Par value

Why par value still exists

Par value is a remnant of nineteenth-century corporate law, when statutes required corporations to receive at least the par value of each share they issued. The rule was meant to protect creditors: if the corporation issued a share for less than its par value, the difference was considered "watered stock" and the shareholder remained liable for the unpaid portion.

Modern statutes have mostly abandoned the protection. Delaware permits any par value (including $0.0001) or no par value, and the practical effect on creditors is nil. Canada abolished par value entirely for CBCA corporations in 1975. The UK retains par value for limited companies but has eliminated most of the protective consequences.

What founders should choose

For Delaware corporations, the standard choice is low par value (typically $0.0001 per share). This minimizes franchise tax under the authorized-shares method, which scales with par value, while preserving the ability to issue shares for nominal consideration.

For Canadian corporations, no-par-value shares are not optional, the CBCA and most provincial statutes only permit no-par-value shares. The corporation's stated capital is determined by board resolution at each issuance.

Effect on certificates and accounting

Share certificates must state the par value (or, if there is no par value, that fact). The corporation's balance sheet typically shows two components of equity tied to par value: capital stock (par value × shares issued) and additional paid-in capital (consideration above par value). For no-par-value shares, the entire consideration is shown as stated capital. Neither presentation has practical economic meaning beyond accounting convention.