Guide To Paid-Up Capital For U.S. Businesses in Canada

When an American business establishes a subordinate branch in Canada, or when they acquire a Canadian business, it is important for them to maximize their paid-up capital. Paid-up capital is the amount of tax-free capital that the company can return to their shareholders.

When it comes to the relationship and transactions between shareholder and company, it represents a value of utmost importance. Here’s a quick guide to paid-up capital and how U.S. businesses in Canada can maximize it.

paid up capital accounting

Why Is Paid-Up Capital Important?

Why would a company want to increase it as much as possible? These are some common reasons used by US business owners:

  • They need a minimum level of paid up capital to as a necessity for a project tender
  • They are required by a government body in order to apply for some licenses
  • They have low confidence from customers and shareholders due to low paid-up capital levels
  • It is requested by the bank in order to finalize a loan application

Why is paid-up capital important? The great benefit of paid-up capital to an American company is that it can be sent back to their U.S. shareholders completely tax free. Further, the money raised in such a manner goes to the company to use for whatever they want or need. It’s important for companies to have proper accounting records to show that the paid-up capital went into the company’s bank account for company use, and was not paid out to individuals for their own private use.

What Is Paid-Up Capital?

First, a more elaborate explanation on how it works: When an American company either acquires a Canadian business or opens a subsidiary company in Canada, they issue an Initial Public Offering of a certain amount of shares that people can purchase at a set price. Typically, the company will set a “par value” for each share, and the paid-up capital represents how much a share is sold for above that par value. The total money that the company gets from the purchased shares represents the complete paid-up capital.


So, say an American company launches a Canadian branch or acquires a Canadian business, and puts up 10,000 shares priced at $100 each with the par value set at $20. That would raise $1 million in total, with $800,000 ($80 per share over the $20 par value; $80 x 10,000 shares) being the total paid-up capital raised.

When it comes to starting a company, or starting a subsidiary company in Canada, the par value of the shares also determines how much money the ‘founders’ have to pay to buy their founder shares. Going back to the above example, let’s say an American company founds a subsidiary in Canada and puts those 10,000 shares up for sale at $100 per share with a par value of $20. The founder share price would be the par value of $20 multiplied by the number of shares being issued, so it would be $200,000.

Maximizing Your Paid-Up Capital

Using the above, to maximize your paid-up capital you can do one of two things:

  1. Set your par value as low as possible, so the paid-up capital value of each share sold is higher
  2. Set the total selling price of your shares as high as possible

Be warned, setting either the par value too low or the share price too high can hurt you. The paid-up capital is often thought to represent the confidence that shareholders and purchasers have in your company, and if they are not very confident in the company and you overreach with the share prices issued you will fail to raise as much paid-up capital as you could otherwise and do further damage to consumer confidence.

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