Non-par value stock from an accounting point of view;

              Bulletin HASKINS & SELLS 79
Non-Par Value Stock from an Accounting Point of View
THE original purpose back of the law
providing for issue of stock without
par value seems to have been to remove
any expression or impression of a fixed
value attaching to such shares; this for
such benefit or effect as it might have in
the affairs of corporations and their rela­tions
with those who contribute capital
to corporate enterprises.
A note of paternalism is sounded by
some writers who, in attempting to ex­plain
the reasons for the law, credit the
law-makers with a desire to protect the
investor who buys a share of stock at a
fixed price of $100 and looks upon the
disbursement as a loan to a corporation
which amount he expects to be able to
recover whenever he so desires.
Whether or not this somewhat laudable
motive was in the mind of the law-framer
may never be known, but the effect of the
law is to stamp the transaction as a pro­prietary
venture and so far as it concerns
the investor to put him on notice to inquire
as to the value of his share.
The law has a distinct advantage for
directors who desire to be honest and
straightforward since it relieves them of
the necessity of becoming parties to a
fiction which has often been misleading.
This fiction has in the past been particu­larly
true in cases involving patents,
copyrights, good-will, contracts, mines,
etc., where there is usually more or less
difficulty in fixing the value of such
acquisitions.
Under a law providing for common
stock without par value, the situation and
procedure appear immediately to be much
simplified. The common shareholder, re­gardless
of what he may have paid for
his stock, becomes entitled to such propor­tion
of the net assets, after deducting the
value of any preferred shares outstanding,
as the number of his shares bears to the
total number of common shares out­standing.
The aggregate value, or the
equity of the common shareholders, is
determined by the excess of assets over
liabilities and preferred shares. The value