Why do most firms assign relatively low par values to their shares?

1 Answer | Add Yours

justaguide's profile pic

justaguide | College Teacher | (Level 2) Distinguished Educator

Posted on

The par value of the shares of a firm is a concept that has been carried over since the days when stocks were traded in unregulated markets. The par value of a share was the minimum value at which the share could be sold by the founders. This assured investors that the founders could not decide to sell more shares of the firm to others at a price lower than the par value.

In the present system the par value of shares is the price that founders have to pay to the firm that is being established to its shares. For example, if a firm is being set up and the person starting the firm would like to buy a million shares of it. If the par value of the shares is set at $0.001, the founder only has to pay $1000 to the firm for the founder shares bought. If the par value is kept at a higher value it increases the cash required to be paid by the founder to the firm.

Sources:

We’ve answered 318,914 questions. We can answer yours, too.

Ask a question