What is the Face Value of a stock? How Face Value of a stock is decided ?

In layman’s terms, the face value of a stock (also called par value) is the original value assigned to a share when the company first creates it.

Think of it like this:

Imagine a company is born and it decides to create 1,000 shares. It gives each share a face value of ₹10 (or $10). This is just a nominal number—like printing ₹10 on a coupon. It doesn’t necessarily reflect the share’s real worth in the market.

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Key Points:

• Face value = fixed and set by the company when the stock is created.
• It doesn’t change, even if the market price goes up or down.
• It is used for accounting, calculating things like dividends, and splitting shares.
• The market value (or trading price) is what people are actually willing to pay for the stock, and that’s usually very different from the face value.

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Simple Example:

Let’s say:

• A stock has a face value of ₹10.
• But on the stock market, it is trading at ₹500.

This means:
Face value = ₹10 (the printed or original value)
Market value = ₹500 (what people are buying/selling it for)

So the face value is just a formal or legal number, not what the stock is worth in real life today.

How Face Value of a Stock is decided?

The face value of a stock is decided by the company itself when it is first formed and ready to issue shares. It’s usually a small, arbitrary number and doesn’t depend on market conditions or the company’s real value.

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Here’s how it’s decided (in layman’s language):

1. When a company is formed, it registers with the government and creates its capital structure.
2. It decides:
   • How many shares it wants to issue (say 1,00,000 shares).
   • What face value to give each share (say ₹10 per share).
3. So, if the company wants to raise ₹10 lakh (₹1,000,000) in total initial capital, it issues: ₹10 face value × 1,00,000 shares = ₹10,00,000

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Why face value is usually low:

• A low face value (like ₹1, ₹2, or ₹10) makes it easier to divide the company into many small parts, so that more investors can afford to buy shares.
• It also helps in splitting shares later to increase liquidity in the market.

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Important:

Face value is not based on business performance, profits, or company size.
It’s just a formality used for:

• Accounting
• Declaring dividends (e.g., “dividend of 50% on face value” means ₹5 if face value is ₹10)
• Regulatory filings

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Common face values in India:

• Most companies use ₹1, ₹2, or ₹10 as face value.
• It can differ from country to country and company to company.