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Par value of shares

Par value, also known as face value, is the nominal or stated value assigned to a share of stock by a company at the time of its issuance. In the past, par value was used as a legal requirement to establish a minimum amount of capital that a company must have to protect its creditors. However, today, par value is mostly used as an accounting reference point and has little economic significance. The par value of a share of stock represents the minimum price at which the share can be sold, and it is typically set at a low amount, such as $0.01 or $0.10 per share. The actual market value of a share can be much higher than its par value, and it is determined by supply and demand in the stock market. The difference between the par value and market value of a share is known as the share's premium. Companies may issue shares at a premium to raise additional capital, but they cannot sell shares below their par value. In accounting, par value is used to determine the legal capital of a company, which is the amount of capital that the company cannot return to its shareholders without going through a formal process, such as a reduction of capital. Legal capital is important for protecting the interests of creditors and ensuring that the company has sufficient funds to meet its obligations. Overall, while the par value of shares has little economic significance today, it remains an important reference point in accounting and legal requirements for companies issuing shares.

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