What is “Par Value” for California Corporation Shares of Stock?
The concept of “par value” for shares of stock is a corporate legal concept that is “nearly dead,” but not quite. “Par value” is the value set by a corporation — in its articles of incorporation — for the value of each share issued. Par value has no relationship to fair market value and is almost never considered by business appraisers. California no longer requires that par value be set. However, it is still wise to set a very low par value (such as $0.0001 per share). As described here in this Business Insider news report, back in 2012-13, Apple, Inc. asked its shareholder to amend its article of incorporation to set a par value for Apple stock. This was deemed advisable because some states still use the concept and “no-par value” corporations are at a disadvantage vis a vis corporations that set a par value.
A good San Diego corporate lawyer can provide advice and counsel with respect to setting your corporation’s par value.
Historically, “par value” laws were passed in the late 1800s to combat the abuse where corporations would issue and sell shares of the company at less than the value written on the paper stock certificate. This is a less-than-legitimate marketing technique with a long tradition. “Come here, my friend. I have these shares of stock worth $100 face value. I will make you a deal and sell them for $10!!” At the same time, of course, for valuation purposes, companies would list the value of their business based on the value of shares listed on the certificates. As one can imagine, the value set on the stock certificates might have little or no relationship to the actual market value of the company.
To combat this, many states (including California) passed laws prohibiting a company from issuing shares for less than the par value. And the par value had to be set by the company’s articles of incorporation and in filings with the Secretary of State. Many states also based the corporate tax on the stated par value multiplied by the number of shares issued.
These practices largely ended and generally stopped completely after the passage of the various federal securities laws in the 1930s. Many states (including California) then revised their statutes and abolished or modified the rules with respect to par value. As noted above, California is a “no-par value” state allowing corporations to have no par value or having a par value. This is not the case with all jurisdictions, however. Illinois, for example, still requires that a par value be listed on the annual reports (as this is the basis for calculating the annual franchise tax/fee). See here.
Contact San Diego Corporate Law Today
If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard has been named a “Rising Star” four years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters, and he proudly serves business owners in San Diego and the surrounding communities.