What the Par Value of a Stock Means

By Stock Research Pro • May 4th, 2011

The par value of a stock, also referred to as the ‘face value’ is the value that is printed on the face of a stock certificate to represent the minimum value at which the company can issue each share of common stock. The par value is set at the time the business is incorporated and isn’t necessarily meant to reflect the real value of a share (it’s typically set to a much lower value). The company may sell shares to initial shareholders at the par value or greater and the price must be consistent for all shares.

What is Common Stock?

Common stock is a security that represents company ownership. Owners of common stock are responsible for electing the company board of directors and are entitled to a share of company assets if the company were to be liquidated (only after bond holders, preferred stock holders and other holders of debt have been satisfied in full).

Why Stocks Have Low Par Values

Companies issue stock with low par value (usually below one dollar) as a means of safeguarding the company against liability to shareholders. In fact, companies will often issue stock with no par value or par value of just one cent. The reason for this is that when and if the stock price were to decline, a high par value could present a liability to the company. Again, the par value has no relation to the market value of the stock. A stock with no par value could trade for hundreds of dollars if the market chose to value it that way.

The Impact of Par Value on the Company Balance Sheet

As far as the company is concerned, its share capital is the number of shares multiplied by the par value of the stock. If the company issues shares at a value greater than the par value, the surplus is included in the share premium reserve reflected on its balance sheet.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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