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Par value is a fundamental concept in the stock market, often mentioned in company filings and share certificates. While it may not always influence the trading price of shares, par value plays an important role in accounting, legal compliance, and corporate finance.
Par value, also known as the nominal value or face value, is the base value assigned to a share by a company at the time of incorporation. It is the minimum value at which shares can be issued, and it remains constant irrespective of market fluctuations. For example, a company may assign a par value of ₹10 to each share, which means shares cannot legally be issued below this amount. Although par value does not represent the true market worth of the share, it serves as a legal safeguard and accounting reference point for the company’s share capital.
When discussing par value in relation to shares, it represents the value recorded in the company’s books and printed on the share certificate. For instance, if a company issues 1 Lakh shares with a par value of ₹10 each, the company’s share capital would be ₹10 Lakhs. However, these shares could trade at much higher or lower prices in the secondary market, depending on investor demand, supply, and company performance. This highlights the difference between par value (a legal and accounting term) and market value (driven by trading activity).
Par value stock refers to shares that have been assigned a nominal value at the time of issuance. This nominal amount is often symbolic in modern markets, especially where shares trade far above or below their par value. For example, a company might issue shares with a par value of ₹10, but their actual market price could be ₹250 or more. While investors focus on the market price, par value stock ensures that companies cannot issue shares below the set base value, thereby protecting the integrity of share capital.
Par value continues to hold importance in several areas:
Provides a legal minimum price for issuing shares.
Helps determine the share capital of a company.
Ensures consistency in accounting records.
Serves as a reference point in corporate actions like stock splits.
To understand par value, let’s look at a numeric example:
Suppose a company issues 1 Lakh shares with a par value of ₹10 each. The company’s share capital would then be:
| Number of Shares | Par Value per Share | Total Share Capital |
|---|---|---|
1,00,000 |
₹10 |
₹10,00,000 |
Even if these shares trade in the stock market at ₹200 each, the company’s share capital in its records will still be ₹10 Lakhs based on the par value. This example shows that par value is more relevant for accounting and legal purposes, while market price reflects investor sentiment and trading activity.
Par value is the nominal value assigned to shares by a company at the time of issuance. While it may not indicate the actual market worth of a share, it plays a key role in defining a company’s share capital, ensuring compliance, and maintaining accounting clarity. Understanding the difference between par value and market value helps investors interpret financial statements and stock market behaviour.
This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
It is the face or nominal value assigned to a share by the issuing company, usually mentioned in its charter or on the share certificate.
It ensures a legal minimum issue price, supports accounting consistency, and helps define a company’s share capital.
Par value and face value are often used interchangeably, but par value refers to the minimum issue price set in company records, while face value is the nominal value shown on the share certificate.
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