Par Value

Par Value Definition

Par value is the nominal or face value assigned to a share of stock or a bond when it's first issued. For stocks, par value is usually a very small amount — like $0.01 or $1.00 per share — and has little connection to the stock's actual market price. For bonds, par value is typically $1,000 and represents the amount repaid to the bondholder at maturity.

Par Value in Practice — Example

A startup incorporates in Delaware and authorizes 10 million shares of common stock with a par value of $0.001 per share. When the founders issue themselves 1 million shares each, the par value on the books is just $1,000 per founder. Later, when they raise a seed round, investors pay $2.00 per share — far above par value. The difference between what investors pay and par value is recorded as "additional paid-in capital."

Why Par Value Matters for Your Business

For most small businesses, par value is a legal formality rather than a practical consideration. However, it matters when you incorporate and issue stock. Setting par value too high can create unnecessary tax liability in some states, since franchise taxes may be calculated based on par value. Most businesses set it as low as possible.

If you're issuing bonds or taking on debt securities, par value becomes more meaningful — it's the amount you're promising to repay. Understanding par value helps you read financial statements accurately and structure your company's equity correctly from day one.

How Par Value Works

For stock: Additional Paid-In Capital = Issue Price − Par Value

If you sell 100,000 shares at $5.00 each with a $0.01 par value, your books show $1,000 in par value and $499,000 in additional paid-in capital.

Par Value vs Market Value

Par value is an arbitrary number set at issuance — it rarely changes. Market value is what investors are actually willing to pay for a share or bond today. A stock with a $0.01 par value might trade at $50 on the open market. The two numbers have almost no relationship for stocks, though for bonds, market value fluctuates around par value based on interest rates.

FAQ

Q: Can I issue stock below par value?

A: Generally no. Issuing stock below par value can create legal liability for the difference. That's why most companies set par value extremely low.

Q: Does par value affect my company's valuation?

A: No. Par value is a legal technicality. Your company's valuation is based on revenue, growth, assets, and market conditions — not par value.

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