At the time when stock was issued on paper certificates, having a par value printed on it under some circumstances, investors were allowed to trade in the certificate and ask the company to redeem their shares for that value. Therefore saving themselves from the liability, companies either set par value very low, or assign no par value, if allowed by law.
Decades ago, Apple Inc. (NASDAQ:AAPL) was set up in California, which allows companies to set no par value. This created an accounting problem for the companies established in the area that allows setting par value, like, Delaware corporation taxes. If a company does not set a par value, local authorities may use their own formulas, under which company with no-par-value shares may end up paying more than a company with low-par-value shares.
The modern recommendation for creating companies involves setting a very low par value on shares as Apple Inc. (NASDAQ:AAPL) now wants to do. This is the explanation given by the company:
Establishing a Par Value for the Company’s Common Stock
The proposed amendment of the Articles would also amend Article III of the Articles to establish a par value for the common stock of $0.00001 per share.
Currently, the Company’s common stock has no par value. The Company anticipates that establishing a par value of $0.00001 per share will reduce corporate expenses and thus benefit the shareholders. Under the laws of the State of California, which is the state in which the Company is incorporated, a corporation may have a par or no par value stock. However, some other states impose qualification or licensing fees on foreign corporations to transact business in such states based upon the authorized capital stock of a corporation. In certain states, the rates at which qualification or licensing fees are assessed differ, depending upon whether the shares of the corporation are with or without par value, with nominal par value shares being assessed at a lower rate than no par value shares, in some cases. The Company believes that adopting a nominal par value for its shares will, in some cases, result in the company being assessed for qualification or licensing fees on a similar basis as other companies that also have a nominal par value for their shares.
Establishing a par value for the Company’s common stock will have no effect on any of the rights and privileges now possessed by holders of common stock. The Company does not expect that establishing a par value for the Company’s common stock will have any material accounting impact.
The iPhone maker has currently 940.7 million shares outstanding, so at par value of $0.00001 or a thousandth of a penny, value of its capital stock will be $9,407, shocking isn’t it.