The nominal or face value assigned to a share of stock by a corporation at the time it is authorized, as stated in the company’s formation documents.
What is a Par Value?
Par value is the minimum price at which a share of stock can initially be issued by a corporation, set in the Articles of Incorporation. It is a legal concept rather than an indicator of market value. For example, a corporation might set its par value at $0.01 per share, meaning it cannot issue the stock for less than one cent.
In modern corporate practice, par value is often set very low (sometimes even at $0.0001) to minimize the company’s legal capital and reduce potential liability for issuing stock below par. This low par value also provides greater flexibility when selling shares to investors.
For corporations, par value is used in accounting to determine part of the paid-in capital, with amounts paid over par recorded as additional paid-in capital. It is different from the stock’s market price, which is determined by supply and demand and can be much higher.
Some states allow “no par value” stock, meaning there is no minimum issuance price required by law, and the board of directors can determine the sale price. Understanding par value is important during incorporation, capitalization, and when calculating franchise taxes in states where the tax is based partly on authorized shares and their par value.
