Highlights

  • Learn what par value (face value) is and where to find it.
  • Discover the difference between par value and market value, and why share prices can differ significantly from face value.
  • Learn how to calculate par value using authorised share capital and the number of shares.

Introduction

In India’s dematerialised market system, shares no longer exist as physical share certificates for most investors. Instead, the par value (or face value) of a share is recorded electronically in company filings, stock exchange data, and corporate disclosures.

It represents the nominal accounting value assigned to a share when a company issues stock. It is not the market price investors pay when buying shares. This value is primarily used for accounting purposes and plays an important role in corporate actions such as dividend declarations, stock splits, and share consolidations.

Understanding what par value means helps you interpret corporate actions and financial statements more clearly.

What is Par Value?

Par value, also known as face or nominal value, is the fixed value assigned to a financial instrument such as a bond or stock at the time of issuance. In the case of bonds and other fixed-income securities, it represents the amount repaid at maturity and forms the basis for calculating interest (coupon) payments. Unlike par value, market value changes over time based on market conditions.

Par Value vs Market Value

Par value (or face value) refers to the nominal value assigned to a share in a company’s charter. The two terms are used interchangeably in financial statements and stock exchange filings.

Market value, on the other hand, is the price at which a share trades on the stock exchange. It is driven by factors such as demand and supply, company performance, and overall market sentiment, and therefore keeps changing.

Key distinction: A share with a face value of ₹10 may trade at ₹500 in the market. The ₹10 remains fixed as the nominal value, while ₹500 reflects its current market price. Par value is used for accounting and corporate purposes, whereas market value indicates what the investment is worth at any given time.

Why Does Par Value Matter?

Par value plays an important role in a company’s financial and legal framework for several reasons:

  • Regulatory requirement: In many jurisdictions, companies are required to assign a par value to shares as part of corporate governance norms.
  • Dividend reference: Dividends are declared as a percentage of the par value, making it a reference point for payouts.
  • Accounting purpose: Par value helps record the initial value of share capital on the balance sheet and contributes to the company’s equity structure.
  • Limited liability: In certain cases, shareholder liability may be limited to the par value of their shares if the company faces insolvency.

How to Calculate Par Value

Par value per share is calculated by dividing the total share capital value by the number of authorised shares. While companies assign the face value, you can reverse-engineer the math to understand a company’s capital structure:

Formula:
Par Value = Total Share Capital Value ÷ Total Number of Authorised Shares

Steps to Calculate Par Value

Step 1: Identify total share capital value
Find the total value of all authorised shares, usually mentioned in the company’s incorporation documents.

Total Share Capital Value = Number of Authorised Shares × Par Value per Share

Step 2: Determine the total number of authorised shares
Check the company’s official documents to find how many shares it is allowed to issue.

Step 3: Apply the formula
Divide the total share capital value by the number of authorised shares to get the par value per share.

Example:
If a company has 10 lakh authorised shares with a total authorised capital of ₹10 lakh:

Face Value = ₹10 lakh ÷ 10 lakh shares = ₹1 per share

Key Takeaway for Investors

Par value is the nominal or face value assigned to each share in a company’s charter. While it holds legal and accounting importance, it does not reflect the stock’s actual market value. It is calculated by dividing the total share capital value by the number of authorised shares. Understanding par value is important for investors and finance professionals, as it underpins key aspects of accounting, ownership, and corporate governance.

FAQs

1. What is the difference between par value and face value?

Par value and face value are identical terms in Indian markets, both denoting the nominal accounting value assigned to a share as per the Companies Act 2013. You can use these interchangeably.

2. Why do companies reduce par value through stock splits?

Stock splits reduce share price proportionally to face value reduction, improving liquidity and making shares more accessible to retail investors without changing market capitalisation.

3. Does par value affect share price?

Par value does not determine market price. Share prices reflect company valuation, performance, and market sentiment, while face value remains a fixed nominal accounting value.