PAID-IN-CAPITAL Definition

PAID-IN-CAPITAL is capital received from investors for stock, equal to capital stock plus paid-in capital, NOT that capital received from earnings or donations. Also called contributed capital.

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PRODUCTION is the creation of value or wealth by producing goods and services.

STARTUP COSTS or Organization Cost, in the U.S., is when a new corporation is created, the costs associated with the formation are not deductible. An election must be made to amortize organizational costs no later than the due date (including extensions) of the return for tax year in which the active trade or business begins. If an election is not made to amortize these costs, they must be capitalized on the books and are not subject to amortization resulting in permanent capitalization. Upon making the timely election, the corporation may recover these costs through amortization deductions over a 60 month period. Organizational expenditures include any expenditure which is:

• incident to the creation of the corporation,
• chargeable to capital account, and 
• is of a character which, if expended incident to the creation of a corporation having a limited life, would be amortizable over such life.

The following are examples of organization costs:

• legal services incident to the organization of the corporation, such as drafting the corporate charter, by-laws, minutes of organizational meetings, terms of original stock certificates, etc.
• necessary accounting services.
• expenses of temporary directors and of organizational meetings of directors or stockholders.
• fees paid to state of incorporation.

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