no-par stock (2024)

FAQs

No-par stock? ›

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 issuance of the stocks.

By issuing no-par stock, the company relinquishes any determination of value for the stock. Therefore, the company will not have a future obligation to shareholders should its stock price decline.

No-par value stock is issued without a par value. The value of no-par value stocks is determined by the price investors are willing to pay on the open market. The advantage of no-par value stock is that companies can then issue stock at higher prices in future offerings.

Par value is the value of a single common share as set by a corporation's charter. It is not typically related to the actual value of the shares. In fact it is often lower. Any stock certificate issued for shares purchased shows the par value. When authorizing shares, a company can choose to assign a par value or not.

The following states have passed legislation authorizing the issue of no par value stock: Alabama, California, Colorado, Delaware, Idaho, Illinois, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, Utah, Virginia ...

You might be asking yourself why a company would issue shares with no par value. Corporations do this because it helps them avoid liability to stockholders should the stock price take a turn for the worse.

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 issuance of the stocks.

It ensures the availability of a predetermined level of necessary inventory stock items when needed while safeguarding against over-stocking and inventory waste. PAR levels guide inventory management because for any given item, the quantity in stock plus the order quantity should match a predetermined PAR level.

When it issues no-par stock with a stated value, a company carries the shares in the capital stock account at the stated value.

The accounting entry for a no-par-value stock will be a debit to the cash account and credit to the common stock account within shareholder's equity.

What are the disadvantages of no par value? ›

One of the main disadvantages of having no par value in authorized capital is the potential for manipulation. Without a set value, companies can issue an unlimited amount of shares at any price, leading to the possibility of overvaluation or undervaluation.

Watered stock refers to any stock issued by a corporation to someone in exchange for assets that under-compensate for the stock. The issue was a larger problem in the early 20th century when investors depended on the par value of stocks which ensured companies had at least a certain amount of value.

A share may not be bought, sold or traded for less than the par value. Simply stated, if the par value of a share is $1.00, then it cannot be issued to an investor for less than a dollar, paid for in funds or services.

If a corporation is not required to have a par value (or a stated value) for its common stock and the corporation issues 100 shares for $2,000, the accounting entry will debit Cash for $2,000 and will credit Common Stock for $2,000.

No-par stock refers to the stock that does not have any par or face value. In case if the stock of a company is issued without a stated value, the capital stock account is credited with amount of the entire proceeds. This amount is considered as the legal capital which cannot be withdrawn.

Par value is the stock's value stated in the corporate charter. Shares usually have no par value or low par value, such as one cent per share does not reflect a stock's market price. Some states require that companies set a par value below which shares cannot be sold.