Par Value: What it is & why it matters?

Par Value

Key Highlights

Par value, also called face value or nominal value, is the official value set for a stock or bond when a company first issues it.
Par value plays a key role in how companies manage their money.

Par value, also called face value or nominal value, is the official value set for a stock or bond when a company first issues it.

For Stocks: The lowest price a company can sell its shares for. Often set super low (like ₹1 or even a cent), it’s more symbolic than related to the stock’s actual market price. Many modern stocks skip par value entirely.
For Bonds: The amount the company promises to pay back when the bond matures.
Legal and Accounting Role: Helps set the minimum capital a company must raise and shows up in financial reports for clarity.
Fixed Value: Stays the same no matter how the market price changes.

Par value plays a key role in how companies manage their money and follow rules:

Legal Minimum Capital: It’s the lowest price for issuing shares, ensuring the company raises a baseline amount of cash to stay financially stable.
Creditor Protection: By locking in some capital, par value ensures companies don’t give away all their assets as dividends, keeping a safety net for those they owe money to.
Financial Reporting and Transparency: Par value shows up on the balance sheet, making it easy to see how much of the company’s capital comes from shares versus extra funds from investors.
Regulatory Compliance: Many places require companies to set a par value to meet legal standards, ensuring they have enough capital and are open about their finances.
Influence on Corporate Structure: A low par value gives companies more flexibility to issue shares and raise money, while a higher one can make the company look more solid to investors.