RE: Par value (stock) – An arbitrary dollar value that a company assigns to its shares. Par value has no economic significance. The legal significance of par value is, roughly, that if shares are issued below par value, the holders of those shares might be assessed the difference between par value and the issue price. Most stock certificates state that the shares are fully paid and non assessable to indicate that holders are not on the hook for additional contributions because the shares were issued at a price greater than par value. Companies usually assign a very low par value to common stock.
I am planning to buy some penny stock which is listed on Pink sheet, however there is something I am not very sure. According to above statement, if I buy 500,000 for example AA stock at $0.01 which is below the par, am I liable for the difference between par value and the issue price? Could you please help me with this question?
January 14th, 2010 at 9:54 am
In 45 years of trading, I’ve never heard of anyone having to pay more for a stock than the price quoted by the exchange.
I know you are much better off buying stocks that are priced above $15 per share.
January 14th, 2010 at 6:12 pm
NO. The only thing about a stock that is trading below its par value, at least in the UK, is that thwe company cannot do a fund raising from shareholders. What happens sometime is that the company will be sanctioned by a court to change the opar value. It would seem that it is a pretty sorry state of affairs and I would be very cautious about investing in such a stock. Furthermore the majority of OTC stocks are complete rubbish, so unless you have good knowledge of the particular company I would steer well clear. As they say the share price is always trying to tell you something!
I am not sure what you mean by arbitray or assigns, but the par value is just the original capital of a company divided by the number of shares in issue. Hence $5000 capital could be divided into 5000 $1 shares or 50000 10cent shares.
January 15th, 2010 at 1:08 pm
could you please not buy penny stocks? I am sorry for not answering your question but they aren’t actually going to make you money. If you really want money, try markel corporation or conoco phillips then wait ten years, and you’ll have way more money than you could get from bonds or your bank. The intelligent investor doesn’t speculate, he/she invests. and penny stocks aren’t investments. restrict them to about 2% of your portfolio if you really want to lose 2% of potential profits. I am only 16 years old, but I remind you that I have read the most useful of investment books, and everywhere it is advised against to buy any penny stocks. If you want adventure, try small cap to mid cap stocks, as long as they have good p/e ratios, a 2:1 asset/liability ratio, and a good management. Hope I have been of help. And yes, I assume you would be liable for the difference.
January 16th, 2010 at 9:19 pm
No, you are not liable for the par value. It is an accounting tool for the company. Nothing more. You are not liable for the issue price either. In fact you are not liable for anything other than paying the purchase price you contracted for.