What is and what is the Definition of the Nominal Value of the Shares? – Here the Answer

Investing in the shares of a company is a trend in recent years that has revolutionized the economy. And is that investing in stocks It is not something to be taken lightly, a good investment in the stock market can generate countless amounts of benefits.

The above is what has turned this economic practice in a current trend for investors who know how to risk their money. Although getting people to invest in the shares of a company is also part of and helps increase the business budget.

The truth is that the definition of nominal value in shares is part of an extensive glossary of economic terms that is worth studying.

What is the definition of the par value of the shares?

Face valueIn the economic sphere, it refers to one of the values ​​assigned to goods, services, assets, or in this case shares. Being applied to name the economic variables that are expressed in current or market prices.

calculator with notes of numbers

In this sense, the par value of a share from a broad point of view, it is the price that is awarded to a share from the moment a company is incorporated. That is, the value will be subject to the incorporation of a business and will represent the minimum amount for which each share will be issued.

However, it should be taken into account that this amount is less relevant compared to the real values ​​of each share.

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What determines the par value of a share?

Face value of a share is subject to certain factors that end up influencing or determining the final amount that a company will place as par value for each share. This happens because, initially, the amount is agreed according to the objectives established by the company:

  • Primary objective of capitalization.
  • Amount of public shares offered, added to the possession status of the initial owners.
  • Possible predictions of the fluctuations that the prices of the shares will have once they are offered in the stock market.

Why should these goals be met? because they are the pillars that provide certainty to create optimism, good expectations and security for market entities. Each entity that may be interested in the shares of the company counts, in addition to presenting sustained growth thanks to the benefits.

Reasons for the low par value of the shares

The par value of shares is usually low, companies issue their shares in this way to reduce business liability to shareholders. In fact, it is regular to see that there are companies that lately issue their shares without a pre-established nominal value.

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Shares with nominal reference are issued with low values that are around the price of $ 1, in scenarios where minimums of $ 0.01 are reached. This results in that when the price of the stock declines, a high par value causes liabilities to the company.

The company liabilities It can be explained as follows: assuming that a company issues shares with a par value of $ 10, it may happen that the stock is traded on the stock market at $ 5. The foregoing generates, in theory, a liability or liability of $ 5 per share for each shareholder.

Absence of nominal value

When a company wants to avoid potential liability to generate liabilities through their shares, normally the par value of the shares would be as low as possible. However, in the case of small corporations that aim to generate a small number of shareholders, they issue their shares with nominal values ​​of $ 1.

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But it should be noted that the face value is still a simple accounting item within the margin for shareholders on their balance sheets. Being that the real value of the action is what commonly determines its demand in the market.

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