State Value Stock: Everything You Need to Know
Stated value stock is the value amount assigned to a share of stock for a corporation before the stock has par value.3 min read
Stated value stock is the value amount assigned to a share of stock for a corporation before the stock has par value.
Stated Value Stock
This value is assigned for accounting purposes within the business when the stock doesn't have pare value yet. The stated value defines the corporation's legal capital and is credited to the stock account when the shares have no-par capital. Similar to par value, the stated value of a stock is nominal and doesn't relate to the market value of price. This value is often between $0.01 and $1.
A corporation can opt not to issue stock with par values, but in order to keep accurate accounting records and satisfy the legal capital minimum requirement, the business must assign a value as stated to the stock. Each state has its own requirements, so the regulations may differ depending on where your business is registered and operating. If the stock shares are issued to the business owner, the managers will assign the stated value, so the transaction can be recorded by the accounting department. Fair market value and stated value are not connected.
Stated value is the dollar amount that managers of a corporation assign to the shares of stock to record the transaction in the financial records. When using a charter, a company may be able to avoid the minimum capital requirements that many states legally require by not establishing the par value. The laws in the majority of the states refer to the par value in reference to the thresholds for minimum capitalization, so a corporation may be able to avoid this issue when they create stock with no par value.
However, as corporations have used this loophole, the states have adapted their laws and require businesses to use the stocks' stated values as the limits for minimum capital. Managers in a corporation can still manipulate this requirement when they set a very low value for the shares, but the changes to the laws are minimizing what can be done.
For example, if a company issues 2 million shares of stock at a stated value of $0.01 per share, the total stated value of the corporation's stock would be $20,000. This amount would be credited to the capital stock account of the business and become the corporation's legal capital. Since a company is generally restricted by law from repurchasing shares or paying dividends if these actions impact the corporation's legal capital, adding the stated value offers protection to shareholders. However, since a corporation can set such a low stated value for a share of stock, the monetary interest is minimal.
In another example, the balance sheet of Apple Inc. in the fiscal year of 2013 showed that the corporation authorized 1.8 million no-par value shares of stock, with 899 million shares of stock as outstanding and issued. By the end of that fiscal year, the common stock in the equity account of the shareholders had a value of $19.8 billion. Within the Form 10-K, no notes or stipulations exist to break down the stated value of the account and the paid-in capital amounts that are additional. However, in that example, most of the $19.8 billion value represents paid-in capital.
In a simpler example, a business owner named John decides to incorporate. During this process, John elects against including the stock's par value in the charter of the corporation. Instead of including the par value, he includes a stated value of $1 per share for 1,000 shares of stock and issues all of these shares to himself.
After issuing the stock shares to John, the corporation's common account for stocks will be credited for $1,000, which represents the value of the 1,000 shares of stock. This stated value that John created doesn't represent the amount he paid to own those shares or the fair market value of the stocks. The amount is similar to a par value.
Par Value Stock vs No Par Value Stock
When a corporation issues a par value for a share of stock, this amount is what is outlined in the charter of the company that issued the share. Par value is also referred to as face value because it represents the value that would be printed on a stock certificate or bond. It represents the lowest amount that would be paid per stock share.
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