Par value is a dollar value associated with a share of stock in a corporation that is specified in the articles of incorporation and is distinct from the market value of a share. In modern corporate law, one usually encounters par value in the formal description of the common stock, such as "Common stock, par value $0.001 per share." The par value is a largely arbitrary value set forth in the articles of incorporation and does not fluctuate with the price of shares.
The concept of par value is a relic from an earlier age but still holds potential pitfalls for lawyers and law students. There are at least three reasons to pay attention to par value. First, the corporation cannot issue shares for below par value without the purchaser risking "watered stock" liability. Second, the par value goes into the determination of the legal capital of the corporation, which can limit the ability to pay dividends in an impairment of capital jurisdiction, such as Delaware. A higher par value means a larger amount of legal capital and a more restricted ability to pay dividends. Third, the corporation may pay higher franchise taxes if the par value is high.
In modern practice, par value is usually irrelevant because the corporation's par value is a truly nominal amount, often less than one cent per share. The concept of par value can still become relevant, however, when corporate organizers set a high par value not appreciating the negative effects of that decision.
Par value vs. Stated Value
The concept of par value is related to the concept of stated value. Stated value most often arises in the context of no-par stock. In such cases, jurisdictions that retain the concept of par value often require the board to assign a stated value per share that will constitute the legal capital of the corporation.
The concept of par value for bonds is a completely unrelated concept to par value of stock.