Definition: Par value stock is one class of stock issued by a corporation that has a par value set in the corporate charter or articles of incorporation. The par value is a minimum selling value given to each share of stock.
What Does Par Value Stock Mean?
When a corporation is setup or incorporated, a corporate charter is created. The corporate charter is the legal document that establishes and organizes a corporation. The corporate charter sets the number of shares authorized, different classes of stock, as well as the par value of stock.
There are no restrictions to how low or high the par value can be. Some companies have $.01 par value stock while others have $10 par value stock. In some states, a minimum legal capital must be maintained with stock sales. In other words, shareholders must contribute a minimum amount of capital in a company in order to adequately cover the company’s liabilities. This protects creditors from thinly capitalized corporations.
Corporations often have multiple classes of stock with different par values. Most of the time these classes of stock are named alphabetically: Class A, Class B, Class C, etc. Each class of stock usually has different ownership rights and voting righting. Preferred stock, for example, does not have ownership rights but does have preference to dividends when issued.
Not all issued corporate stock has a par value. Some stock, called no-par value stock, is issued with a minimum selling price without violating state minimum legal capital laws.