No-Par Value Stock

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No-Par Value Stock

No-par value stock is equity issued without a stated face (par) value on the company’s articles of incorporation or stock certificates. Its price is determined by supply and demand in the market rather than an assigned nominal amount.

How it works

  • Issuance: Shares carry no predetermined per-share value. The company’s stated capital is not based on a par value.
  • Pricing: Market forces set the sale price when shares are issued or traded.
  • Legal and accounting effects: Without a par value there is no built-in legal obligation tied to an arbitrary face amount, which can simplify issuing shares and reduce certain par-related liabilities. State corporate law varies; some jurisdictions restrict or forbid no-par issuance.

Advantages

  • Flexibility to set offering prices that reflect market conditions, making future financings simpler.
  • Avoids potential legal issues that can arise when market price differs substantially from a low par value.
  • Simplifies share-issuance accounting by eliminating a nominal par line item in many cases.

Disadvantages and considerations

  • State laws differ — some states prohibit no-par stock or impose special rules.
  • Creditors and auditors may scrutinize capitalization if the company has nominal or low stated capital. Inadequate capitalization can lead to legal challenges, depending on jurisdiction and circumstances.
  • No-par stock can reduce information about the historically contributed capital that a par value sometimes signals.

Example: If a company issues 1,000 shares with a $5 par value, its book value from par would be $5,000. If the company later fails and owes creditors, that low stated capital can prompt examination of whether the business was adequately capitalized.

No-par vs. Low-par value stock

  • No-par: No face value is printed or recorded.
  • Low-par: Shares are issued with a very small par value (often $0.01 or $1.00) used mainly as an accounting line item. Smaller companies sometimes use a nominal par to limit the recorded number of shareholders or to reflect minimal stated capital.

Key takeaways

  • No-par value stock has no stated face value; market price determines value.
  • It offers issuers pricing flexibility and avoids some par-related legal complications.
  • Rules and implications vary by jurisdiction; low-par alternatives are common when issuers want a nominal stated capital.