Par value in stocks and bonds: What it is, and how to calculate

Par value is the nominal or face value assigned to a stock or bond when it’s issued. For stocks, it represents the minimum legal price at which shares can be issued in certain states. For bonds, it serves as the benchmark for interest payments and the amount repaid at maturity.

If you’ve ever looked at a stock certificate or bond statement and seen “par value $0.01,” you’ve already encountered this term. Understanding par value matters for investors, accountants, and business owners alike. Investors use it to evaluate bonds, accountants record it in financial statements, and business owners must account for it when issuing shares under state laws.

What is par value?

Par value is the fixed dollar amount a company assigns to a stock or bond at issuance. For stocks, it can set the minimum legal price at which shares are issued in some states. For bonds, it’s the face amount used to calculate coupon payments and the sum repaid at maturity.

Par value began as a creditor protection tool, ensuring companies couldn’t issue stock below a set minimum. Today, it’s primarily a legal and accounting concept rather than a market measure. Many corporations use a nominal par value (for example, $0.01 per share) simply to satisfy state requirements.

Par value still matters for corporate recordkeeping and financial reporting, and it underpins how bonds are priced and paid over their life.

Par value in different securities

Par value applies differently depending on the type of security. While it has limited significance for common stock today, it remains central to bond pricing and also plays a role in other instruments like preferred shares and CDs. Here’s how par value functions across different securities:

Stocks

For common stock, par value is mostly symbolic. It defines a minimum issue price in some states and is recorded in shareholders’ equity. Preferred stock often ties dividend calculations to par value, so it tends to be more meaningful there.

Bonds

Par value is central to bonds. It sets the amount repaid at maturity and serves as the base for coupon (interest) calculations. While bonds can trade above (at a premium) or below (at a discount) their par value, the par figure itself doesn’t change.

Other securities

Par value can also apply to securities such as preferred shares, convertible bonds, and even certificates of deposit (CDs). In each case, par value provides a benchmark for payout calculations and redemption.

What is the par value of common stock?

The par value of common stock is the minimum price a company assigns to its shares at issuance. It’s usually $0.01 or $1 per share and exists mainly for legal and accounting purposes. Most companies set a very low or no par value to reduce potential liability. Importantly, par value doesn’t affect market price or stock performance.

Some states allow no-par value stock, meaning shares can be issued without any nominal minimum. A company might choose this option to simplify compliance and avoid maintaining a fixed legal capital amount tied to par value.

Why companies set low par values

Your corporation may want to assign a nominal par value—or none at all—for several reasons:

• Liability protection for shareholders: If stock is issued below par, shareholders could, in theory, be liable to make up the difference. Setting a very low par value minimizes this risk.
• State incorporation fees: Some states calculate incorporation taxes or fees based on the total par value of issued shares. Keeping par value low reduces these costs.
• Minimum capital requirements: In certain jurisdictions, par value helps establish a legal capital base. A low par value keeps this requirement manageable while still meeting statutory obligations.

Par value and stock issuance

While par value doesn’t affect a company’s stock price on the open market, it shapes how stock issuances are recorded in the books. When shares are issued, the common stock account is credited at par value multiplied by the number of shares. Any amount investors pay above par is recorded as additional paid-in capital (APIC).

Example: Suppose a corporation issues 10,000 shares with a par value of $1 for $10 per share. The journal entry would record:

• Debit cash: $100,000
• Credit common stock: $10,000
• Credit additional paid-in capital (APIC): $90,000

This ensures that the legal capital tied to par value is separated from the actual funds raised, with APIC reflecting the true value contributed by shareholders. You’ll see these entries summarized on the company’s balance sheet.

Par value of bonds

Par value carries more weight in the bond market than it does for stocks. It determines how much bondholders receive at maturity and how interest payments are calculated. It also forms the basis for how bonds are priced and traded over time.

How bond par value works

A bond’s par value represents the amount you’ll be repaid when it matures and sets the base for coupon payments. For example, a bond with a $1,000 par value and a 5% coupon pays $50 in annual interest, no matter what price you paid for it. This standardization helps investors compare yields and manage fixed-income portfolios with greater precision through automated accounting processes.

Trading above or below par

Bonds are typically issued at par but rarely stay there. When interest rates rise, new bonds offer higher yields, making existing ones less appealing—so they trade below par (at a discount). When rates fall, older bonds with higher coupon rates become more attractive and trade above par (at a premium). These shifts influence what investors earn if they sell before maturity, though each bond’s par value remains fixed for repayment.

Par value vs. market value

Par value and market value describe two very different ways of measuring a stock or bond. Par value is the fixed legal or accounting figure set when a security is issued, while market value reflects the real-time price investors are willing to pay based on demand and performance.

Most modern companies set par values extremely low—often fractions of a cent—just to meet state incorporation rules. Market values, on the other hand, can be hundreds of dollars per share and change daily as investor sentiment shifts.

For example, Apple’s par value is $0.00001, yet its stock trades for well over $150. Microsoft also assigns a negligible par value to its shares even though they trade in the hundreds. This gap highlights why market value almost always diverges sharply from par value. You can see these figures reflected in a company’s financial reporting.

Key differences

How to calculate par value

Par value is set at issuance and usually doesn’t change. For stocks, the company assigns it during incorporation. For bonds, the issuer states it (commonly $1,000 per bond) in the offering documents.

Where to find it: Look at the corporate charter or stock certificate for shares, and the bond prospectus or indenture for bonds.

Par value calculation for stocks

A share’s par value isn’t calculated; it’s assigned. Once assigned, you can compute totals for legal capital.

Total par value = Number of shares * Par value per share*

Example: Calculating par value per share

If your corporation issues 1 million shares with a par value of $0.01 per share, the total par value of a stock is:

1,000,000 shares * $0.01 per share = $10,000

This means your company’s legal capital, which is the portion of equity that cannot be distributed as dividends, is $10,000. However, most stocks trade well above their par value in practice because investor demand, company performance, and market conditions drive real share prices.

Par value calculation for bonds

Bonds typically carry a $1,000 par value, which sets both the amount repaid at maturity and the basis for coupon calculations. The bond’s annual interest payment (coupon payment) is calculated using the following formula:

Annual interest payment = Par value * Coupon rate

Example: Calculating par value of a bond issue

A $1,000 par value bond with a 5% coupon pays:

$1,000 * 5% = $50 per year

You can also calculate the total par for a bond issue:

Total par value of bond issue = Number of bonds * Par value per bond

For example, if a company sells 5,000 bonds at $1,000 par, the total par value is:

5,000 * $1,000 = $5,000,000

Market prices may move above or below par, but the par figure remains the basis for interest and principal repayment.

Regulatory and legal aspects of par value

In the U.S., par value has legal and regulatory implications for corporate governance, financial reporting, and investor protection. While it rarely affects stock pricing, businesses must comply with state laws when setting par value for shares.

State laws and par value requirements

Par value requirements differ by state. Some states, such as New York and Texas, require companies to set a minimum par value to establish baseline legal capital. Others, including Delaware and California, allow no-par stock, giving companies more flexibility.

If your company operates in a state that mandates par value, it can’t issue shares below that amount. For instance, with a $1 par value, no shares can be issued for less than $1, even if the market price is higher. This rule protects creditors by ensuring that a company maintains a minimum equity base.

Internationally, approaches vary. The United Kingdom has abolished par value for most shares, while several European Union countries have scaled back its importance, reflecting a global trend toward flexibility.

How par value affects financial reporting

Even if your company sets a very low par value, it must record that amount in shareholders’ equity. Any amount investors pay above par is categorized as additional paid-in capital (APIC).

For example, if your company issues 1,000,000 shares at a par value of $0.01, it records $10,000 in the common stock account and places the remaining proceeds under APIC. This distinction keeps legal capital separate from raised capital and ensures accurate bookkeeping.

Securities regulations and par value for bonds

For bonds, par value carries direct legal and financial weight. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) regulate bond issuance to ensure transparency and investor protection.

When companies issue bonds, they must state the par value, coupon rate, maturity date, and repayment terms in the prospectus. Par value also factors into legal disputes and tax considerations: if a bond is bought below or above par, gains or losses at maturity may be taxable based on that difference.

Why par value still matters in the U.S. corporate law

Although par value has little influence on stock trading, it remains an important element of corporate law. Companies must decide whether to assign a nominal par value or issue no-par stock based on state requirements and investor expectations.

For bonds, par value remains a fixed benchmark for interest payments, maturity payouts, and investor protections. Whether issuing stock or bonds, every company must comply with federal securities rules and state corporate laws to avoid complications later.

Strengthen financial management with Ramp

Par value may be a small figure on paper, but it anchors how your company issues shares, how bonds pay interest, and how investors assess value. It’s a reminder that even technical details in finance can carry legal and strategic weight.

The same is true for managing your company’s books: accuracy matters. Ramp’s accounting automation software keeps records precise by syncing data in real time, categorizing transactions automatically, and expediting final review.

With features like automated receipt collection, expense coding, and real-time enterprise resource planning (ERP) integrations, we help finance teams close the books faster, reduce errors, and scale with confidence.

Get started with a free interactive product demo.