Paid-up capital is the amount shareholders contributed for their shares, which can generally be returned to them tax-free as a return of capital.
Paid-up capital (PUC) is a tax concept tracking the capital shareholders originally paid into the corporation for their shares. Because it represents money already contributed (not corporate profit), it can generally be returned to shareholders tax-free, unlike dividends, which are paid from taxed profits and are taxable.
PUC differs from the "stated capital" in corporate law and from a shareholder's adjusted cost base, and the three are easy to confuse. In reorganisations and share transactions, managing PUC carefully is important, because extracting more than the PUC tax-free triggers a deemed dividend.
You invested $100,000 for your shares when you incorporated, so your PUC is $100,000. Years later the corporation can return that $100,000 to you tax-free as a return of capital, separate from any taxable dividends on its profits.
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