Par Value of Stocks

Par value is the minimum price that a share can be sold for. This is typically the price founders pay for their shares, although sometimes I recommend issuing founder shares at a multiple of par value (i.e. Par Value x 10) in order to avoid problems down the road if the company needs to execute a forward stock split and the value of the shares hasn’t increased much. This avoids the situation where a forward stock split would require the new share price to be below par value, something not allowed.

Par Value Price

For stocks, I typically recommend par value be set somewhere between $0.001 and $0.0001. Some states such as Delaware and Texas allow for issuance with no par value, but this can create other unintended consequences. For example, issuing shares without par value in Delaware triggers a different franchise tax calculation, usually resulting in a higher franchise tax burden. This can be easily avoided by setting a par value.

Example

For example, a startup company authorizes 10M shares with a par value of $0.0001, with 8M shares set aside for two founders, split 50/50 between the two. The lowest price each founder would have to pay in exchange for 50% of the shares is $400.00 (4M * $0.0001). Payment of the $400.00 could be made in cash, contribution of services, or contribution of property (real or intellectual), whatever the founders decide is fair for the situation.