Legal Definitions - capital surplus

Definition: Capital surplus is the excess of a corporation's net worth beyond the par value of its capital stock. It is a type of surplus that is not earned from the accumulation of profits, but rather created by financial reorganization or gifts.

Examples:

• Paid-in surplus: This is the surplus gained by the sale, exchange, or issuance of capital stock at a price above par value. For example, if a company issues 100 shares of stock at $50 per share, but the par value is only $10 per share, the paid-in surplus would be $4,000 ($50 - $10 = $40 x 100 shares).
• Donated surplus: This is the increase in the shareholders' equity account resulting from assets (such as stock) contributed to a corporation. For example, if a shareholder donates 50 shares of stock to a company, and the par value is $10 per share, the donated surplus would be $500 (50 shares x $10 per share).
• Appropriated surplus: This is the portion of surplus earmarked for a specific purpose. For example, a company may set aside a portion of its surplus for research and development or to pay off debt.

These examples illustrate how capital surplus is different from earned surplus, which is the surplus gained from a company's profits. Capital surplus is created through financial transactions or gifts, and can be used for various purposes such as investments or paying off debt.