No-Par Value Stock
No-par value stock is issued without the specification of a par value indicated in a company's articles of incorporation or on its stock certificates. While no-par value stock is issued with no face value, low-par value stock is issued with a price as low as $0.01. No-par value stocks are printed with no face value designation, while low-par value stocks may show an amount lower than $0.01, all the way up to a few dollars. No-par value stock is issued without the specification of a par value indicated in a company's articles of incorporation or on its stock certificates. Most shares issued are classified as no-par or low-par value stock, where prices of the latter are determined by the amount of cash investors are willing to pony up for the stocks on the open market.
What Is No-Par Value Stock?
No-par value stock is issued without the specification of a par value indicated in a company's articles of incorporation or on its stock certificates. Most shares issued are classified as no-par or low-par value stock, where prices of the latter are determined by the amount of cash investors are willing to pony up for the stocks on the open market.
Understanding No-Par Value Stock
Companies may find it beneficial to issue no-par value stock because doing so gives them the flexibility to set higher prices for future public offerings. This reduces the downside risk for shareholders if the stock price sharply plummets. Because of the known fluctuations in pricing associated with the stock market, many investors typically do not deem par necessary prior to purchasing a particular investment. In addition, the production of stocks with a face value may result in legal liabilities regarding the difference between the current going rate and the par value assigned to the stocks, making them a less attractive option for issuers.
When companies issue no-par value stock, the price may experience natural variations. A no-par stock’s sale price can be determined by the basic principles of supply and demand, fluctuating as necessary to meet market conditions without being misrepresented by the face value.
Some states forbid corporations from issuing no-par stock.
Special Considerations
If a business releases stock with a low-par value of $5.00 per share and 1,000 shares are sold, the associated book value of the business can then be listed as $5,000. If the business is generally successful, this value may be of no consequence. But if the business collapses while currently owing a creditor $3,000, the indebted company may call for a review of the delinquent company's accounting statements, which may reveal that the failed business was not fully capitalized. This can prompt the owed business to exercise its legal right to require shareholders to contribute to the repayment of the debt.
No-Par Value Stock vs. Low-Par Value Stock
No-par value stocks are printed with no face value designation, while low-par value stocks may show an amount lower than $0.01, all the way up to a few dollars. Many times, when a smaller company seeks to lower the number of its shareholders, it may choose to issue stocks with a face value of $1.00. This small amount can then function as a line item for accounting purposes.
Related terms:
Articles of Incorporation
Articles of incorporation is a set of formal documents filed with a government body to legally document the creation of a corporation. read more
Bond : Understanding What a Bond Is
A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. read more
Capitalize
To capitalize is to record a cost/expense on the balance sheet for the purposes of delaying full recognition of the expense. In general, capitalizing expenses is beneficial as companies acquiring new assets with long-term lifespans can amortize the costs. read more
Deferred Equity
Deferred equity is a security that can be exchanged in the future at a predetermined price for shares of common stock. read more
Face Value
Face value is the nominal value or dollar value of a security stated by the issuer, also known as "par value" or simply "par." read more
Ordinary Shares
Ordinary shares, also called common shares, give their owners the right to vote at company shareholder meetings but have no guaranteed dividend. read more
Par Value
Par value can refer to either the face value of a bond or the stock value stated in the corporate charter. read more
Public Offering
A public offering is the sale of equity shares or other financial instruments to the public in order to raise capital for a company. read more
Stated Value
A stated value is an amount assigned to a corporation's stock for accounting purposes when the stock has no par value. read more
Stock Certificate
A stock certificate proves the holder has ownership in the company, as it displays the number of shares owned, the date of purchase, a corporate seal, and other confirmations of identity. read more