Definition
The term no-par stock refers to shares of common stock that are issued with no par value. The par value of common stock has no relationship to the market value of the security, and the term refers to a price indicated on the stock certificate.
It is very common for companies to issue capital stock with no par value.
Explanation
At the turn of the 20th Century, nearly all capital stock was issued with a par value of $100. In today's marketplace, common stock with a par value above $1.00 would be rare, and most companies issue these securities with no par value. Companies moved away from issuing common stock with high par values to avoid the need to account for a contingent liability if the market's perceived value of the stock were to fall below its par value.
The par value of common stock remains an important consideration when preparing the company's financial statements. When companies issues shares of common stock with no par value, the sale of these securities affects the financial account Paid-in Capital in Excess of Par, which reflects the excess of par paid by purchasers of common stock when first issued.
Example
Company A issued 1,000,000 shares of no par value common stock. During this initial public offering, Company A was able to raise $20,000,000. The journal entries to record the issuance of this common stock would be:
| Debit | Credit | |
| Cash | $20,000,000 | |
| Paid-in Capital in Excess of Par | $20,000,000 |
Related Terms
par value, par value stock, subscribed stock, lump-sum sale of securities, proportional method, incremental method
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