Par Value for a Startup Company’s Stock
Par value is the minimum price that a corporation can issue its shares. In the US, par value was created during the time of the great depression in order to ensure a shares could not be sold under a certain price. Today, that concept is somewhat archaic, but it still plays an important role and should be thoughtfully considered when forming a startup company by filing the certificate of incorporation.
While I typically see either $1 or “no par value” common stock when looking at new client startups that have incorporated on their own or via an online service, I typically recommend that a startup corporation’s Common Stock par value be set at $0.00001 and no higher than $0.0001 per share.
My recommendation is based on my belief that startups should authorize 10,000,000 shares of common stock upon filing the its charter. The startup will then typically issue about 6,000,000 to 8,000,000 shares to its initial set of founders (as there is a reserve usually kept for initial/short term issuances to people like employees, consultants and advisors).
Therefore, if your startup issues 7,000,000 shares with a $0.0001 par value to its initial founders, the minimum the founders would have to collectively pay for those shares is $700. Alternatively, if your startup issued 7,000,000 shares of such common stock with a par value of $0.00001 to the initial founders, the minimum the founders would have to collectively pay would be $70. Whatever the setup, usually founders are not paying much out of pocket when it comes to purchasing their initial shares.
It’s also very important to set par value low when you authorize many shares in Delaware because this will help keep your franchise taxes low. There can be drastic consequences, at least Delaware franchise tax bill wise, if you set your par value high and your authorized shares high.
Update: If you are looking for more information about incorporation, check out my “If I Launched a Startup” article.