital account. If you later contributed $50,000 to the corporation in exchange for additional shares, paid-in capital increases to $50,100.

Paid-in capital does not change unless:

• New shares are issued (it goes up)
• Shares are repurchased or cancelled (it goes down)
• It is not affected by the business's profits or losses — that flows through retained earnings

Paid-In Capital vs. Retained Earnings

Both are equity — but they represent different things:

Together, they make up the total equity of the corporation.

How to Track It in QBO

Paid-in capital is tracked in the equity section of your Chart of Accounts, typically under accounts named:

• "Share Capital"
• "Common Shares"
• "Paid-In Capital"

Your Mesa CPA bookkeeper sets this up and records any share issuances. You don't need to update this account yourself — it only changes when new shares are formally issued or shares are repurchased.

Abnormal Procedures

You issued shares but never recorded the share capital in QBO.

This is common for businesses that incorporated without immediately setting up their books. Work with your Mesa CPA bookkeeper to add the opening equity balance — the amount will match what was recorded in the corporate minute book when the shares were issued.

You want to issue more shares to bring in a new investor.

New share issuances require corporate formalities (a shareholder resolution and updated share register). The share capital account increases by the amount the investor pays. Your Mesa CPA advisor should be involved in both the corporate and accounting steps.

A shareholder is leaving and wants their capital back.

Share repurchases or cancellations have specific tax rules in Canada — the CRA treats the deemed dividend portion of the repurchase price as a taxable dividend to the departing shareholder. This is not a simple transaction. Get advice from your Mesa CPA advisor before any shares are repurchased.

FAQ

Is paid-in capital the same as book value?

No. Book value (equity) = paid-in capital + retained earnings. Paid-in capital is just one component. A business that started with $1 in share capital and has retained $500,000 in earnings has $500,001 in book value equity.

Can paid-in capital be negative?

Technically no — you can't receive less than nothing for a share. However, the total equity section can be negative if retained earnings have accumulated losses large enough to exceed paid-in capital.

Does the original share issuance price matter long-term?

Yes — it affects the adjusted cost base (ACB) of the shares for capital gains purposes when shares are eventually sold. It also matters for calculating deemed dividends on share repurchases. This is why even a nominal $1 share issuance needs to be properly documented.

What if I never formally issued shares and just started operating?

Technically, a corporation cannot operate without shares being issued. If you incorporated but don't have formal share issuance documentation, work with your Mesa CPA advisor and a corporate lawyer to put it in order. This is a common gap in owner-operated incorporations set up quickly online.