Essay on Stock and Par Value

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CAPITAL STOCK (COMMON SHARES)
( represents the amount invested by owners in Outstanding Shares the firm has issued. A firm may Authorize one number of shares ie. 1,000,000 but only sell 400,000. The 400,000 shares outstanding represent the ownership in the firm. in Canada, the Federal Govt. does not require firms to indicate the number of shares authorized. Three quarters of public companies in Canada have an unlimited number of authorized number of shares. Nor does it require shares to be issued at a par value. Provincial charter regulations vary on this issue. Some require both a set number of authorized and shares to be sold at par. The number of shares that a corporation is authorized to sell is in the articles of incorporation, but this can be amended later on if necessary. A par value share is share capital that has a specific value stated in the corporate charter. Par value does not indicate the worth or market value of the shares, but does have legal significance. It is usually set quite low to avoid the possibility of market prices falling below par values Par value represents the legal capital per share that must be kept in the business for the protection of corporate creditors. This amount cannot be withdrawn by shareholders. Corporations are required to sell shares only at par or above par value. Some provinces are now allowed to assign a stated value to “no par value” shares which then becomes the legal capital per share. This stated value may be changed at any time by the Board of Directors.

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No Par Value Capital Stock ! this has become increasingly common in Canada. 90% of companies now use it. Some factors that have led to this are: ! ! it avoids the assignment of arbitrary value to stock as par value that investors usually do not understand. a stock may have had a par value of $25.00 per share, but was currently listed on the T.S.E. at $15.00. Some investors might think that they were getting a $10.00 bonus if they bought the stock. In fact the $15.00 value was the true value of the stock as set by traders and investors. no par stock is easier to split. it eliminates the need for “Contributed Capital in excess of stated value” accounts as required by par value stock.

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Entry for No par Value Stock Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 Common Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 Issued 10,000 shares of no-par stock at a price of $10.00 per share Entry for Stated or Par Value

Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 Common Shares. . . . . . . . . . . . . . .
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