Stated Value
Stated value is a term used in the context of stock that doesn’t have an assigned par value. Some jurisdictions or corporations may not issue stock with a par value, so instead, they might assign a “stated value” to shares. This value is typically set by the company’s board of directors.
The primary purpose of assigning a stated value is often regulatory or for internal accounting. Just like par value, the stated value becomes the minimum legal capital that a company must maintain and cannot pay out as dividends. In essence, it provides a certain level of protection to creditors by ensuring that a portion of equity capital remains in the company.
Example of Stated Value
Let’s use a fictional scenario to further illustrate the concept of stated value:
Scenario:
Suppose there’s a company named GreenLeaf Innovations. It’s a startup in the sustainable packaging industry. The company wants to raise capital by issuing common stock, but instead of assigning a par value to its shares, it decides to use a stated value.
Actions Taken:
- Determination of Stated Value: The board of directors of GreenLeaf Innovations declares a stated value of $0.10 per share for its common stock.
- Stock Issuance: GreenLeaf Innovations then issues 500,000 shares to the public at an issue price of $5.00 per share.
Accounting Implications:
- Stated Capital Calculation:
- Stated Capital (from the stated value) = 500,000 shares × $0.10 = $50,000
- Additional Paid-in Capital Calculation:
- Amount received over the stated value per share = $5.00 (issue price) – $0.10 (stated value) = $4.90
- Additional Paid-in Capital = 500,000 shares × $4.90 = $2,450,000
On GreenLeaf’s Balance Sheet:
In the equity section, the accounting entries would appear as:
- Stated Capital (or Common Stock at Stated Value): $50,000
- Additional Paid-in Capital: $2,450,000
So, the total capital received from this stock issuance would be $2,500,000, with a portion recognized as the base stated capital and the rest as additional paid-in capital.
This example demonstrates how a company might use a stated value in lieu of a par value when issuing shares. The stated capital acts as a foundational equity amount, while the additional paid-in capital represents the premium that investors pay over this baseline amount.
