What is par value?

Par value is the minimum price per share for which a share of stock may be issued. Par value is set for each class of stock in a company’s charter (e.g., its certificate of incorporation in Delaware). In Delaware, par value is also the basis for one method of calculating a corporation’s franchise tax.

The par value of the company’s common stock in most start-up companies is set very low at the time of incorporation so that the company’s founders can purchase their initial shares of stock for a very low price.

For example, if the par value of a company’s common stock is set at $0.00001 per share, then assuming no other value in the company, the founder could purchase 5,000,000 shares of common stock at a price per share equal to the par value, for a grand total of $50.00.

If, instead, the par value of the company’s common stock were set at $0.01 per share, then the founder would need to purchase the same 5,000,000 shares of common stock for at least $50,000.

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