Saturday, July 18, 2009

Type of common stock

There are types of common stock based on whether or not they have "per" value. Par value is essentially the stated value of stock that is printed on the share itself. However, the par value does not impact the selling price of the stock. The par value is assigned to the shares when they are registered and does not need to be any specific amount. In fact, par value is usually a small amount because of what it represents (covered below). When the shares are sold, the par value of the shares will be put into common account.
There are two types of shares based on the existence of a par value:
- par (or stated), par value is the specified value printed on the share itself. Par value is the maximum amount of a shareholder's liability to the creditors of the company. The par value of all shares issued and subscribed represents the legal or stated capital of a company. Legal capital is the portion of contributed capital that is required by statue to be retained in business. This capital cannot be distributed as dividends. Because of this restriction on distribution, companies may choose to have a very low par value.
- no-par value, for stock that does not have a par value, the legal capital is the total amount received to the common stock account.

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