Capital Stock Definitions and Classifications

2.1 Par Value

• Definition of Par Value:

  • Par value refers to the nominal or face value of a security stated in the corporate charter. It represents the minimum price at which shares can be originally sold by the corporation.

• Common Stock:

  • Common stock may be issued with or without par value.
  • No-par Common Stock:
  • May be issued as true no-par stock or no-par stock.
  • True no-par stock does not have a stated par value.

• Preferred Stock:

  • Typically issued with a par value.
  • Preferred stock has a priority over common stock regarding dividends and asset distribution upon liquidation.

• Accounting Treatment:

  • The excess of the actual amount received for shares over the par or stated value is classified and accounted for as additional paid-in capital.

2.2 Authorized, Issued, and Outstanding

• Authorized Capital Stock:

  • The amounts of each class of stock that a corporation may legally issue are documented in the corporation's charter. This is referred to as authorized capital stock.

• Issued Capital Stock:

  • When part or all of the authorized capital stock is issued to shareholders, it is referred to as issued capital stock.

• Outstanding Capital Stock:

  • Issued capital stock may be held by the corporation itself as treasury stock.
  • Therefore, the issued capital stock not held by the corporation (the stock in the hands of shareholders) is known as outstanding capital stock.

• Summary of Capital Stock Classifications:

  • Authorized: The total amount of stock the corporation is allowed to issue.
  • Authorized and Issued: Portion of the authorized stock that has been issued.
  • Authorized, Issued, and Outstanding: Portion of issued stock that is currently held by shareholders.