Fact-checked by Grok 2 weeks ago

Par value

Par value, also known as nominal or face value, is the stated value assigned to a financial security such as a stock or bond at the time of issuance, as indicated on the certificate or in the issuing entity's corporate charter.^[1] For stocks, it typically represents a nominal minimum amount per share—often as low as $0.01 or even $0.00001 in cases like those of major corporations such as Apple or Amazon—which establishes a legal floor price for issuance in certain jurisdictions to safeguard creditors and ensure minimum capital contributions.^[1]^[2] For bonds, par value is commonly set at $1,000 per bond and signifies the principal amount that the issuer is obligated to repay to the bondholder upon maturity, while also serving as the basis for calculating periodic interest payments.^[3]^[2] In accounting and corporate finance, par value plays a key role in determining how proceeds from security issuances are recorded on balance sheets. When stock is sold above its par value, the excess amount is classified as additional paid-in capital, reflecting investor contributions beyond the nominal minimum, whereas issuing below par is generally prohibited to avoid diluting creditor claims.^[2] For bonds, market prices fluctuate around par value: bonds trade at a premium (above par) if their coupon rate exceeds current market interest rates, at a discount (below par) if the coupon is lower, or at par when rates align, influencing yield calculations for investors.^[1]^[3] Legally, par value requirements vary by jurisdiction; while many U.S. states, including Florida and Iowa, permit no-par value shares, others require a minimum par value, allowing greater flexibility in corporate structuring and avoiding arbitrary low valuations.^[4]^[5] In contemporary practice, no-par or low-par stocks have become prevalent among public companies to simplify accounting and adapt to varying market conditions without rigid nominal constraints.^[2]

Fundamentals

Definition

Par value, also known as face value or nominal value, is the stated amount assigned to a financial instrument, such as a bond or stock, at the time of issuance, serving as its fixed nominal worth irrespective of later market changes.^[2] This value was traditionally printed on the security's certificate but is now typically specified in issuing documents such as the corporate charter, representing the baseline amount used for accounting and legal purposes.^[6] Unlike market value, which fluctuates due to factors like supply and demand or interest rate variations, par value remains constant over the instrument's lifespan.^[2] For instance, a typical corporate bond carries a par value of $1,000, which the issuer agrees to repay at maturity regardless of interim trading prices.^[3] In stocks, par value is often nominal, such as $0.0001 per share for common stock, as specified in corporate charters to establish minimum legal capital.^[1] Par value forms the foundation for computing interest or dividends on these instruments; bond coupon payments, for example, are calculated as a fixed percentage of the par value, providing predictable income to holders.^[7] Similarly, preferred stock dividends are frequently set as a percentage of the par value, ensuring a specified return before common shareholders receive distributions.^[8]

Historical Origins

The term "par value" derives from the Latin word par, meaning "equal," reflecting the equality between a security's stated nominal value and the amount at which it is issued or redeemed.^[9] This concept emerged in 18th-century European bond markets, where it denoted the face value of debt instruments, ensuring clarity in principal repayment and interest calculations.^[1] In the 17th and 18th centuries, par value was prominently used in government debt instruments in England and France, where it represented the principal amount repayable at maturity. Following the establishment of the Bank of England in 1694, English government annuities and loans were issued with specified face values, redeemable at par to facilitate interest rate management and debt refinancing, as seen in the conversion of 4% annuities to 3% in 1749 when prices reached par.^[10] In France, perpetual and life annuities issued during the same period, such as those collateralized by taxes at 2.5% or 4%, traded relative to their face value, which served as the basis for promised payments and restructurings, exemplified by the 1721 debt crisis where instruments were valued at fractions of their nominal par.^[11] The 19th century saw par value evolve with the proliferation of joint-stock companies, where it was standardized to regulate capital contributions and maintain corporate solvency. As general incorporation statutes spread across U.S. states—such as Massachusetts in 1809 and New York in 1811—laws required corporations to specify a par value for shares in their articles of incorporation, defining legal capital as the aggregate par of issued shares.^[12] This mandate aimed to prevent undercapitalization by locking in a minimum committed capital fund, protecting creditors from shareholder withdrawals and enabling long-term investments in infrastructure like railroads and canals.^[12] By the early 20th century, jurisdictions began allowing no-par value stocks to provide flexibility in capital structuring, reducing the rigidity of fixed nominal values. A key milestone was Delaware's 1917 amendments to its General Corporation Law, which authorized the issuance of shares without par value, shifting focus from nominal amounts to actual consideration received and influencing modern corporate practices.^[13]

Applications in Securities

Bonds

In the context of bonds, par value, also known as face value, represents the principal amount that the issuer agrees to repay to bondholders upon maturity. This amount serves as the benchmark for the bond's nominal value, commonly set at $1,000 per bond in many markets. For instance, a corporate or government bond with a $1,000 par value entitles the holder to receive $1,000 at the end of the bond's term, regardless of fluctuations in its market price during the holding period.^[3]^[14] Coupon payments on bonds are calculated directly based on the par value, providing periodic interest to investors. The annual coupon interest is determined by multiplying the bond's stated coupon rate by its par value; for example, a bond with a 5% coupon rate and $1,000 par value pays $50 annually in interest. These payments remain fixed throughout the bond's life, offering predictable income streams tied to the par amount. When bonds trade in the secondary market, their prices are expressed relative to par: at par if the market price equals the face value, at a premium if above par (often when the coupon rate exceeds prevailing market yields), or at a discount if below par (typically when the coupon rate is lower than market yields). A 5% coupon bond trading at par, for example, delivers a yield equal to its 5% coupon rate, assuming no other factors like credit risk alter the valuation.^[15]^[16] At maturity, bonds are redeemed at their par value, ensuring bondholders receive the full principal repayment irrespective of the price paid to acquire the bond. This feature is particularly significant for zero-coupon bonds, which are issued at a deep discount to par and do not make periodic interest payments; instead, the difference between the purchase price and par value is amortized over the bond's life as imputed interest, effectively building toward the full par redemption at maturity. The par value also plays a central role in calculating the yield to maturity (YTM), which approximates the internal rate of return by solving for the discount rate that equates the present value of all future cash flows—including coupons and the par value repayment at maturity—to the bond's current market price.^[17]^[18]^[19]

Stocks

In equity securities, par value represents the nominal or stated value assigned to each share of common or preferred stock at the time of issuance, serving as the minimum price at which shares can legally be sold to protect creditors by establishing a baseline for the company's legal capital.^[20] This value is typically set very low in modern practice, such as $0.01 per share for companies like Amazon or even $0.00001 for Apple, allowing corporations greater flexibility in raising capital without implying a high minimum investment that could deter investors.^[1] For both common stock, which confers voting rights and residual claims on assets, and preferred stock, which often prioritizes dividend payments, par value acts as a floor price rather than reflecting the stock's market worth.^[21] Many jurisdictions impose legal requirements that shares must be issued at or above par value to safeguard creditors from dilution of corporate assets, with violations resulting in "watered stock" where shareholders or directors may face personal liability for the difference between the par value and the actual value received by the company.^[22] For instance, under U.S. state corporation laws, issuing shares below par—such as trading property or services undervalued relative to par—can lead to creditors recovering the unpaid portion from those involved, a doctrine rooted in common law to prevent fraudulent capitalization.^[23] This protection ensures that the aggregate par value of issued shares forms the company's stated capital, which cannot be impaired without specific approvals. From an accounting perspective, when par value stock is issued, the par value multiplied by the number of shares is recorded as common or preferred stock in the equity section of the balance sheet, while any proceeds exceeding par value are credited to additional paid-in capital, reflecting the true economic contribution from shareholders.^[24] This treatment under U.S. GAAP separates the nominal legal capital from the surplus generated by market-driven pricing.^[25] An alternative to par value stock is no-par stock, authorized in states like California, where shares can be issued without a nominal value, and all proceeds are allocated directly to stated capital or surplus, simplifying accounting and reducing liability risks associated with undervaluation.^[26] This approach eliminates the potential for watered stock claims by treating the full issuance price as capital contribution.^[27] Historically, U.S. stocks, particularly in early railroads like the Baltimore & Ohio, often carried high par values of $100 per share to signal substantial capitalization, but by the 20th century, the trend shifted to low or no par values amid concerns over rigid pricing and investor appeal, with no-par legislation spreading from states like New York in 1912 to facilitate more flexible corporate financing.^[28]^[29]

Broader Contexts

Currency

In the context of currency, par value refers to the nominal or face value imprinted on coins and banknotes, which establishes their status as legal tender and the amount they are officially accepted for in transactions. For instance, a United States $1 bill or a 1 euro coin carries a par value that represents its designated worth in the issuing economy, regardless of fluctuations in material costs or market conditions. This par value ensures uniformity in payments and is backed by the sovereign authority of the issuing government or central bank.^[30] Historically, under the gold standard, currencies maintained a fixed par value relative to gold, providing a commodity anchor for monetary stability. In the United States, the dollar's par value was set at $20.67 per troy ounce of gold from 1900 until 1933, allowing for direct convertibility and limiting inflationary pressures by tying money supply to gold reserves. This system, adopted by many nations in the late 19th and early 20th centuries, facilitated international trade by establishing predictable exchange ratios based on gold content.^[31] In modern fiat currency systems, par value has become detached from physical commodities like gold, instead sustained through central bank policies such as interest rate adjustments and quantitative measures to preserve purchasing power. The introduction of the euro in 1999 exemplifies this shift, with irrevocable conversion rates fixed at par between the new currency and participating national currencies—such as 1 euro equaling 1.95583 German marks or 6.11043 French francs—enabling seamless monetary union across the Eurozone without initial disruptions to nominal values.^[32] Par value also plays a critical role in fixed exchange rate regimes, where international bodies assign official rates to promote global stability. Under the Bretton Woods system from 1944 to 1971, the International Monetary Fund (IMF) determined par values for member currencies in terms of gold or the U.S. dollar, such as the British pound sterling fixed at $4.03 per pound, with allowable fluctuations limited to 1% around this parity to support post-war reconstruction and trade.^[33] Economic disruptions like hyperinflation can erode the real value of currency despite unchanged or escalating par denominations, highlighting the distinction between nominal and actual worth. During the Weimar Republic in Germany (1921–1923), the Reichsmark's par value on banknotes ballooned to trillions—reaching notes of 100 trillion marks by late 1923—yet hyperinflation driven by war reparations and excessive money printing rendered these sums worthless, with exchange rates hitting 4.2 trillion marks per U.S. dollar, underscoring how policy failures can undermine par value integrity.^[34]

Accounting and Legal Aspects

Under U.S. Generally Accepted Accounting Principles (GAAP), the par value of issued common stock is recorded in the equity section of the balance sheet at the stated par value multiplied by the number of shares outstanding, while any proceeds received in excess of this amount are classified as additional paid-in capital to distinguish the nominal legal capital from the total contributed capital by shareholders.^[24] This allocation ensures that the balance sheet reflects the minimum legal capital commitment separately from investor contributions above par. Similarly, under International Financial Reporting Standards (IFRS), ordinary shares are classified as equity, with required disclosures in financial statements including the par value per share (if applicable) or a statement that shares have no par value, along with reconciliations of changes in equity to highlight the distinction between nominal and additional capital.^[35] These requirements promote transparency in reporting the composition of shareholders' equity across jurisdictions. Par value statutes in U.S. state corporation codes serve as legal protections to prevent fraudulent issuance of stock by prohibiting the sale of shares below their stated par value, thereby safeguarding creditors by ensuring that the corporation receives at least the nominal amount as capital and avoiding the dilution of corporate assets through undervalued issuances.^[20] Violations, such as issuing shares below par, can result in personal liability for shareholders or directors for the difference between the par value and the actual proceeds, with penalties varying by state but often including civil remedies or, in severe cases, misdemeanor charges under securities regulations.^[36] For instance, historical state laws like those in California were enacted specifically to combat fraud by holding directors accountable if shares were watered down below par, though many states now permit no-par stock to reduce such risks while maintaining creditor protections through other mechanisms.^[37] In terms of tax implications, an investor's tax basis in shares is the purchase price paid, with capital gains taxed as the excess of sale proceeds over this basis at preferential long-term rates if held over one year.^[38] However, unlike bond interest—which is tax-deductible for the issuer as an ordinary business expense—par value and related stock issuances provide no such deduction, and dividends paid on stock are not deductible, making debt financing via bonds more tax-efficient for corporate issuers despite the equity protections afforded by par value.^[39] International variations in par value requirements reflect differing regulatory priorities, with the European Union's Second Company Law Directive (2012/30/EU) mandating a minimum subscribed capital of €25,000 in aggregate for public limited-liability companies to ensure adequate creditor protection through legal capital maintenance. In contrast, U.S. corporate law offers significant flexibility, as most states permit the issuance of no-par value stock without minimum capital thresholds, allowing companies to set nominal or zero par values (often as low as $0.00001 per share) to simplify equity structuring and avoid rigid legal capital constraints.^[40] This U.S. approach, unchanged by the Sarbanes-Oxley Act of 2002 which focused on financial reporting and internal controls rather than par value specifics, contrasts with the EU's harmonized minimum to promote cross-border stability.^[41] Modern reforms indicate a global trend toward eliminating or minimizing par value mandates to enhance flexibility for issuers and facilitate international listings, as seen in jurisdictions like China, where the 2024 Company Law amendments allow companies to opt for no-par shares, aligning with practices in major markets such as the U.S. and reducing administrative burdens on capital maintenance.^[42] In the UK, the Companies Act 2006 reformed share capital rules by introducing procedures for redenomination of shares and private company solvency-based reductions, while retaining a fixed nominal value requirement but enabling greater adaptability in equity issuance compared to prior rigid structures, thereby simplifying compliance for global listings without fully abolishing par.^[43] These changes reflect a broader shift, prioritizing economic efficiency over traditional legal capital protections while maintaining safeguards through disclosure and solvency tests.^[44]

References

[1]
Par Value of Stocks and Bonds Explained - Investopedia
Par value, also known as nominal or original value, is the face value of a bond or the value of a stock certificate, as stated in the corporate charter.Missing: authoritative | Show results with:authoritative
[2]
Par Value - Definition, Example, Importance
What is Par Value? Par value is the nominal or face value of a bond, share of stock, or coupon as indicated on a bond or stock certificate.Missing: authoritative | Show results with:authoritative
[3]
Bonds - FAQs | Investor.gov
... of the bond and to repay the principal, also known as face value or par value of the bond, when it "matures," or comes due after a set period of time.
[4]
Par Value | Definition + Examples - Wall Street Prep
Aug 7, 2024 · Par Value is the face value (FV) on the issuance of securities like bonds or stocks, established on the issuer's security certificate.Missing: authoritative | Show results with:authoritative
[5]
Exhibit - SEC.gov
The following summary describes our class A common stock, par value $0.0001 per share, class B common stock, par value $0.0001 per share, and class C common ...
[6]
Coupon Payment | Investor.gov
Coupon Payment. The dollar amount of interest paid to an investor. The amount is calculated by multiplying the interest of the bond by its face value.Missing: par | Show results with:par
[7]
Understanding Preferred Dividends: Benefits and Calculations
Preferred dividends are issued based on the par value and dividend rate of the preferred stock. While they are issued at a fixed rate based on their par value, ...What Are Preferred Dividends? · How They Work · Calculation
[8]
[PDF] Public debt in England (1737-1750): policy and market expectations
May 19, 2008 · In 18th century England, the optimal rule to call the bond immediately when it reaches par (Ingersoll, 1977) could not be applied because of the ...
[9]
What We Learn from a Sovereign Debt Restructuring in France in 1721
The first type of policy dealt with the long-term annuities, first issued to the public in 1522. They were subject to unilateral reductions in 1604, 1662–65, ...
[10]
[PDF] Locking in Capital: What Corporate Law Achieved for Business ...
Sep 20, 2019 · required each corporation to specify (in its article of incorporation) a par value for its stock, and defined a corporation's legal capital ...
[11]
[PDF] Laws of the State of Delaware
"General Corporation Law of the State of Delaware." Approved March 20, A. D. 1917. L. 3. 3. 1. 3. I. E. Page 28. 344. LAWS OF DELAWARE. GENERAL PROVISIONS ...
[12]
Bonds | FINRA.org
On a bond's maturity date, the borrower fulfills its debt obligation by paying bond holders the final interest payment and the bond's face value, called par ...
[13]
Coupon Rate | Formula + Calculator - Wall Street Prep
Dec 6, 2023 · Coupon Rate is multiplied by a bond's par value to determine the annual coupon payment owed to a bondholder by the issuer until maturity.How to Calculate Coupon Rate? · Coupon Rate Formula
[14]
Par Bond - Overview, Bond Pricing Formula, Example
A par bond refers to a bond that currently trades at its face value. The bond comes with a coupon rate that is identical to the market interest rate.What is a Par Bond? · Understanding a Par Bond
[15]
Bond Prices and Yields | MSRB
Generally, there are five key bond price components: par value, coupon rate, maturity date, market price and the credit rating of the bond.Missing: repayment | Show results with:repayment
[16]
Corporate Bonds - Fidelity Investments
The payment amount is calculated as a percentage of the par value, regardless of the purchase price or current market value. With corporate bonds, one bond ...
[17]
Zero-Coupon Bond | Formula + Calculator - Wall Street Prep
A zero coupon bond is priced at a discount to its face (par) value with no periodic interest payments from the date of issuance until maturity.
[18]
par-value stock | Wex | US Law | LII / Legal Information Institute
Par-value stock is the minimum price a company can sell stocks for, set at issuance. The total par-value sale forms the company's legal capital.
[19]
par value | Wex | US Law | LII / Legal Information Institute
Par value, also referred to as nominal value, is the face value of a bond or the stock value stated in the corporate charter and noted in the stock certificate.
[20]
watered stock | Wex | US Law | LII / Legal Information Institute
When stocks became “watered” through these exchanges, those involved could be held liable for the difference between the par value and the actual asset value, ...
[21]
[PDF] Creditors' Remedies Against Holders of Watered Stock
Watered stock has been traditionally defined as "stock which is issued by a corporation as fully paid-up stock, when in fact the whole amount of the par value ...
[22]
4.3 Accounting for the issuance of common stock - PwC Viewpoint
Those proceeds are allocated first to the par value of the shares (if any), with any excess over par value allocated to additional paid-in capital. If common ...
[23]
Journal Entries to Issue Stock | Financial Accounting - Lumen Learning
Par value gives the accountant a constant amount at which to record capital stock issuances in the capital stock accounts. As stated earlier, the total par ...
[24]
[PDF] No Par Value Stock - Marquette Law Scholarly Commons
The following states have passed legislation authorizing the issue of no par value stock: Alabama, California, Colorado, Delaware, Idaho, Illinois,. Kansas ...Missing: 1917 | Show results with:1917<|control11|><|separator|>
[25]
no-par stock | Wex | US Law | LII / Legal Information Institute
No-par stocks are those where the value of the stocks relies completely on the market, not at all based upon any guaranteed value (the par value) set at the ...
[26]
Fully paid and non-assessable - Coxrail
Nov 21, 2017 · The initial par value of stock from the Baltimore & Ohio Railroad was $75 and raised par to $100 by 1845. However, even as early as 1837 ...Missing: historical | Show results with:historical
[27]
[PDF] Shares Without Par Value - UKnowledge
The General Assembly cannot, under the law as it now stands, effec- tively levy an annual license or franchise tax upon corporations having no par value stock ...
[28]
31 U.S. Code § 5112 - Denominations, specifications, and design of ...
The coins issued under this title shall be legal tender as provided in section 5103 of this title. ... the face value of the coins; and. (B). the cost of ...Missing: banknotes | Show results with:banknotes
[29]
[PDF] Alternative Monetary Regimes: The Gold Standard
There are 480 grains of gold in a fine troy ounce. Thus the price of a fine troy ounce of gold was $20.67 (480 + 23.22 = 20.67). In all countries with a gold ...
[30]
[PDF] An effective exchange rate index for the euro area - Bank of England
This article describes the calculation of the index since the initial value of the euro was set on. 31 December 1998, and also for the preceding period. The ...
[31]
Twenty Years with Par Values, 1946-66 in - IMF eLibrary
Generally the currencies of these countries were devalued by 30.5 per cent; sterling, for example, went from US$4.03 per pound to US$2.80 per pound. The Fund ...What Are Par Values? · Setting Up Initial Par Values · Early Problems
[32]
1920s Hyperinflation in Germany and Bank Notes - Spurlock Museum
Aug 6, 2018 · By November of 1923, the currency would depreciate to 4,200,000,000,000 marks to one US dollar. A 1 milliard German Papiermark of the Weimar ...
[33]
[PDF] Comparison between U.S. GAAP and IFRS® Standards
- The number of shares issued and fully paid, and issued but not fully paid. - Par value per share, or that the shares have no par value. - A reconciliation ...
[34]
What is "Par Value" for California Corporation Shares of Stock?
Nov 29, 2023 · To combat this, many states (including California) passed laws prohibiting a company from issuing shares for less than the par value. And ...Missing: below penalties
[35]
par | Wex | US Law | LII / Legal Information Institute
Each share of stock receives a par value, representing the amount of capital that each shareholder contributes. Par value was created as a measure to protect ...
[36]
Topic no. 409, Capital gains and losses | Internal Revenue Service
Sep 12, 2025 · Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gain may be taxed at 0%.
[37]
What is the tax advantage when bonds are issued instead of stock?
The interest expense associated with bonds payable is deductible from a U.S. corporation's taxable income. In other words, a profitable corporation will save ...
[38]
Par vs. No-Par Value Stock: Key Differences and Implications
If a company issues no-par stock, it will not have a potential future debt obligation to shareholders should the market price drop below the supposed par value.Missing: penalties | Show results with:penalties
[39]
[PDF] Corporate Matters: The Value of Par Value - Publications
Historically, companies were required to state a par value for the their stock – most states, Delaware among them, now allow for no par value stock. The “no par ...Missing: history 1917<|separator|>
[40]
Navigating the New Company Law-Class Share & No-Par Value ...
Mar 19, 2024 · The New Company Law adopts a legislative model that allows companies to choose between par value shares and no-par value shares, in line with ...
[41]
Companies Act 2006 - Explanatory Notes - Legislation.gov.uk
Where a company purports to allot shares without a fixed nominal value, every officer of the company who is in default commits an offence and is liable to a ...Missing: uncapped | Show results with:uncapped
[42]
Why the Par Value of Share Matters to Investors - MDPI
The concept of par value (hereinafter PaV) was created to protect the public against fraud in the sale of stocks (Cook 1921). Par value is given to each share ...Missing: etymology | Show results with:etymology