Photo: Stephane de Luca
Here’s an interesting tidbit from Apple’s preliminary proxy statement: Apple is asking shareholders, for the first time, to assign a value to its shares.What? Don’t investors assign a value to Apple’s shares every second it trades?
Well, yes and no.
Apple shares today have no par value—an archaic accounting concept that assigns a nominal value to shares.
It dates back to the old days when stock was issued on paper certificates, on which the par value would be printed. In theory, in some circumstances, shareholders could trade in the certificate and ask the company to redeem their shares for that value.
To avoid creating a liability, companies either set their shares’ par value very low, or assign no par value, if that’s allowed in their jurisdiction.
Apple was set up decades ago in California, which allows companies to assign no par value to their shares. But that’s creating legal and accounting headaches for the company in areas where the par value figures into local laws—for example, Delaware corporation taxes. If a company doesn’t assign a par value to its shares, local authorities may use their own formulas, which means a company with no-par-value shares may end up paying more than a company with low-par-value shares.
The no-par-value option was news to us, and we’ve reviewed dozens of companies’ articles of incorporation. The modern recommendation for creating companies involves setting a very low par value on shares, as Apple now wants to do.
Here’s Apple’s explanation:
Establishing a Par Value for the Company’s Common Stock
The proposed amendment of the Articles would also amend Article III of the Articles to establish a par value for the common stock of $0.00001 per share.
Currently, the Company’s common stock has no par value. The Company anticipates that establishing a par value of $0.00001 per share will reduce corporate expenses and thus benefit the shareholders. Under the laws of the State of California, which is the state in which the Company is incorporated, a corporation may have par or no par value stock. However, some other states impose qualification or licensing fees on foreign corporations to transact business in such states based upon the authorised capital stock of a corporation. In certain states, the rates at which qualification or licensing fees are assessed differ, depending upon whether the shares of the corporation are with or without par value, with nominal par value shares being assessed at a lower rate than no par value shares, in some cases. The Company believes that adopting a nominal par value for its shares will, in some cases, result in the Company being assessed qualification or licensing fees on a similar basis as other companies that also have a nominal par value for their shares.
Establishing a par value for the Company’s common stock will have no effect on any of the rights and privileges now possessed by holders of common stock. The Company does not expect that establishing a par value for the Company’s common stock will have any material accounting impact.
Apple has 940.7 million shares outstanding, so setting its par value at $0.00001—a thousandth of a penny—would put the technical value of the company’s capital stock at $9,407. Apple’s obviously worth a lot more—that figure just illustrates the degree to which par value has become an abstract accounting concept.