Businesses need capital in order to start up, run and expand their activities intended to produce revenue. Capital can be cash or even other economic resources. Businesses acquire capital through incurring economic obligations to other entities or through investment from their owners. Corporations can solicit capital from interested investors through selling them shares in their capital stock. Par values of sold shares are an outdated concept that has some impact on the issuing corporations but very little if any on the shareholders.
Corporations are considered legal entities with separate, independent existences apart from their owners. Corporations sell stock shares to interested investors to raise the capital that their operations need. Depending on the situation, either the price at which shares are sold during a corporation's initial public offering is the par value or par value is simply listed on the shares themselves.
Different corporations can and do issue different classes of shares with different rights and responsibilities through different methods. An initial public offering is a situation where a corporation chooses to become publicly traded and offers to sell shares in its capital stock to interested investors. This is one of the rare situations where shareholders may encounter the concept of par value.
Par value can be thought of as being the stock share's nominal price. Often, it is the price at which a corporation's initial shares are sold to the public and it is a promise of ensured value in that the corporation will not issue additional shares at a price lower than that. In some cases, corporations do not bother with par value at all or simply assign a very small par value for convenience.
Par Value and Shareholders
Par value has little to no impact on shareholders except incidentally perhaps when shares are initially offered to the public. Par value has no impact on the market prices of stock shares that most shareholders need to purchase them at, since those prices are determined by the market forces of demand and supply for those shares. Par value has no impact on dividends received by the shareholders because dividends are calculated based on the number of shares rather than their value. Furthermore, par value has no impact on the changes in value of shares held by investors since those too are determined by market demand and supply.
- IAS Plus: IAS 1, Presentation of Financial Statements
- The Free Dictionary: Par Value
- Business Dictionary: Par Value
- U.S. Securities and Exchange Commission. "The Scope of the SEC’s Authority over Shareholder Voting Rights," Page 7. Accessed April 6, 2020.
- Investor.gov. "Stocks." Accessed April 7, 2020.
- U.S. Securities and Exchange Commission. "Investing in an IPO," Page 2. Accessed April 6, 2020.
Alan Li started writing in 2008 and has seen his work published in newsletters written for the Cecil Street Community Centre in Toronto. He is a graduate of the finance program at the University of Toronto with a Bachelor of Commerce and has additional accreditation from the Canadian Securities Institute.