Accounting Demystified

Common Stock

There are three major types of common stock:

• Par value

• No par value, but a stated value

• No par value

Par value is an arbitrary amount that is assigned to each share by the company. It has no relation to market value. Some jurisdictions levy taxes on the company based on the par value of the stock that has been issued. For this reason, many companies set the par value at a very low number (such as $0.01). Aside from its use in levying taxes, par value doesn't really serve any purpose.

Each company will file with the appropriate government body (usually the secretary of state in the state chosen for incorporation) a form called the Articles of Incorporation. In addition, the company will develop or buy another set of forms called the ...