Par Value and Market Value

Par Value and Market Value

Par value and market value of shares are two different concepts, company receives par value and issue shares at par value, then shares are traded in stock exchange at market value and these both concepts has been explained below in details.

1.    Issue Price

Shares are ordinarily issued at par value. It is important to note that sometime share is issue at below price i.e. discounted price (price lower that par value) and above price at premium price (above the par value).

2.    Price Determination

Par value is determined by the company in accordance of regulator guidelines (if any) and does not change during the life of company, where market price is determined by the market forces in stock exchange and changes regularly.

3.    Trading of Shares

Shares are traded in stock exchange at market price of shares, and par values of shares have no significance or role in the shares trading.

4.    Declaration of Dividend

Dividend is declared in relation to par value. If 20% dividend is declared and par value is 100 rupees, then it means that dividend declared is 20 $.

5.    Books of Accounts

Par value is used to record the transaction in books of account; market value has no role in the transaction recording of shares. The recording of transaction has been explained in detail in my other blog article.

6.    Limited Liability

Limited liability concept in case of companies is associated with par value paid by the equity holder, and limited liability does not calculated in relation to market value.