Setting the Par Value of Stock | Harvard Business Services, Inc. (2024)

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Setting the Par Value of Stock | Harvard Business Services, Inc.? ›

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. The par value of shares sets only a bottom limit for your business, but the board of directors may set the price of stock at any amount above par.

So how do you change par value? Laws vary state to state, but generally speaking, any change to par value typically involves an amendment to your corporate charter (your Articles of Incorporation, or whatever the formation document is called in your state).

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. The face value of the stock stated in the corporate charter is often unrelated to the actual value of its shares trading on the open market.

The company's par value is calculated by multiplying the par value per share by the total number of shares issued. That means you'll just need to grab your calculator and key in the math.

A par value for a stock is its per-share value assigned by the company that issues it and is often set at a very low amount such as one cent. A no-par stock is issued without any designated minimum value.

If the value of the stocks ever drop below the par value, the corporation becomes liable to the shareholders for the price drop. No-par stocks completely avoid this whole process by having no minimum price or par value at all for the stocks.

For example, if a corporation issues 100 new shares of its common stock for a total of $2,000 and the stock's par value is $1 per share, the accounting entry is a debit to Cash for $2,000 and a credit to Common Stock—Par $100, and a credit to Paid-in Capital in Excess of Par for $1,900.

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.

The entity that issues a financial instrument assigns a par value to it. When shares of stocks and bonds were printed on paper, their par values were printed on the faces of the shares. Market value, however, is the actual price that a financial instrument is worth at any given time for trade on the stock market.

For example, if you set the par value for your corporation's shares at $1, all purchasers of the stock must pay at least this amount for every share they purchase. If you purchase 10,000 shares, you'll have to pay at least $10,000 for them. If you pay only $5,000, you'll owe your corporation another $5,000.

How do you set par stock level? ›

The formula recognized in the hospitality industry for calculating par level is: Par level= (the amount of inventory used each week + safety stock)/ the number of deliveries each week.

A general formula for estimating par level is as follows: Par level = (weekly inventory use + Safety stock) / Deliveries per week.

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.

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.

The par value (face value) of a security will never change. For instance, a bond issued at par of $1,000 will always pay that amount upon its maturity. However, because bonds pay interest, the market price of the bond may rise or fall from the face value as prevailing interest rates change.

Par value in most states, including Delaware, is a relic of their corporate statutes that typically comes into play in calculating franchise taxes—it is the minimum issue price for a share of stock. A typical par value is $0.00001.

The par value of stock remains unchanged in a bonus stock issue but it changes in a stock split. In accounting, the par value allows the company to put a de minimis value for the stock on the company's financial statement. Par value is also used to calculate legal capital or share capital.

Subject to the articles of association a company may change the number of shares issued, adjust the value, introduce different rights to each share, change the currency and even buy its own shares back.

Large stock dividends occur when the new shares issued are more than 25% of the value of the total shares outstanding before the dividend. In this case, the journal entry transfers the par value of the issued shares from retained earnings to paid-in capital.