Capital in excess of par is the amount paid by investors to a company for its stock, in excess of the par value of the stock.
Par value is the legal capital per share, and is usually printed on the face of the stock certificate. Since par value is usually a very small amount per share, such as $0.01, most of the amount paid by investors is usually classified as capital in excess of par.
Some states allow for the issuance of stock that has no par value at all. In these cases, the capital in excess of par is the entire amount paid by investors to a company for its stock.
When stock trades among investors (such as on a stock exchange) there is no payment to the issuing entity, so there is no change in the amount of capital already recorded by the issuer.
The amount of capital in excess of par is recorded in the additional paid-in capital account, and has a credit balance. For example, if ABC Company sell 100,000 shares of its common stock for $5 per share, and the par value of each share is $0.01, then the amount of the capital in excess of par is $499,000 (100,000 shares x $4.99/share), and is recorded as follows:
|Additional Paid-In Capital||
Capital in excess of par is also known as the premium on common stock.