What is no par value stock?

No par value stock is common stock that issued without a par value listed on the face of the stock certificate. Par value used to be the price at which a company initially sold its shares. There is a theoretical liability by a company to its shareholders if the price of its stock falls below the par value for the difference between the price of the stock and the par value.

Companies set the par value as low as possible in order to avoid this theoretical liability. It is common to see par values set at $0.01 per share, which is the smallest unit of currency. Some states allow companies to issue shares with no par value at all, which eliminates the theoretical liability to shareholders. If common stock has no par value, a company prints "no par value" on the face of any stock certificates that it issues.

When a company has no par stock, there is effectively no initial starting point at which to price the stock, so the price is instead determined by the amount that investors are willing to pay.

When a company sells no par value stock to investors, it debits cash received, and credits the common stock account. If a company had instead sold common stock to investors that had a par value, then it would credit the common stock account up to the amount of the par value of the shares sold, and it would credit the additional paid-in capital account in the amount of any additional price paid by investors in excess of the par value of the stock.

For example, ABC International sells 1,000 shares of no par value stock to investors for $10 per share. It records the transaction with this entry:

	Debit	Credit
Cash	10,000
Common Stock		10,000

If ABC had instead issued the shares with a par value of $0.01, then the transaction would instead be recorded as:

	Debit	Credit
Cash	10,000
Common Stock		10
Additional paid-in capital		9,990

Similar Terms

No par value stock is also known as no par stock.

Related Topics

What is paid in capital?
What is par value?
What is stock?
What are the types of preference shares?
What are the types of share capital?