What Is Par Value Stock?

Some states' company rules still require par value, which is an outdated legal and accounting notion.

The lowest legal price for which a corporation's shares can be sold is termed "par value," also known as "face value" or "nominal value." It has nothing to do with the real value or sale price of a corporation's stock. Rather, it is an out-of-date legal and accounting notion imposed by some state corporate laws

When a corporation is created in some states, the articles of incorporation must specify a "par value" for its shares. Everyone, including the company's founders, who buys stock in the company must pay at least this amount. They will owe the corporation the difference if they pay less.

For example, if the par value of your corporation's shares is established at $1, all stock buyers must pay at least that amount for each share they buy. If you buy 10,000 shares, you'll have to put down at least $10,000. If you only pay $5,000, your firm will owe you another $5,000. If your corporation subsequently falls out of business, its creditors may sue you to force you to pay the remaining $5,000 to assist pay off its obligations.

The phrase par value is deceptive since it has nothing to do with the real value of a corporation's shares. It is simply a legal minimum value. The board of directors of a business may force investors to pay considerably more than par value for the company's shares. You might, for example, set a par value of $.01 per share while requiring investors to pay $10 per share. To put it another way, you have the option to sell your stock for whatever the market will bear. Your shares should be worth considerably more than their par value if your incorporated firm succeeds.

Establishing Par Value of Corporate Stock

The incorporators are in charge of determining the par value of the company stock. Large corporations often set a par value of one cent or a fraction of a cent per share. This allows them to issue a large number of shares without requiring the founders or other first purchasers to pay exorbitant sums of money. For example, Apple stock has a par value of $0.00001, whereas Amazon stock has a par value of $0.01. Small businesses that plan to have only one or a few shareholders may issue stock with a par value of $1. The par value of printed stock certificates should be printed on the certificate.

When shares have a par value, the difference between the price paid by shareholders and the price paid by the business is accounted for as paid-in capital on the balance sheet. For example, if a shareholder pays $5 for 1000 shares with a par value of $1, the business will get $4,000 in paid-in capital and $1,000 in common stock.

No Par Value Stock

Some states allow for the issuance of company stock with no par value. The stock certificates should be produced with "no par value" in this case. Purchasers with no par value shares are not responsible to corporate creditors if they pay too little for the stock. Unless the business decides to designate a part to excess, the whole purchase price for no par shares is credited to the common stock account for accounting reasons. In some states, the stock must be allocated to surplus within a specific amount of time after it is issued, or it will stay as capital, limiting the company's capacity to make distributions or pay dividends.

​​​Yoel Molina, Esq. (AKA “Mo”)

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