Definition of par value

amount arbitrarily assigned by the corporate charter to one share of stock and printed on the stock certificate. The par value represents the legal capital per share. There can be no dividend declared that would cause the stockholders' equity to go below the par value of the outstanding shares. Par value may be a minimum cushion of equity capital existing for creditor protection. The par value is the amount per share entered in the capital stock account. It is usually significantly lower than the market price per share.

1. Banking. A check collection system where depository institutions exchange checks at face value, without charging a fee (called an exchange charge) for accepting checks drawn on other banks. Non-par banking was prevalent during the nineteenth and early twentieth centuries. Banks that are member banks in the Federal Reserve System are required by the Fed to honor checks at face value, and in fact, most banks, even nonmember state banks, honor checks at par exchange. The Federal Reserve maintains a list, called the par list, of banks that pay checks at par.
2. Securities. The face value of a security or financial instrument. The par value of a common stock is the nominal value assigned by a corporate charter, and has no specific financial relevance after the issue date. The par value of a debt security, for example a bond, is very relevant, as that is the price that will be paid the bondholder at maturity. The bond coupon interest payable semi-annually is a percentage of a bond's par value. Preferred stock dividends normally are stated as a percentage of the assigned par value, but also may be determined by auction bidding at periodic intervals. Par value is unrelated to market value, which is influenced more by market pricing, yield on the securities offered for sale, Net Asset Value, and prices of comparable issues in the secondary market. See also accretion of discount.

stated or face value of a stock or bond. It has little significance for common stock. The par value on bonds specifies the payment at maturity.