What is Par Value?

You are staring at your Articles of Incorporation. One line asks for the “Par Value” of your authorized shares. It feels like a valuation question. It is not.

Founders often hesitate here. If you set it too high, you might face massive tax bills. If you misunderstand it, you might confuse early investors.

Par value is a relic of older corporate law that remains a necessary legal setting today. It represents the absolute minimum price at which a share of stock can be sold to shareholders.

Par value is the face value of a bond or stock certificate. It is the amount stated in the corporate charter.

For a bond, par value is the amount paid back to the lender at maturity.

For startup equity, however, it serves a different function. It establishes a floor for the value of the stock. It is a legal formality. It determines the minimum capital required to be kept in the company to protect creditors.

In the modern startup ecosystem, this number is almost always arbitrary. It does not reflect what the company is actually worth.

When a company issues stock, the accounting team splits the money received into two buckets.

• Stated Capital: This is the number of shares sold multiplied by the par value.
• Additional Paid-In Capital (APIC): This is the remaining amount of money paid by the investor above the par value.

This distinction matters because of a legal concept called “watered stock.”

If you issue stock for less than its par value, the shareholder could be held liable to creditors for the difference if the company goes bust. This creates a financial risk for founders and employees.

To avoid this liability, startups typically set par value extremely low. You will often see it set at $0.00001 or $0.0001 per share.

It is vital to separate par value from market value. These are not the same thing.

Market Value is the price a willing buyer pays for the stock. This is determined by your valuation during a funding round. It is based on revenue, growth, and team potential.

Par Value is purely administrative.

For example, a venture capitalist might pay $5.00 per share for stock in your Series A. That is the market value. However, the stock certificate will still list the par value as $0.0001.

The gap between the two is simply accounting surplus.

Most startups incorporate in Delaware. This brings us to the most practical reason to care about par value.

Delaware calculates your annual Franchise Tax using one of two methods.

1. The Authorized Shares Method
2. The Assumed Par Value Capital Method

If you set your par value high, say at $1.00, and you authorize 10 million shares, your calculated assets under the second method skyrocket. This can result in a tax bill in the tens of thousands of dollars.

By keeping the par value at $0.00001, you allow your tax accountants to use the method that results in the minimum tax payment, which is usually a few hundred dollars.

Are there reasons to ever have a high par value? Perhaps in specific specialized corporate structures. But for a high-growth tech startup, it is usually a trap.

As you fill out your formation documents, ask yourself if you understand the downstream tax effects of the numbers you are entering. When in doubt, go low.