What is a 'No-Par Value Stock'
A no-par value stock is issued without the specification of a par value indicated in the company's articles of incorporation or on the stock certificate itself. Most shares issued are classified as no-par or low-par value stock. No-par value stock prices are determined by what investors are willing to pay for them in the market.
BREAKING DOWN 'No-Par Value Stock'Companies may find it beneficial to issue no-par value stock as they have flexibility in setting higher prices for future public offerings and have less liability to shareholders in the case their stock falls dramatically. Due to the known fluctuations in pricing associated with the stock market as a whole, investors generally do not see a par, or written face value, as necessary prior to purchasing a particular investment. Additionally, the production of stocks featuring a face value may result in legal liabilities regarding the difference between the current going rate and the par value assigned to the stock, making them less attractive options for stock issuers.
When companies issue a no-par value stock, this allows the price of the stock to experience variations naturally. A no-par stock’s sale prices can be determined by basic principles of supply and demand, fluctuating as necessary to meet market conditions without being misrepresented by the face value.
No-Par vs. Low-Par Value Stock
No-par value stocks are printed with no face value designation on them, while low-par value stocks may show an amount lower than $0.01, or up to a few dollars. Often, when a smaller company is aiming to have a lower number of shareholders, it may choose to issue stocks listing a face value of $1.00. This small amount can then function as a line item for accounting purposes.
Business Risks Associated With Low-Par Value Stock
If a business releases stock with a low-par value of $5.00 per share and 1,000 shares are sold, the associated book value of the business can then be listed as $5,000. If the business is generally successful, this value may be of no consequence. If the business collapses while currently owing a creditor $3,000, the company in which the business is indebted may call for a review of various accounting statements. As the review progresses, it may be revealed the failed business was not fully capitalized. Subsequently, this can lead the owed business to require shareholders to contribute to payment of the debt as is within the owed company's legal right.