Par value, or nominal value, refers to the face value designated to stock shares or debt securities (such as bonds) as stated by the issuing company in its charter.
Application in Bonds
For bonds, the par value is the amount the issuer promises to pay bondholders at maturity, not including interest payments. Bonds may be traded at values above or below their par value depending on market conditions.
Application in Stocks
Par value in stocks is often set at a very minimal amount, like $0.01, with the main purpose to establish the lowest legal price below which shares cannot be issued. Traditionally, par value used to figure into accounting equations under “Stockholders’ Equity”, but its financial relevance has diminished over time.
Legal Aspects
Despite its reduced financial significance, par value has regulatory aspects. Certain statutes and requirements in company acts (e.g., Companies Act) may still apply to the concept of par value two modern practices in finance and law.ces reference for detailed information on regulations: U.S. Security and Exchange Commission (SEC).
Why It Matters
Understanding par value can be important for investors looking into the bond market, as well as elements of corporate governance for stock issuance and liability. Par value can also impact issues like share pricing and how much corporations declare in dividends.
