What is Issue of Shares at Par?

S7-SA7-0310

Grade Level:

Class 12

AI/ML, Physics, Biotechnology, FinTech, EVs, Space Technology, Climate Science, Blockchain, Medicine, Engineering, Law, Economics

Definition

What is it?

When a company issues shares, it means it sells parts of its ownership to the public to raise money. Issuing shares 'at par' means the company sells these shares for exactly their face value, which is the original value printed on the share certificate. For example, if a share has a face value of Rs. 10, issuing it at par means selling it for Rs. 10.

Simple Example

Quick Example

Imagine your school decides to sell 'ownership certificates' for Rs. 100 each to raise money for a new sports ground. If they sell each certificate for exactly Rs. 100, not more, not less, then they are issuing these certificates 'at par'. It's like buying a samosa for its exact listed price of Rs. 15, not paying Rs. 20 or Rs. 10.

Worked Example

Step-by-Step

A company, 'Bright Future Ltd.', decides to raise capital by issuing 10,000 equity shares.
---
Step 1: The face value of each share is Rs. 50. This is the 'par value'.
---
Step 2: Bright Future Ltd. decides to issue these shares 'at par', meaning they will sell each share for exactly Rs. 50.
---
Step 3: An investor applies for 100 shares. The amount they need to pay per share is Rs. 50.
---
Step 4: Total amount paid by the investor = 100 shares * Rs. 50/share = Rs. 5,000.
---
Step 5: The company receives Rs. 5,000 from this investor, which is exactly the face value for the 100 shares.
---
Answer: Bright Future Ltd. issues 10,000 shares at Rs. 50 each, collecting a total of Rs. 5,00,000 if all shares are subscribed.

Why It Matters

Understanding share issuance is key for anyone interested in FinTech or Economics, as it's how companies fund big projects, from building EVs to developing new medicines. Future entrepreneurs and business leaders use this knowledge to grow their companies, while investors use it to decide where to put their money. It's the foundation of how public companies operate and raise money.

Common Mistakes

MISTAKE: Confusing 'at par' with 'at premium' or 'at discount'. | CORRECTION: 'At par' means selling shares exactly at their face value. 'At premium' means selling above face value, and 'at discount' means selling below face value.

MISTAKE: Thinking 'face value' changes based on market price. | CORRECTION: Face value (or par value) is a fixed value printed on the share certificate and doesn't change. The market price, however, can go up or down.

MISTAKE: Assuming all companies always issue shares at par. | CORRECTION: Companies issue shares at par, premium, or discount depending on market conditions, company reputation, and legal rules. At par is just one method.

Practice Questions

Try It Yourself

QUESTION: If a company issues 5,000 shares with a face value of Rs. 20 each, and they are issued at par, how much total money will the company raise? | ANSWER: Rs. 1,00,000 (5,000 shares * Rs. 20)

QUESTION: 'Tech Innovations Ltd.' has a share with a face value of Rs. 100. If they issue 2,000 such shares at par, and the application money is Rs. 30, allotment money is Rs. 40, and first call is Rs. 30, how much will an investor pay on application for 50 shares? | ANSWER: Rs. 1,500 (50 shares * Rs. 30)

QUESTION: 'Green Energy Solutions' plans to issue 15,000 shares at par, with a face value of Rs. 10 each. The money is to be collected as: Application Rs. 3, Allotment Rs. 4, First & Final Call Rs. 3. If an investor applied for 200 shares and paid all amounts, what is the total amount received by the company from this investor, and what is the total amount raised by the company if all shares are subscribed? | ANSWER: From investor: Rs. 2,000 (200 shares * Rs. 10). Total raised by company: Rs. 1,50,000 (15,000 shares * Rs. 10)

MCQ

Quick Quiz

What does it mean when a company issues shares 'at par'?

Selling shares at a price higher than their face value.

Selling shares at a price lower than their face value.

Selling shares at exactly their face value.

Selling shares only to existing shareholders.

The Correct Answer Is:

Issuing shares 'at par' means the issue price is equal to the face value of the share. Options A and B describe issuing shares at premium and discount, respectively.

Real World Connection

In the Real World

When a new startup company like a local food delivery service or an EV scooter manufacturer needs money to expand, they might issue shares. If they are a new company and want to attract investors without making it too complex, they might choose to issue shares at par. This makes it straightforward for early investors to understand the value they are getting, similar to how a new shop might price its products exactly at cost to build customer trust.

Key Vocabulary

Key Terms

FACE VALUE: The nominal or printed value of a share. | ISSUE PRICE: The price at which a company sells its shares to the public. | EQUITY SHARES: Shares representing ownership in a company, giving voting rights. | CAPITAL: Money or assets owned by a business.

What's Next

What to Learn Next

Now that you understand issuing shares at par, you should explore 'Issue of Shares at Premium' and 'Issue of Shares at Discount'. These concepts build on the idea of face value and issue price, showing how companies can raise even more (or sometimes less) money depending on their market standing and financial health.