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What is par value?

July 18, 2008

Par value is the minimum price per share that shares must be issued for in order to be fully paid. I typically recommend that par value be set at $0.001 or $0.0001 per share.  Thus, if a founder purchases 8,000,000 shares of common stock, the minimum price that the founder has to pay is $8,000 at $0.001 per share or $800 at $0.0001 per share.  Par value can even be set lower, such as $0.00001 per share, in order to minimize the amount paid for founders.  Some states, like California, allow for no par value shares.

Written by Yokum · Filed Under Incorporation 

Comments

  • I am artists and have over paintings in my collection over $500,000. I would like to incorporate these painting as an asset and authorize 20,000,000 per value $0.001. Can I offer these shares to investor, let say, for $1.00 share or I must offer shares as per value of $0.001?
  • Axle de Paxil
    A little nuance in setting par value:

    If you set a zero par value there can alternative franchise taxes that a state can levy.
    This true for DE.
  • If a closed corporation in Delaware is established with 1500 shares of stock with no par value, then the initial investment the founders have to make is $0...is that correct? And then, once the corporation is established, the founders can then make a loan to the company for which they can be reimbursed. Just trying to make sure I understand it all...thanks!
  • Even with no par value stock, the stock must be issued for some "consideration." It can't be $0. Founders can loan money to the company.
  • LD
    If the founder of a company purchases founder's shares at par value and then later, the company proceeds to become publicly traded through a Direct Public Offering, does the company or founder stand any risk of litigation from shareholders purchasing shares at a much higher although discounted price through a private placement offering and then only realize later that the founder only paid par value for the founder's shares?
  • @LD - depends on the facts. If the value at incorporation was nominal, and substantial value was created by the time of later stock issuances at higher prices, then nothing seems particularly unusual about the facts. This is exactly what every typical venture-backed startup company does. Obviously, if the founder stock was issued very close in time to other securities issuances at higher prices, then the investors may have paid too much for their shares or the founder may have paid too little.
  • @B - Most companies will select a nominal par value $0.001 or lower. Having no par value shares results in franchise tax being calculated on an authorized shares basis in Delaware, which may be higher than the assumed par value capital method, which takes into account total gross assets and generally results in a significantly lower tax calculation. See post on "How do you calculate Delaware franchise taxes?" Par value is set in the certificate of incorporation.

    @J - The articles will either provide for a par value or no par value.
  • J
    Must there be a stated authorized share capital in the articles of incorporation if there is no par value for a CA corporation?
  • B
    Is there an advantage/disadvantage to authorizing no par value shares (i.e. Delaware)? If no par value is selected, I am assuming that the company sets the par value in the resolutions.
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