when a public company wants to raise money it may issue a round of common stock shares it sells all of those shares to the public at par plus whatever value the market puts on it from then on the shares fluctuate in value as sellers and buyers determine their value in the open market 
a company certainly has a great interest in its stock price from day to day but not because its balance sheet is immediately affected for better or worse a preferred stock issue is another way for a company to raise cash for its business this hybrid of a stock and a bond appeals to investors who want a steady dividend payment and protection of their capital from bankruptcy investors value preferred stock shares for their steady returns not for their price growth which can be minimal they appeal to fewer investors which is why most companies have relatively few shares of preferred stock than common stock in circulation companies may buy back shares from time to time in order to reduce the total number of their shares in circulation this is a popular move among shareholders who are likely to see their shares increase in value the shares bought back are listed within the shareholders equity section at their repurchase price as treasury stock a contra equity account that reduces the total balance of shareholders equity if the treasury stock is sold at above its repurchase price the gain is credited to an account called paid in capital from treasury stock if the treasury stock is sold below its repurchase price the loss reduces the company s retained earnings if the treasury stock is sold at a price equal to its repurchase price the removal of the treasury stock simply restores shareholders equity to its pre buyback level paid in capital from retirement of treasury stockcompanies may opt to remove treasury stock by retiring some treasury shares rather than reissuing them the retirement of treasury stock reduces the balance of paid in capital applicable to the number of retired treasury shares if the initial repurchase price of the treasury stock was lower than the amount of paid in capital related to the number of shares retired then paid in capital from the retirement of treasury stock is credited if the initial repurchase price of the treasury stock was higher than the amount of paid in capital related to the number of shares retired then the loss reduces the company s retained earnings once treasury shares are retired they are canceled and cannot be reissued example of paid in capitalto illustrate say company b issues 2 000 shares of common stock with a par value of 2 per share the market price per share is 20 per share paid in capital is the total amount paid by investors for common or preferred stock therefore the total paid in capital is 40 000 4 000 par value of the shares 36 000 amount of additional capital in excess of par in the shareholders equity section of company b s balance sheet 36 000 is recorded next to the line item paid in capital in excess of par while 4 000 is recorded next to the line item common stock the figures combined equal the total paid in capital paid in capital vs additional paid in capital vs earned capitaleach of these line items in a balance sheet convey a different piece of information to the interested investor or analyst a young company with big expectations might have significantly more paid in capital than earned capital this shows a degree of enthusiasm from investors a mature company should have more earned capital than paid in capital earned capital is an indication of the amount of money that a company is actually taking in for its goods and services 