Par value is the minimum price per share that the common shares must be issued and it is also used for accounting purposes. Considering that many individuals who are just starting their corporations are small companies, we suggest having a low par value for the common shares so that the founders or initial shareholders will not need to make substantial investments in the corporations in order to have ownership.
The par value is indicated in the Certificate of Incorporation and if it is needed to be changed at some point, an amendment to this document needs to be submitted to the Secretary of State. Please notice that the par value is mostly used for common shares with a minimum price when forming the company. During the financing round, companies issue preferred shares to the investors with a price per share defined in the round.
High par value in Delaware companies
The state of Delaware can apply additional fees for companies that decide to form their business with a high par value for their shares. So, for example, if you decide to authorize 10,000,000 shares for your company with a par value of $10 then an additional fee will be applied by the state. In these cases, our team always advises the clients of the extra fee and if you do not want to pay for it the par value needs to be lowered.
Another disadvantage of having a high par value is the cost to issue common shares in the future. So, if at some point, you decide to distribute shares to founders, investors, consultants or employees the high amount needed to have them issued can be a point of concern. It also affects the amount you need to pay for the franchise tax, which can increase considerably. Please check this article for further information on this subject.
The registered agent has a calculator to estimate the additional fee and it can be accessed through this helpful link.