Par value of stocks and bonds: A guide

Par value is the fixed face or nominal value assigned to a stock or bond at issuance. For bonds, it determines the amount repaid at maturity and forms the basis for coupon payments, while for stocks, it establishes legal capital and minimum issuance rules in certain states. Although par value stays constant after issuance, it often differs significantly from market value, which reflects what investors are willing to pay.

What is par value?

Par value is the nominal or face value assigned to a security by the issuer at the time it’s created. For stocks, it’s printed in the corporate charter and on the stock certificate, even if it has little economic meaning in practice. For bonds, it represents the amount the issuer promises to repay at maturity, and it serves as the baseline for coupon payments.

You may also see par value called nominal value, face value, or stated value. These terms are often used interchangeably in finance and accounting, especially in bond documentation. The key is that par value is set at issuance and does not change.

The issuing company determines par value and formally records it in its incorporation documents. State incorporation laws require companies to declare whether their shares have a par value and, if so, what it is. Once set, par value becomes part of the company’s legal capital structure and accounting records.

Par value vs. market value

Par value and market value serve different purposes. Par value is fixed and assigned at issuance, while market value fluctuates based on investor demand and external conditions. One functions as a legal and accounting reference point, and the other reflects what buyers are actually willing to pay.

Market value can diverge sharply from par value, especially for stocks:

• A common share with a $0.01 par value might trade at $75 if the company performs well
• A bond with a $1,000 par value might trade at $920 if interest rates rise
• That same bond could trade at $1,080 if rates fall and demand increases

This distinction matters because confusing the two can lead to bad decisions. Investors focus on market value to assess returns and risk, while accountants rely on par value for equity classification and compliance.

Par value of common stock

For common stock, par value represents the minimum legal price at which shares can be issued in certain states. It does not reflect what investors pay in practice, especially for modern corporations. Most companies issue shares well above par value, with the excess recorded separately in equity accounts.

Typical par values for common stock are extremely low, often $0.01, $0.001, or even $0.00001 per share. These amounts are chosen deliberately to reduce legal exposure while satisfying state requirements. You’ll rarely see par values anywhere close to actual share prices.

Par value also carries legal significance as the minimum issuance price. Issuing shares below par value can create shareholder liability in some states. By setting par value low, companies reduce the risk of accidentally violating issuance rules.

Why companies set low par values

Companies intentionally choose low par values to limit legal and financial risk:

• Reduced shareholder liability: Low par values help ensure investors aren’t liable for unpaid capital if shares are issued near market prices
• Easier compliance: A minimal par value lowers the risk of issuing stock below par, which can trigger legal consequences

Low par values also give companies flexibility when issuing equity. Startups and growing businesses can issue shares at different prices across funding rounds without worrying about par value constraints. This flexibility becomes especially important as valuations change over time.

State incorporation rules play a major role. States like Delaware allow very low par values or no-par stock, which is one reason so many companies choose to incorporate there. California also allows no-par value stock but requires corporations to assign a stated value for accounting purposes, which still affects how equity is recorded. In contrast, states with stricter legal capital rules tied to par value require companies to align issuance prices carefully with statutory requirements to avoid shareholder liability.

Par value and additional paid-in capital

Additional paid-in capital (APIC) represents the amount investors pay above par value when purchasing stock. It captures the economic value of equity that par value alone cannot reflect. APIC sits alongside common stock in the shareholders’ equity section of the balance sheet.

If a company issues stock at $10 per share with a $0.01 par value, $0.01 is recorded as common stock and $9.99 is recorded as additional paid-in capital. This split preserves the legal structure while accurately reflecting the amount investors contributed.

On the balance sheet, par value appears in the common stock line, while additional paid-in capital is listed separately. Together, these accounts show both the legal and economic components of equity. This separation is required under generally accepted accounting principles (GAAP) and helps maintain clarity in equity reporting.

Par value of bonds

Par value plays a more practical role for bonds than it does for stocks. It represents the amount the issuer agrees to repay the bondholder at maturity and forms the basis for interest payments. Unlike stock par value, bond par value directly affects cash flows and investor returns.

Most bonds carry standard par values of $1,000 or, in some cases, $100. These standardized amounts simplify pricing, trading, and interest calculations across the fixed-income market.

At maturity, the issuer repays the bond’s par value to the holder. Interim coupon payments are calculated as a percentage of that par value, regardless of the bond’s current market price.

Trading at par, premium, or discount

A bond trades at par when its market price equals its par value. This typically occurs when the bond’s coupon rate matches prevailing market interest rates.

Bonds can also trade away from par:

• A bond trades at a premium when its coupon rate is higher than current market rates
• A bond trades at a discount when its coupon rate is lower than current market rates

Interest rates drive these price movements. When rates rise, existing bonds with lower coupons become less attractive and trade at discounts. When rates fall, higher-coupon bonds gain value and trade at premiums.

When a bond trades at a premium or discount, its yield to maturity adjusts to align with current market rates. For example, if a $1,000 par bond with a 5% coupon trades for $950, the investor still receives $50 annually but also gains $50 at maturity, increasing the effective yield. If the same bond trades for $1,050, the investor still receives $50 annually but effectively loses $50 at maturity, reducing the yield.

Par value and coupon payments

A coupon is the periodic interest payment a bond issuer agrees to pay bondholders over the life of the bond. Coupon rates are expressed as a percentage of par value and are fixed at issuance.

For example, a bond with a 5% coupon and a $1,000 par value pays $50 in interest each year:

Annual interest payment = Par value * Coupon rate

$1,000 * 5% = $50

That payment remains $50 whether the bond is trading at $950, $1,000, or $1,050. Market price affects yield, but it does not change the coupon amount.

For bond investors, par value provides predictability. It defines both the periodic income stream and the amount returned at maturity, which is why bonds are commonly used in income-focused and risk-managed portfolios.

Legal and accounting implications

Par value is closely tied to the concept of legal capital. Legal capital is the portion of shareholders’ equity that a corporation cannot distribute as dividends because it represents the minimum capital required to protect creditors under state law. In jurisdictions that require par value, this figure helps define that protected baseline.

State laws vary widely in how they handle par value:

• Some states require par value to be stated in the corporate charter
• Others allow no-par stock but impose alternative capital rules
• Many states permit extremely low par values to reduce administrative burden

From an accounting perspective, par value determines how equity is classified on financial statements. Even if it’s economically insignificant, it must be recorded accurately to comply with GAAP and maintain consistency across filings.

Balance sheet presentation

Par value appears in the shareholders’ equity section of the balance sheet. It’s typically shown as part of the common stock or preferred stock line item and reflects par value multiplied by the number of shares issued.

Below that, you’ll usually see additional paid-in capital. Together, these accounts represent the total equity contributed by investors, while retained earnings and other components are listed separately.

Journal entry examples for stock issuance:

Issuing 1,000 shares at $10 with $0.01 par value

• Debit cash $10,000
• Credit common stock $10
• Credit additional paid-in capital $9,990

Issuing 1,000 shares at $5 with $0.01 par value

• Debit cash $5,000
• Credit common stock $10
• Credit additional paid-in capital $4,990

State laws and par value requirements

Par value requirements differ by state. Some states require companies to set a minimum par value to establish baseline legal capital, while others allow no-par stock and provide greater flexibility.

If a company operates in a state that mandates par value, it cannot issue shares below that amount. This requirement is designed to protect creditors by ensuring that a minimum equity base remains in the business.

How par value affects financial reporting

Even when par value is set at a fraction of a cent, companies must record it in shareholders’ equity. Any amount investors pay above par is categorized as additional paid-in capital.

For example, if a 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 additional paid-in capital. This distinction keeps legal capital separate from raised capital and supports accurate bookkeeping practices.

Par value for different types of securities

Par value is not limited to common stock and traditional bonds. It also applies to preferred stock and other equity instruments, although the mechanics and significance can differ depending on the security.

Preferred stock par value

For preferred stock, par value often determines dividend payments. Preferred dividends are typically stated as a percentage of par value rather than market price. A 6% dividend on $100 par preferred stock pays $6 annually, regardless of where the shares trade.

Preferred shares commonly carry higher par values than common stock, such as $25 or $100. These standardized amounts make dividend calculations straightforward and reinforce the income-oriented nature of preferred securities.

No-par value stock

No-par value stock does not have a stated face value. Instead, the board may assign a stated value for accounting purposes or record all proceeds in equity without splitting between par value and additional paid-in capital.

Advantages include:

• Simplified accounting entries
• No minimum issuance price tied to par
• Greater flexibility when pricing new shares

Disadvantages include:

• Less structural clarity in the equity section
• State-specific treatment that may vary
• Potential investor confusion when comparing capital structures

Many states, including Delaware and California, allow no-par value stock, which is why it is common among startups and private companies.

Practical examples and calculations

Consider a company issuing stock at $10 per share with a $0.01 par value. For each share, $0.01 is recorded as common stock and $9.99 as additional paid-in capital. This allocation separates legal capital from the amount investors actually contributed.

If the company issues 10,000 shares at those terms, the entry reflects:

Common stock = 10,000 * $0.01 = $100

Additional paid-in capital = 10,000 * $9.99 = $99,900

Now consider bonds. A $1,000 par bond with a 5% coupon pays:

Annual interest payment = $1,000 * 5% = $50

That $50 payment does not change even if the bond trades above or below par. Market price affects the investor’s yield, but par value remains the basis for coupon calculations and principal repayment.

You can also calculate the total par value of a bond issue:

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

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

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

These mechanics directly affect financial statements. Stock issuance increases cash and shareholders’ equity, while bond issuance creates long-term liabilities measured at par value. Understanding how par value flows through these entries makes it easier to interpret both equity and debt reporting.

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