Par-value stock is a type of stock issued by a company to its shareholders. It is a fixed denomination assigned to each share of stock with a nominal “face-value” or par-value. This value appears on the stock certificate, and it is the minimum price for which shareholders can buy the stock. It indicates the legal capital of the company, which is the amount of money that the company’s owners or shareholders have technically invested in the venture.
The Value of Par-Value Stock
The value of par-value stock may be greater than its face value if the company’s stock appreciation has increased its market value. This means that the current market value of the stock can exceed the par-value that appears on the stock certificate. For instance, if a company’s par-value stock is issued at $10 per share, and the market value of the stock increases to $20 per share, the market value is double the par-value.
Why It Matters for Investors
Par-value stock matters for investors because it offers them an understanding of the nominal investment made in the company. It is also an important factor in any mergers or acquisitions that may take place. In the case of a merger transaction, the legal capital will be used as the basis for determining how much money the existing shareholders will receive as part of the deal.
For investors, understanding par-value stock can help them better understand the legal capital of the company and any potential risks or rewards associated with investing in a stock. With the right knowledge, investors can make informed decisions about their investments and maximize their returns.