No-Par Value Stock

No-par value stock is a class of corporate shares that has no nominal or par value assigned to it in the company's articles of incorporation. Most US corporations issue common stock with a small par value, such as $0.01 or $0.0001 per share, but many states also allow shares with no par value at all. New York was the first state to permit no-par stock, in 1912, and it is now available in most US jurisdictions. Some countries, including Canada and Australia, have abolished par value entirely, so all shares there are effectively no-par.

Par value was originally meant to show the minimum price at which shares could be issued and to set the legal capital that protected creditors. Over time it lost most of its economic meaning, and no-par stock developed partly to avoid problems such as liability for shares issued below par and the confusion investors felt when par and market values differed.

The accounting depends on whether the board of directors assigns a stated value to the shares:

• True no-par stock with no stated value: the entire amount received is credited to the common stock (or capital stock) account. No additional paid-in capital arises on the issue.
• No-par stock with a stated value: the board sets a value per share, which works much like par value. The stated value is credited to common stock, and any excess is credited to paid-in capital in excess of stated value.

In both cases, the amount recorded as common stock usually forms the company's legal capital under state law.

A corporation issues 10,000 no-par common shares at $15 each, raising $150,000 in cash. If the shares have no stated value, the journal entry debits cash $150,000 and credits common stock $150,000.

If instead the board had assigned a stated value of $1 per share, the entry would debit cash $150,000, credit common stock $10,000 (10,000 shares times $1), and credit paid-in capital in excess of stated value $140,000. Total contributed capital is $150,000 in both cases; only the split between accounts differs.

If no-par shares are issued for property or services rather than cash, they are recorded at the fair value of the shares or of the consideration received, whichever is more reliably measurable. For example, shares issued to acquire a piece of land valued at $400,000 would be recorded at $400,000.

• No-par shares avoid the misleading impression that par value represents what a share is worth.
• They remove the risk that shareholders could be liable to creditors for the difference if shares were issued below par, a concern in older corporate law.
• They give the board of directors flexibility to issue shares at whatever price the market will bear.
• On the other hand, recording the full proceeds as legal capital in some states can restrict the amount available for dividends or share buybacks.
• Some states' franchise and organization taxes depend on the number of authorized shares or on par values, so the tax cost of no-par stock can differ from that of low-par stock, which is one reason many companies still choose a tiny par value.

In the equity section of the balance sheet, a company discloses for each class of stock whether it has a par or stated value, and the number of shares authorized, issued and outstanding. A typical line reads "Common stock, no par value; 50,000,000 shares authorized; 12,000,000 shares issued and outstanding." No-par preferred stock is less common, because preferred dividends and liquidation amounts are usually expressed as a percentage of par or as a fixed amount per share. For investors, whether a share has a par value makes no practical difference to its rights or market price; the distinction matters mainly for legal capital and bookkeeping. Owners' rights are determined by the corporation's charter and by state law, not by the label on the shares held by each shareholder.