Expert: Gina Boykin - 1/21/2009

Question
Hello:

Did all stocks use to have a par value, or do all stocks still have a par value; if so, what does "par value" represent?

I thank you for your reply.

Answer
Yes, stocks do have par value, but it doesn't have any relationship to market price.  The par value is assigned when the stock is issued and is a very small amount.  It may be printed on a stock certificate, but again, it does not have any relation to the price.  The value is used to set up equity on the company's balance sheet, and can be used for the company to determine dividends, because dividends declared can never be higher than the total par value of all of the outstanding shares.

For example, if the company issues 100,000 shares of stock at $1 par value, total par value is $100,000.  The company could issue dividends of $1,000 or $25,000 but never more than $100,000.