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Corporate Law: Understanding the Meaning of the Term “Par Value”


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8/11/2014
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When you’re discussing the “par value” of bonds, you’re referring to their face value. In regards to shares of stock, it’s a legal term indicating the stock’s value as set forth in its corporate charter. “Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. Par value for a bond is typically $1,000 to $100.” In contrast, shares often have very little par value (or none at all). The economy’s current interest rates play a key role in determining whether certain stocks or bonds will trade above or below par value.                                                                                             

Before buying stock from any company, a potential investor must find out the proper valuation of the stock, regardless of whether it’s a publicly traded company or a small private one. “The actual value of common stock is based on the market value of the business, whatever that market is.” Many states actually require corporations to assign stock a specific par value.   

Additional Facts Regarding the Proper Use of the Term “Par Value”

  • Fees to file for incorporation and “par value” stocks. Many states charge filing fees for articles of incorporation that are based upon the stock being issued -- and they charge lower fees when only par value stock is being issued (as compared to shares that have no par value –  or “no-par” shares.) Therefore, there’s often an incentive to just initially issue par value shares;

  • Selling price of par value shares. From a legal standpoint, par value shares must be sold for at least the amount stated as their par value. This amount is usually quite low and is only a fraction of the shares’ actual selling price;

  • Legal liabilities tied to issuing par value stock. When a corporation fails to issue stock for the proper amount of money and the company needs funds, the shareholders can be found liable to come up for the difference “between the actual issue price and the face value;”

  • How many large companies avoid this type of liability. A number of the largest corporations avoid this potential liability by simply either issuing “stock at a no par value or at a par value of $0.01 or less.”

     

It’s always wise to fully discuss the funding of a corporation, in advance, with your Peachtree City business attorney. He can provide you with advice about ways to minimize future liabilities while still fully capitalizing the corporation in anticipation of immediate activity.

To obtain help with handling all of your Georgia business planning needs, please contact the Law Offices of Shane Smith today.  You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.



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