All About Face Value of Share

 

The face value of a share, also known as its nominal value or par value, is the original cost of the share as stated on the share certificate. Here are the key points about the face value of a share:

  1. Definition:

    • The face value is the value at which a share is issued initially.
    • It is the minimum value of the share as stated in the company’s charter or memorandum of association.

  2. Purpose:

    • It represents the capital paid into or the amount that must be paid by the shareholder.
    • It is used to calculate the dividend or interest that may be paid to the shareholders.

  3. Common Values:

    • In many countries, face values can range from very low (e.g., $1, $0.10) to higher values depending on the company's requirements.
    • In India, for instance, common face values are ₹10, ₹5, ₹2, and ₹1.

  4. Market Value vs. Face Value:

    • The market value of a share is the current trading price on the stock market, which can be significantly different from its face value.
    • The market value fluctuates based on supply and demand, company performance, and other market conditions.
    • Face value remains constant, unless a company decides to split the shares (leading to a change in face value).

  5. Share Splits:

    • Companies may perform a stock split to reduce the face value of share of their shares and increase the number of shares.
    • For example, a 2-for-1 split of a ₹10 face value share will result in two ₹5 shares for every one ₹10 share previously held.

  6. Accounting and Reporting:

    • Face value is used in accounting to represent the share capital of the company.
    • On the balance sheet, the total face value of all issued shares is recorded as the company’s equity capital.

  7. Importance:

    • Investors and analysts use face value to understand the base capital structure of a company.
    • Dividends and bond interest payments are often calculated as a percentage of the face value.

  8. Legal Implications:

    • Companies cannot issue shares below their face value.
    • During an Initial Public Offering (IPO), shares are often issued at a price higher than the face value, including a premium.

In summary, the face value of a share is a crucial financial term that represents the nominal value of a share as recorded in the company’s books, playing a significant role in understanding the company's capital structure and financial health.

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