What is a No-Par Value Stock?
No-par value stock is a type of stock option that is issued without the mention of a face value or nominal value for each share. This means that the shares of stock are offered to investors based on what those investors are willing to pay for them. This is in contrast to par value stock, where the stock certificates or the articles of incorporation of the issuing company specify a specific par price or value for those shares.
There are several advantages to issuing no-par value stock. The most obvious is that there is the potential for the newly released shares to generate a great deal of excitement and interest on the part of investors. When this is the case, the demand for those shares helps to drive the unit price of the options upward, a phenomenon that creates a higher rate of return for the issuer.
A second benefit to no-par value stock is that the issuer has less of an obligation to investors in the event that the price of the shares begins to tumble. This is in contrast with par value stock, where investors are often able to at least recoup the original issue price and partially offset losses. With less financial liability to shareholders, the issuing company can focus attention on taking action to reverse the downward trend and create a situation in the market where the value of those shares begins to increase once again.
Today, no-par value stock is the most common stock option available. Despite the lack of having a par value stated on the stock certificate, many of these options can and do go on to generate impressive returns. As with any type of stock option, no-par value stock is subject to all the usual events that affect stock prices, including shifts in consumer tastes, the impact of natural disasters or political shifts on the financial well being of the issuing company, changes in technology, undesirable changes in the state of the economy.
For investors, there is more risk involved with no-par value stock options. Since there is no par or floor value to the shares, there is always the possibility that the unit price for the options will slip below the original purchase price. This means that investors must take the time to evaluate the potential of the stock option thoroughly. This means assessing the financial stability of the issuing company, the performance of shares previously issued by that company, and the potential for those new shares to increase in value within an equitable period of time. Unless there is sufficient evidence that the no par value stock has potential to generate returns, investors would do well for focus their attention on other stock options.
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