What does the term par value (nominal value) refer to in share capital?

• A. Market value
• B. Par value
• C. Real value
• D. Price per share

Answer: (B)

Par value, or nominal value, is the face value assigned to each share in the company's charter. It represents the legal capital per share and is used for accounting and regulatory purposes, such as determining the minimum amount that must be paid on issue. It is not the price investors pay in the market. Market price, or price per share, fluctuates with supply and demand and can be higher or lower than the par value. For example, if the par value is $1 per share and 100,000 shares are issued, the share capital on the balance sheet is $100,000, regardless of the market price. Some shares may have no par value, but when par value exists, it is the nominal value printed on the share.