What it means
Par value is an arbitrary face value assigned to a share, often a tiny amount such as one cent or $1. It has little to do with what the share is worth in the market.
Historically it set the minimum price at which shares could be issued and defined the legal capital of the company. No-par shares remove that arbitrary number.
The company can issue shares at any price it chooses, and the full amount received is generally recorded as share capital (the money shareholders have put into the business). Many companies and several jurisdictions now favour no-par shares because the old minimum price adds little and sometimes causes confusion.
The accounting is simpler. With par-value shares, the accountant splits the proceeds between common stock at par and additional paid-in capital, the amount above par.
With no-par shares, the whole proceeds normally go into one share capital line, although some laws allow the board to set a stated value and divide the amount. Rules vary by country and region, so the details matter.
In some places, companies cannot issue shares below par, which can be a real obstacle for a struggling company trying to raise money at a low price. No-par shares avoid that problem and also make stock splits easier because there is no par figure to adjust.
For managers and investors, the main point is that the lack of par value says nothing about quality or price. A no-par share can be worth very little or a great deal.
The figure that matters is the market price, backed by the company's earnings and assets. Investors reading the balance sheet should therefore look at the notes to the accounts.
These explain how many shares are authorised and issued, whether any stated value applies and how the share capital figure was built up. That detail is more informative than the presence or absence of a par value.
In practice
Real-world examples.
Example
A technology start-up raises money by issuing 500,000 no-par shares to investors at $4 each. It records $2,000,000 in share capital. The founders are pleased that they did not need to decide on a par value in advance.
Example
A mining company wants to raise money when its share price has fallen below its old $1 par value. Its legal advisers recommend converting to no-par shares so it can sell new shares at $0.80 without breaking company rules. The conversion goes through at the next shareholders' meeting.
Example
A family-owned retailer issues 20,000 no-par shares to a new investor for $300,000. The bookkeeper records the full $300,000 as share capital. No split between par and premium is needed.
Formula
Calculation
Share capital (no-par) = number of shares issued x issue price per share
A company issues 100,000 no-par shares at $12 each. Share capital = 100,000 x 12 = $1,200,000, all recorded as one amount. If the shares had a $1 par value, common stock would be 100,000 x 1 = $100,000 and additional paid-in capital would be 1,200,000 - 100,000 = $1,100,000.Case study
Seen in the real world.
Silverline Textiles is a fictional manufacturer whose original shares carried a par value of $5, although they traded at $3 after several poor years. In this illustrative story, the board wanted to raise $6,000,000 from new investors but the rules barred it from issuing shares below par. Shareholders agreed to convert the shares to no-par.
After the change, the company issued 2,000,000 new shares at $3 each and raised $6,000,000, all recorded as share capital. The board noted that the change had no effect on the value of existing holdings, since market price rather than par had always governed the trading price. The accountants also reported that bookkeeping was easier. The finance director later told the board that the conversion had also removed a recurring question from investors, who had often asked why the shares traded far below their par value.
Watch out
Common mistakes.
- Thinking no-par shares have no value. They simply have no stated face value, and their worth is set by the market and the business.
- Assuming par value reflects what a share is worth. Par is an arbitrary legal figure that rarely resembles market price.
- Believing that no-par shares can never have a stated value. Some jurisdictions let the board assign a stated value even when no par is set.
Questions
People also ask.
Why do some companies issue no-par shares?
They avoid the legal minimum price, keep the accounts simpler and gain flexibility when raising money.
Is it riskier to hold no-par shares?
No, because the risk depends on the company, not on the presence or absence of a par value.
How is no-par stock shown on the balance sheet?
Usually as a single share capital line equal to the total money received for the shares.
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