Paid in capital is created when investors in an initial offering pay more than par value for stock in a company.
Company J offers its stock for sale in an initial public offering. The par value assigned by the state is $10 a share. If investors pay $25 a share, $15 (25-10) would be the paid in capital. They paid $15 more than par for the stock. Paid in capital and common stock are two of the accounts that can be part of Stockholders’ Equity.