Common stock represents an ownership stake in a corporation. Holders generally have a right to share in the company’s profits, receive dividend distributions, and vote on certain matters, such as electing the board of directors. 

A corporation can issue different classes of common stock, but most companies will issue one or two classes. One class of common stock will have voting rights, while the second class will be nonvoting common stock. For smaller, closely held corporations, the company will usually issue only voting common stock and not bother with nonvoting common or preferred shares.  

A corporation issues common stock with a par value, a nominal fixed price set by the issuer. In some cases, the corporation can issue no-par stock. The corporation’s Certificate of Incorporation (i.e., corporate charter) sets the class of common stock, the number of authorized shares the corporation can issue, and the par value per share. 

For example, on January 31, 2023, Corporation XYZ Inc. filed its Certificate of Incorporation in the State of Delaware. The charter lists the corporation is authorized to issue one class of common stock with the following attributes:

  • Class A Common Voting Shares
  • Par Value per Share: $0.0001
  • Number of Authorized Shares: 10,000,000

On February 15, 2023, the corporation issued 1,000,000 shares to John for $0.0005 per share. John’s total price paid was $500. The corporation’s balance sheet reflects the following equity figures:

On a per-share basis, the calculation is as follows:

  • Par Value ($0.0001 per share times 1,000,000 = $100)
  • APIC Value ($0.0005 – $0.0001 = 0.0004 per share for APIC).

The corporation tracks these values on separate line items. The equity section typically consists of individual line items for common stock at par value, preferred stock at par value, additional paid-in capital, retained earnings, adjustments to shareholders’ equity, and reductions to equity for treasury stock.