Delaware Minimum Par Value: Everything You Need to Know
Delaware minimum par value comprises a branch of corporate statutes that are usually needed when calculating franchise taxes or offering legal advice.3 min read
2. Pros and Cons of a Par Value System
3. Limits on the Value of a Shared Stock
4. Setting Par Value
5. Limits on the Number of Shared Stock
Delaware minimum par value comprises a branch of corporate statutes that are usually needed when calculating franchise taxes or offering legal advice. Once set, par value shouldn't need to be addressed again. Like most states, Delaware stock is typically issued with a nominal par value or even no par value.
Delaware's franchise taxes are calculated in two ways. There's the "authorized shares method" that assigns value to each share and the "assumed par value capital method" that accounts for the corporation's assets.
It can be tempting to issue stock with no par value. If the corporation has no value from the beginning, there's no need to assign the par value for stock when creating the corporation. Still, there's more to consider than value alone.
Examples of Delaware Minimum Par Value
Here are two examples pertaining to Delaware minimum par value:
- For 5,000 authorized shares or less, the tax bill can be expected to be $75.
- For 15 million authorized shares, the tax bill can be expected to be $112,575.
As long as there's a modest number of authorized shares, the Delaware franchise taxes should be reasonable when using the authorized shares method. Things tend to get tricky when there's no par value. In that case, the authorized shares method may be employed. However, when a corporation adds to their number of authorized shares, it may be faced with a larger franchise tax bill.
Pros and Cons of a Par Value System
One of the disadvantages of a par value system occurs when shares are issued at the company's inception. This means the founders will have to pay the corporation the par value per share. However, that's a small price to pay, when the alternative may be a massive franchise tax bill down the road.
One of the best resources is the Delaware Secretary of State's website. There, you'll find a special calculator to help you anticipate your tax bill and gather all the information you need before establishing a corporation.
Limits on the Value of a Shared Stock
Delaware minimum par value will always be the lowest limit for the value of a share of stock. So, if a share's par value is $1, then it can't be issued for less than a dollar to an investor. It must also be paid for in services or funds.
While the minimum par value secures your bottom limit, the board of directors may set the price of the stock at any amount that's deemed to be above par. For example, it would be perfectly legal for the board of directors to set the par value at $0.01 even though they may sell stock to an investor for $5 per share.
Setting Par Value
When beginning your corporation, if it's a small startup an incorporator may suggest you set a low to no par value. This way, the initial shareholders won't need to make large investments in order to own their own company at its inception.
In the event there are no par shares, it's possible they'll be issued to shareholders without an exchange of goods, services, or funds. Just like shares with par value, having no par value won't restrict you from selling your shares to investors at the price set by the board of directors.
Rather, a corporation may want to assign a par value so an investment — be it services or funds — will be required to own a share in the company. This can actually set the company up to produce investment revenue for growth opportunities or recoup startup costs.
Limits on the Number of Shared Stock
Like other states, Delaware has set a limitation on the number of shares that can be offered at no par. It will also charge an additional fee based on the number of shares authorized at no par. Specifically, Delaware's Division of Corporations will allow up to 1,500 shares of no par stock before you're hit with an additional filing fee. In the end, franchise taxes for high amounts of no par stock may prove to be very expensive. You'll mostly start to see this when you're entering into an excess of 5,000 authorized shares.
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