Par value
Encyclopedia
Par value, in finance
and accounting, means stated value or face value. From this comes the expressions at par (at the par value), over par (over par value) and under par (under par value).
The term "par value" has several meanings depending on context and geography.
has no relation to market value and, as a concept, is somewhat archaic. The par value of a share of stock is the value stated in the corporate charter below which shares of that class cannot be sold upon initial offering; the issuing company promised not to issue further shares below par value, so investors could be confident that no one else was receiving a more favorable issue price. Thus, par value is a nominal value of a security which is determined by an issuing company as a minimum price. This was far more important in unregulated equity markets than in the regulated markets that exist today.
Par value also has bookkeeping purposes. It allows the company to put a de minimis
value for the stock on the company's financial statement.
Many common stock
s issued today do not have par values; those that do (usually only in jurisdictions where par values are required by law) have extremely low par values (often the smallest unit of currency in circulation), for example a penny par value on a stock issued at USD$25/share. Most states do not allow a company to issue stock below par value.
Even in jurisdictions that permit the issue of stock with no par value, the par value of a stock may affect its tax treatment. For example, Delaware permits the issue of stock either with or without a par value, but by choosing to assign a par value, a corporation may significantly reduce its franchise tax liability.http://www.venturemomentum.com/delawaretax.html
No-par stocks have "no par value" printed on their certificates. Instead of par value, some U.S. states allow no-par stocks to have a stated value, set by the board of directors of the corporation, which serves the same purpose as par value in setting the minimum legal capital that the corporation must have after paying any dividends or buying back its stock.
Also, par value still matters for a callable common stock: the call price is usually either par value or a small fixed percentage over par value.
In the United States
, it is legal for a corporation to issue "watered" shares below par value. However, the purchasers of "watered" shares incur an accounting liability to the corporation for the difference between the par value and the price they paid. Today, in many jurisdictions, par values are no longer required for common stocks.
switched from British West Indies dollar to the new Trinidad and Tobago dollar
, and that switch was "at par", meaning that the Central Bank of Trinidad and Tobago
replaced each old dollar with a new one).
Finance
"Finance" is often defined simply as the management of money or “funds” management Modern finance, however, is a family of business activity that includes the origination, marketing, and management of cash and money surrogates through a variety of capital accounts, instruments, and markets created...
and accounting, means stated value or face value. From this comes the expressions at par (at the par value), over par (over par value) and under par (under par value).
The term "par value" has several meanings depending on context and geography.
Bonds
A bond selling at par has a coupon rate such that the bond is worth an amount equivalent to its original issue value or its value upon redemption at maturity. This amount is typically $1000 per bond.Stock
Par value stockStock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
has no relation to market value and, as a concept, is somewhat archaic. The par value of a share of stock is the value stated in the corporate charter below which shares of that class cannot be sold upon initial offering; the issuing company promised not to issue further shares below par value, so investors could be confident that no one else was receiving a more favorable issue price. Thus, par value is a nominal value of a security which is determined by an issuing company as a minimum price. This was far more important in unregulated equity markets than in the regulated markets that exist today.
Par value also has bookkeeping purposes. It allows the company to put a de minimis
De minimis
De minimis is a Latin expression meaning about minimal things, normally in the locutions de minimis non curat praetor or de minimis non curat lex .In risk assessment it refers to a level of risk that is too small to be concerned with...
value for the stock on the company's financial statement.
Many common stock
Common stock
Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
s issued today do not have par values; those that do (usually only in jurisdictions where par values are required by law) have extremely low par values (often the smallest unit of currency in circulation), for example a penny par value on a stock issued at USD$25/share. Most states do not allow a company to issue stock below par value.
Even in jurisdictions that permit the issue of stock with no par value, the par value of a stock may affect its tax treatment. For example, Delaware permits the issue of stock either with or without a par value, but by choosing to assign a par value, a corporation may significantly reduce its franchise tax liability.http://www.venturemomentum.com/delawaretax.html
No-par stocks have "no par value" printed on their certificates. Instead of par value, some U.S. states allow no-par stocks to have a stated value, set by the board of directors of the corporation, which serves the same purpose as par value in setting the minimum legal capital that the corporation must have after paying any dividends or buying back its stock.
Also, par value still matters for a callable common stock: the call price is usually either par value or a small fixed percentage over par value.
In the United States
Economy of the United States
The economy of the United States is the world's largest national economy. Its nominal GDP was estimated to be nearly $14.5 trillion in 2010, approximately a quarter of nominal global GDP. The European Union has a larger collective economy, but is not a single nation...
, it is legal for a corporation to issue "watered" shares below par value. However, the purchasers of "watered" shares incur an accounting liability to the corporation for the difference between the par value and the price they paid. Today, in many jurisdictions, par values are no longer required for common stocks.
Currency
The term "at par" is also used when two currencies are exchanged at equal value (for instance, in 1964, Trinidad and TobagoTrinidad and Tobago
Trinidad and Tobago officially the Republic of Trinidad and Tobago is an archipelagic state in the southern Caribbean, lying just off the coast of northeastern Venezuela and south of Grenada in the Lesser Antilles...
switched from British West Indies dollar to the new Trinidad and Tobago dollar
Trinidad and Tobago dollar
The dollar is the currency of Trinidad and Tobago. It is normally abbreviated with the dollar sign $, or alternatively TT$ to distinguish it from other dollar-denominated currencies. It is subdivided into 100 cents...
, and that switch was "at par", meaning that the Central Bank of Trinidad and Tobago
Central Bank of Trinidad and Tobago
The Central Bank of Trinidad and Tobago is the central bank of Trinidad and Tobago.The Central Bank of Trinidad and Tobago is located in the Eric Williams Financial Complex. The complex consists of the central bank auditorium and two sky-scrapers, locally known as the twin towers...
replaced each old dollar with a new one).