A stock (share of stock) that has an arbitrary value established in the articles (charter) of its issuer (i.e., the par value). The par value multiplied by the total number of shares issued is the minimum amount of equity capital that is generated from selling the stock. Par value stocks used to bear their par value on the front of the old version, paper stock certificate.

Companies were required by law, in certain countries, to determine and print a par value on their stock certificates. For that reason, companies tended to use and set the smallest possible value (e.g., one cent or a penny price).

If the stock is sold below the par value and the issuer later experiences financial problems leading to inability to pay or settle its financial obligations, its creditors can claim the difference between the purchase price and the par value to recover their outstanding debt from equity holders. In another scenario, the market price of the stock may drop below the par value, and the issuer may be liable to shareholders in the tune of the amount of such a drop.

For example, if a company issues 1,000 shares of stock bearing a par value of $20 each, then the minimum amount of equity capital that can be secured by the sale of those shares is $20,000. Since the market value of the stock does not correspond to its par value, investors may buy the stock in the secondary market for less than $20. If all the issued shares can be purchased below par, for a price such as $15, the company will generate only $15,000 in equity. If the business goes under and cannot meet its financial obligations, shareholders could be held liable for the $5-per-share difference between par and the purchase price.

In a bid to address such scenarios, most corporations preferred to minimize par value for their stock.