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Common Par |
WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
The par value of a common share is its minimum stated value at issuance, which does not correlate to the actual market value of the share.
The par value of a common share -- the most common investment in a company with the last claim on a company's assets behind bond holders and preferred share holders -- is its lowest initial price upon issuance of the share. The par value ensures investors can be confident that no one else is receiving a more favorable issue price. The common par value is a nominal value determined by the issuing company and is far more important in unregulated markets than many of today's regulated ones. Common stocks can be issued "at par" or "in excess of par" value. Typical par values are extremely low at prices of $1.00 or $0.01. If a share of stock, with par value of $1, were issued by the company at $60, it would be recorded as $59 "in excess of par value".
If the company issued stock below par value, the stock is called watered. Purchasers of watered stock are liable to the corporation for the difference between the par value and the price they paid.
Most common stocks issued today do not have par values as common par can be somewhat meaningless concept except as a means of bookkeeping; however, some stocks are required to have par values by law. If applicable, common par can be found on a company's balance sheet.
Examples
- Company XYZ has common stock with a $1 par value with 1,180,000 shares outstanding. The company's total shareholder's equity is $21.43 million. The book value of this company is $21.43 million / 1.18 million shares outstanding for a value per share of $18.16, or $17.16 in excess of common par.
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