# What is Stated Value?

## 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 Ã— \$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 Ã— \$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.

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