What is the nominal value of a share?

What is the nominal value of a share?

• A. The market price
• B. The face or par value
• C. The amount paid as premium
• D. The dividend entitlement

Answer: (B)

The nominal value is the face value of a share—the amount printed on the share certificate and used in the company’s accounting as the value of each share for share capital. It is set when the share is issued and stays fixed, regardless of what investors later pay on the market. The market price is what shares trade for and can rise or fall; it isn’t tied to the nominal value. If shares are issued above their nominal value, the extra amount is recorded separately as a premium (share premium). Dividends, on the other hand, are distributions of profits to shareholders and have no direct relation to the nominal value. For example, if 1,000 shares have a nominal value of 1 each, the share capital appears as 1,000 on the balance sheet. If investors pay 5 per share at issue, 4 per share goes to the share premium reserve, while 1 per share goes to share capital.

The nominal value is the face value of a share—the amount printed on the share certificate and used in the company’s accounting as the value of each share for share capital. It is set when the share is issued and stays fixed, regardless of what investors later pay on the market. The market price is what shares trade for and can rise or fall; it isn’t tied to the nominal value. If shares are issued above their nominal value, the extra amount is recorded separately as a premium (share premium). Dividends, on the other hand, are distributions of profits to shareholders and have no direct relation to the nominal value.

For example, if 1,000 shares have a nominal value of 1 each, the share capital appears as 1,000 on the balance sheet. If investors pay 5 per share at issue, 4 per share goes to the share premium reserve, while 1 per share goes to share capital.