Paid in capital (also called contributed capital) is a balance sheet item, showing what has been invested by stockholders through purchase of stock from the corporation (not through purchase of stock on the open market from other stockholders).

When investors buy shares directly from the company, that is, the company receives and keeps the funds as contributed capital (paid in capital). When shares are bought on the open market, of course, funds go to the investor selling them.

http://www.solutionmatrix.com/paid-in-capital.html

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