No Par Value Shares Definition

What are no par value shares? Why do companies issue them? These are important questions to answer. Fortunately, this guide explores the essential facts about no par value shares, including when they might make sense for a young business. 

What are no par value shares?

In theory, a company can be liable for the difference if the market price of a stock drops below the par value printed on the face of its stock certificates. Companies set par values as low as possible to avoid this potential liability. Some states allow companies to issue shares with par values set at fractions of a penny, or even at no par value at all. Without a par value printed on the face of the stock certificate, the potential liability to shareholders if the market price falls below par value is eliminated. 

The definition of no par value shares is set at the state level. State governments have long been open to allowing companies to issue no par value shares. 

Reasons for Issuing No Par Value Shares

There are numerous advantages to no par value shares. Companies issue and investors invest in no par value stocks for reasons that include any of the following no par value share benefits:

• Ability to set higher prices in the stock
• Decreased company financial liability
• Potential for high trading volumes
• Can be a leading indicator of the financial health of the company
• Stock value fluctuates with market conditions and isn’t locked to an artificial value

These reasons and more have long attracted both companies and investors to no par value shares. However, it’s wise for investors to consider the difference between no par value shares and low par value shares before making up their minds about how to invest.

No Par vs. Low Par Value Shares

The no par value shares definition specifies that these stocks truly have no par value printed on their certificates. Low par value stocks often show a par value of a penny or less. If a company wants to reduce its number of shareholders, it may issue low par value stock as a means of doing so.

Low par value shares can also carry certain liabilities that no par value shares don’t have. If someone is considering purchasing any investment that has a risk of loss, they would be wise to consult with a financial advisor or other professional.

Summary

• No par value shares are issued without a par value on the face of the certificates
• The value of no par value stocks is determined by investors on the open market
• An advantage of no par value stock is that companies can then issue stock at higher prices in future offerings.