Definition and Differences from Loans
A capital contribution is an amount of money or assets given to a business or partnership by an owner or partner. This increases the contributor’s equity interest. Capital contributions can take the form of cash or non-cash assets like buildings and equipment.
The difference between a shareholder loan and a capital contribution is that a loan must be repaid, while a contribution does not.
Contributed Capital
Contributed capital, also known as paid-in capital, is the cash and assets shareholders have given a company for stock. This is recorded in the equity section of the balance sheet and is directly proportional to shareholders’ ownership positions.
On the balance sheet, contributed capital contains two accounts:
- Common stock
- Additional paid-in capital
Repayment of Contributions
Do capital contributions get paid back?
Generally, capital contributions do not get repaid unless a company closes or is dissolved. At dissolution, capital contributions can get returned to the original owners.
Calculation
How do you calculate capital contributions?
When calculating capital contributions, you sum up all the cash and assets that owners have committed to the business. This is represented by the total contributed capital on the equity side of the balance sheet.