What is par value? Is there an additional fee when the par value is high?
Understanding Par Value: Its Importance and Financial Impact
What Exactly is Par Value?
Par value is the minimum price at which a share of common stock can be issued. Although this concept plays a role in accounting, it shouldn't be confused with market value, which is the actual trading price of the stock.
Advice for Small Business Owners:
If you're in the early stages of forming a corporation, especially if it's a small enterprise, it's generally advisable to set a low par value for common shares. This minimizes the financial commitment required from founders or initial shareholders to secure ownership in the business.
Legal Requirements:
Both Wyoming and Delaware mandate the specification of a par value when incorporating. Delaware sets the minimum limit at $0.00001, while Wyoming's is slightly higher at $0.0001. This value must be declared in the Certificate of Incorporation. Should you wish to amend it later, a formal request to the Secretary of State is required. Usually, par value is relevant primarily for common shares and becomes a point of negotiation for preferred shares during investment rounds.
Additional Costs in Delaware:
If you choose a high par value for your shares while incorporating in Delaware, be prepared for extra fees. For example, if you authorize 10 million shares at a par value of $10 each, the state will charge you an additional fee for this decision. We make it a point to notify clients about any such additional charges. To avoid this cost, lowering the par value is necessary.
Things to Consider:
A high par value can also lead to other financial implications down the line. When you plan to allocate shares to stakeholders like founders, employees, or investors, the larger amount needed for issuance might become a hindrance. Additionally, the franchise tax you owe could escalate substantially because of a high par value.
Additional Resources:
For more detailed insights, you can refer to our full article on this subject. To get an idea of the possible additional fees, our registered agent provides a handy calculator, accessible via this link.
By understanding the implications of par value, you can make more informed decisions for your corporation, saving you money and potential complications in the long run.
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