Contributed capital refers to the funds that a company raises from investors in exchange for shares of ownership, typically through the issuance of common or preferred stock. It represents the equity portion of a company’s capital structure and is also known as “share capital” or “equity capital.”

There are two main components of contributed capital:

1. **Common Stock:** Common stock represents the basic ownership interest in a company. When investors purchase common stock, they become shareholders and acquire certain rights, such as voting rights in major corporate decisions and the right to receive a share of the company’s profits through dividends (if declared). Common stockholders are considered residual claimants, meaning they have a claim on the company’s assets after all debts and preferred stock obligations have been satisfied.

2. **Preferred Stock:** In addition to common stock, a company may issue preferred stock. Preferred stockholders have a higher claim on the company’s assets and earnings compared to common stockholders. They typically receive a fixed dividend before any dividends are paid to common stockholders. However, preferred stockholders usually do not have voting rights equivalent to those of common stockholders.

The funds raised through the issuance of common and preferred stock contribute to the company’s equity, providing a financial foundation for its operations, investments, and growth initiatives. Unlike debt capital, which involves borrowing money that must be repaid with interest, contributed capital does not create an obligation for the company to make regular interest or principal payments. Instead, shareholders participate in the company’s success through capital appreciation and dividend payments.

Contributed capital is a key component of the overall shareholder equity section on a company’s balance sheet. The balance sheet equation, also known as the accounting equation, illustrates the relationship between assets, liabilities, and equity:

\[ \text{Assets} = \text{Liabilities} + \text{Equity} \]

Contributed capital represents the equity portion of this equation, reflecting the ownership interest of shareholders in the company’s assets. It is an essential metric for assessing a company’s financial health and the level of ownership stakes held by investors.