When a corporation issues stock to its shareholders, each class of stock is generally assigned a par value per share; however, a corporation can issue no-par value stock.
The par value is a nominal value assigned to each share, and it’s important to note that this value is unrelated to the stock’s current market price or book value per share. A shareholder can also think of the par value as the minimum price per share. Any amount paid over par is Additional Paid In Capital (APIC).
The corporation must disclose the par value per share in the Certificate of Incorporation filed with the state. A corporation typically assigns a par value between $0.0001 and $1 per share, but it usually assigns a smaller nominal amount if it wants to authorize millions of shares.
For example, Company ABC wants to authorize and issue two classes of common stock, Class A Common and Class B Common. The corporate charter authorizes 10,000,000 shares of Class A Voting with a par value of $0.0001 per share and 2,000,000 shares of Class B Nonvoting with a par value of $0.0001 per share.
The company issues 500,000 shares of Class A Common to John Taxpayer for $0.002 per share. John’s purchase price of $1,000 (500,000 shares times $0.002) is separated as follows:
- Common Stock at Par: $50 (500,000 times $0.0001)
- APIC: $950 [500,000 times ($0.002 – $0.0001)]