Par Value of Shares: Understanding Its Significance

What is Par Value?

The par value of a share, also known as face value or nominal value, is the stated value per share as defined in the corporation's charter. It serves as a reference point for various financial calculations and legal considerations.

Par Value vs. Market Value

It is important to note that par value and market value are distinct concepts. Par value is fixed and typically set at a nominal amount when the company is formed. Market value, on the other hand, fluctuates based on demand and supply in the stock market.

Legal Implications of Par Value

Par value has legal implications related to corporate structure and shareholder rights. It determines the minimum subscription price for shares and serves as a basis for dividend payments.

Financial Implications of Par Value

In some cases, par value can impact financial ratios and the computation of earnings per share. It can also affect the calculation of book value and liquidation preferences in the event of a corporate dissolution.