What are shares?

Many well-known brands or businesses operate under the "Company Limited by Shares". A Company Limited by Shares divides its capital into shares, and each shareholder subscribes to the shares according to the amount of the shares; the shareholders acquire rights to the company through the shares, and the company acquires the shareholders' funds to invest in its operations.

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What is par value?

Par value refers to a certain amount of money recorded in a company's articles of incorporation or on a share certificate. According to the Company Law, a company limited by shares is required to draw up articles of association and state in the articles of association whether the company is to adopt "Par Value Shares" with a fixed par value per share or "No Par Value Shares[3]" with no par value (hereinafter referred to as "Par Value Shares" or "No Par Value Shares"). If a company adopts the par value shares[4] system, the total number of shares and the par value of the shares[5] must be stated in the articles of association. When a company issues new shares in the future, the price of the new shares cannot be lower than the par value of the shares in principle[6].

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Issue shares at Par Value

Generally speaking, if a company issues new shares at an amount equal to the par value of the shares, all the money received by the company will be added to the company's capital.

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Issue shares at Premium

However, many companies that have good business performance and high stock prices, and investors are willing to subscribe for shares at a price higher than the par value of the stock, so the company will issue new shares at an amount higher than the par value of the stock to obtain more capital. The capital obtained by the company through issuing new shares at a premium will be categorized as follows:

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.....The portion of the par value of the stock will be included in the capital of the company, and the portion of the premium in excess of the par value of the stock will be included in the capital surplus, resulting in the same consideration for the subscription of new shares by investors being viewed by the company under a different accounting account, and affecting the distribution of earnings, which is the most important concern of the investors in the following period.......

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Issue shares at a discount

Some companies wish to raise capital through the issuance of new shares to revitalize their operations due to low share prices resulting from years of losses. However, when the market price of the shares is already lower than the par value of the shares, but the price of the new shares cannot be lower than the par value of the shares in principle, the company can only issue new shares at par value, which in turn leads to a low willingness of investors to subscribe for the new shares, and the company is more difficult to raise the necessary capital. See Article 140 of Company Law

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Article 140 of Company Law

For a company issuing par value shares, its issue price of share certificates shall not be less than the par value thereof, unless otherwise provided for by the competent authority in charge of securities affairs for public companies.
For a company issuing no par value shares, its issue price of share certificate shall have no restriction.

 

What Is No Par Value Stock?

No par value stock is issued without the specification of a par value indicated in a company's articles of incorporation or on its stock certificates. Most shares issued are classified as no-par or low-par value stock, where prices of the latter are determined by the amount of cash investors are willing to pony up for the stocks on the open market.

 

No Par Value shares in Taiwan 

To solve the fundraising problems, in 2015 Taiwan stipulate Closed Held Company Limited by Shares which introduce the system of non-par-value shares for (non par-value shares). Non par-value shares are shares issued by a company that do not have a par value, but only the number of shares recognized. The par value of a nonpar value stock does not determine the proportion of each share, but rather the proportion of each share to the total number of outstanding shares. If the Company needs to increase its capital in the future, the Board of Directors will determine a reasonable price for the issuance of the shares in light of the needs of the situation, which can truly reflect the value of the Company and attract investors to participate in the subsequent capital increase at an appropriate price and increase their willingness to invest.

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In 2018, the Company Law was further amended to open up the requirement of no par value shares to all the companies limited by shares and to eliminate the requirement that the par value must be NT$1 or more. For start-up companies, shares can be issued at a very low price, and even if the capital contribution is not high, a relatively high number of shares can be obtained. The threshold for operators to acquire shares in the company is relatively low, allowing them to take control of the company's management and management, and allowing investors to utilize capital more flexibly to solve the problem of fund-raising difficulties. However, a company is allowed to choose between par value shares and non-par value shares. For companies that have already adopted the par value share system, they may convert to non-par value shares by resolution of the shareholders' meeting. However, once par value shares are adopted, they cannot be converted back to par value shares. Therefore, if a non-publicly traded company decides to adopt the par value stock system, it should continue to maintain the par value stock system and should not convert to par value stock system when it applies for public offering or listing in the future.
 

Pros and Cons of No Par Value Shares

The advantages and disadvantages of par value shares are often two sides of the same coin. The following is a brief description of the advantages and disadvantages of the par value share system:

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Advantages
1. Reflects the true value of the shares
Since there is no concept of "par value" in par value shares, it has the advantage that "the price of issuing new shares is not limited by the par value of the shares, and the company can flexibly adjust the price of issuing shares to attract a wide range of investors, and when the price of the shares is in line with the price of the shares, it is more likely to reflect the true value of the shares.

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2. Protecting the shareholding ratio of established shareholders
Under the par value system, the "capital" of a company is equal to the "number of shares" multiplied by the "par value". With a fixed par value, the more the company increases its capital, the more shares will be issued and the proportion of shares held by existing shareholders will be diluted. Existing shareholders, in order to allow the company to obtain more capital, will also face the risk of decreasing their shareholding ratio or even losing control of the company.
However, under the no-par stock system, the "capital" of the company is equal to the "number of shares" multiplied by the "issue price", so the company can flexibly adjust the issue price according to the actual value of the shares and the investors' willingness to subscribe to the shares, for example, appropriately adjusting the issue price upwards, so that the new shareholders can obtain fewer new shares with a larger capital contribution, so that the proportion of the existing shareholders' shareholding will not be easily diluted.

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Cons
1. Creating inequality among shareholders
Although a company can flexibly issue new shares using the no-par system, because there is no "par" restriction, the number of shares acquired by shareholders with the same amount of capital may differ from one shareholder to another. For example, if Shareholder A and Shareholder B both contribute NT$10 million to subscribe for new shares of Company X, Shareholder A subscribes at NT$10 per share and acquires 1 million shares, while Shareholder B subscribes at NT$100 per share and acquires only 100,000 shares, the difference in the number of shares acquired by Shareholder A and Shareholder B, despite the same total amount of capital contributed by Shareholder A and Shareholder B, is 10 times, giving rise to the right of shareholders to vote amongst themselves, This results in unequal rights between shareholders in terms of voting rights and dividend distribution.

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2. Can't become a publicly listed company

Because a public company involves the interests of a large number of investors, in principle, it continues to maintain the current system of par value shares and cannot be converted to no-par value shares, therefore, a company cannot apply for listing if it adopts the no-par value share system.
 

FAQ
Q1: What company structrure can issue no par value shares?
In 2018, the Company Law was further amended to open up the requirement of no par value shares to all the companies limited by shares and to eliminate the requirement that the par value must be NT$1 or more. All Companies limited by shares can issue no par value shares.

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Q2: Can a company with a par value share system be converted to no par value system?

If a company wants to change to a no par value shares system, the company can convert all issued par stock to no-par stock by a special resolution of the shareholders at a stockholders' meeting.  Please note that once the company has switched to the no par system, it cannot convert back to par value system.

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Ask our assistance

Discuss with us before deciding on your company structure or raising funds with new investors.  We have extensive experience helping our clients to evaluate the most suitable business structure. Contact us for more information.

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