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Why would a stock have no par value?


What is Par Value on a Stock?

People often get confused when they read about the “par value” for a stock. One reason for this is that the term has slightly different meanings depending on whether you are talking about equity or debt.


In general, par value (also known as par, nominal value or face value) refers to the amount at which a security is issued or can be redeemed. For example, a bond with a par value of $1,000 can be redeemed at maturity for $1,000. This is also important for fixed-income securities such as bonds or preferred shares because interest payments are based on a percentage of par. So, an 8% bond with a par value of $1,000 would pay $80 of interest in a year. Common stock issued with par value is redeemable to the company for that amount – say $1.00 per share, for instance.


It used to be that the par value of common stock was equal to the amount invested (as with fixed-income securities). However, today, most stocks are issued with either a very low par value such as $0.01 per share or no par value at all.


Why Would A Stock Have No Par Value?



No-Par Value Stock


A no-par value stock is issued without the specification of a par value indicated in the company’s articles of incorporation or on the stock certificate. Most shares issued today are indeed classified as no-par or low-par value stock. No-par value stock prices are determined by the amount that investors are willing to pay for the stocks on the open market.


Par value has no relation to the market value of a stock. A no-par-value stock can still trade for tens or hundreds of dollars. It all depends on what the market feels the company is worth.


Key Takeaways

  • In general, par value (also known as par, nominal value or face value) refers to the amount at which a security is issued or can be redeemed.
  • No-par value stock doesn’t have a redeemable price, rather prices are determined by the amount that investors are willing to pay for the stocks on the open market.
  • Most shares issued today are indeed classified as no-par or low-par value stock.


No-par vs. Low-par Value Stock



Business Risks Associated With Low-Par Value Stock


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About Amy Harvey

Amy R. Harvey writes forStartUps Sections In AmericaRichest.

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