Definition: No par value stock, sometimes called no par stock, is a class of stock that was never assigned a par value or stated value. Normally, when a business is incorporated, the corporate charter assigns a par value or base value for every share that will be issued. This isn’t always the case. Some corporate charters don’t assign a value to the newly issued shares and the result is a no par value stock. This doesn’t reflect the market price at all. In fact, par has nothing to do with what a stock is traded at in the open market.
What Does No Par Value Stock Mean?
You might be wondering what difference does it make whether there is a value stated or not. Well, many states have rules to protect shareholders from the board of directors issuing too many shares and taking out too much debt. These are often called minimum legal capital laws because the corporation is requires to maintain a minimum about of net assets at all times.
This means that during unprofitable years or years of expansion enough assets must be maintained, so that the investors stock are still protected on a capital basis. The minimum capital requirements are usually set based on the par value stated in the corporate charter.
Example
The biggest advantage of a no-par stock is that the shares can be issued at any price without running into minimum capital deficiencies because there is no stated value to base the minimum capitalization rules on.
I know this sounds like a technicality, but it’s important. Depending on the business size and level of assets, not having to meet a minimum capital level could open up different opportunities and production capacities that it wouldn’t have been able to afford otherwise.
