Face Value (FV) is one of the most fundamental concepts in equity and corporate finance. It plays a crucial role in determining a company’s capital structure, stock valuation, and investor perception.
This guide will cover:
✅ What is Face Value?
✅ How is Face Value different from Market Value & Book Value?
✅ Best strategies for setting up Face Value
✅ How Face Value affects company financials & stock performance
1️⃣ What is Face Value (FV)?
Face Value (FV) is the nominal value of a share or security assigned by the company when it is issued. It represents the base price of a share and is mentioned in the company’s Memorandum of Association (MOA).
📌 Example:
- A company issues 1,00,000 shares at ₹10 each (Face Value)
- The Total Initial Paid-up Capital = ₹10,00,000 (1,00,000 × ₹10)
🔹 Face Value remains constant over time unless a stock split occurs.
🔹 It does not reflect the actual market price of the share.
2️⃣ Face Value vs. Market Value vs. Book Value
| Aspect | Face Value (FV) | Market Value (MV) | Book Value (BV) |
|---|---|---|---|
| Definition | The nominal value of a share set by the company at issuance. | The price at which the share is traded in the stock market. | The value of a company’s net assets per share. |
| Changes Over Time? | No (except in stock splits) | Yes (based on supply & demand) | Yes (based on company financials) |
| Who Decides It? | The company at the time of incorporation. | Determined by stock market investors. | Calculated based on assets & liabilities. |
| Example | ₹10 (set at issuance) | ₹500 (stock market trading price) | ₹150 (book value per share) |
3️⃣ Best Strategies for Setting Up Face Value
✅ Strategy 1: Use ₹10 as Standard (Most Common for Private & Public Companies)
- Why? ₹10 is the most widely accepted default FV in India (used by listed & private companies).
- Best for: Startups, Private Limited Companies, and IPO-bound companies.
✅ Strategy 2: Set a Higher Face Value (₹100, ₹1,000) for Premium Businesses
- Why? Companies in industries like finance, insurance, and real estate often use higher FV to maintain a premium perception.
- Example: HDFC Bank, LIC, and Tata Capital have higher FV per share.
- Best for: Large corporations & traditional businesses that do not expect frequent trading.
✅ Strategy 3: Set a Lower Face Value (₹1 or ₹2) for High-Growth Companies
- Why? Lower FV allows greater liquidity and makes future stock splits easier.
- Example: Companies like Zomato, Paytm, and Tata Steel have ₹1 FV.
- Best for: Tech startups, high-growth companies, and stock-market-driven businesses.
✅ Strategy 4: Keep FV Flexible for Future Capital Adjustments
- If you expect frequent fundraising rounds, a moderate FV like ₹5 or ₹10 allows flexibility in issuing shares at a premium.
- Best for: VC-backed startups, fintech, and consumer brands.
4️⃣ How Does Face Value Affect Business & Stock Performance?
🔹 Impact on Shareholders & Fundraising
✔ Higher Face Value (₹100, ₹1,000):
- More capital raised with fewer shares.
- Useful for private placements & corporate investors.
- Less liquidity in stock markets.
✔ Lower Face Value (₹1, ₹2, ₹10):
- Allows greater public participation.
- Suitable for companies planning IPOs, stock splits, and bonus issues.
- More attractive to retail investors.
🔹 Impact on Stock Market Trading
✔ Companies with lower FV (₹1-₹10) have more liquid stocks.
✔ Stock Splits are easier with lower FV (e.g., ₹10 FV can split into ₹5 or ₹1).
✔ Investors compare FV to Market Value to assess valuation.
5️⃣ Can Face Value Be Changed?
✅ Face Value Changes Due to Stock Splits
- A company cannot directly change Face Value, but it can split shares to reduce FV.
- Example:
- A stock with FV ₹10 undergoes a 1:5 stock split, changing FV to ₹2 while maintaining the same market value.
- If a share was trading at ₹500 before the split, it will become ₹100 after the split (but investors will have 5x more shares).
6️⃣ Face Value & Corporate Actions (Bonus, Rights, & IPOs)
| Corporate Action | How Face Value Affects It? |
|---|---|
| Bonus Shares | Issued based on FV (e.g., 1:1 bonus means for every 1 share of ₹10 FV, 1 more share is given). |
| Rights Issue | New shares issued at a price above or at FV (e.g., Rights Issue at ₹50 for ₹10 FV share). |
| Stock Splits | Splitting a ₹10 FV share into 2 shares of ₹5 FV each. |
| IPO Pricing | IPO price is determined based on a premium over FV (e.g., ₹10 FV stock is issued at ₹100 IPO price). |
7️⃣ How to Choose the Best Face Value for Your Company?
| Business Type | Recommended Face Value | Why? |
|---|---|---|
| Startup / Private Limited | ₹10 | Standard, easy fundraising. |
| Tech / High-Growth Companies | ₹1 – ₹5 | Helps liquidity, attracts retail investors. |
| Banks & Financial Institutions | ₹10 – ₹100 | Premium valuation, fewer shares. |
| Stock Market Listed Companies | ₹1 – ₹10 | Improves liquidity, allows stock splits. |
| Family-Owned Businesses | ₹100 – ₹1,000 | More control, premium perception. |
📌 Final Verdict: What’s the Best Strategy for Setting Face Value?
✔ If planning for IPO & Public Investment: Set FV at ₹1, ₹2, or ₹10 for liquidity & easy fundraising.
✔ If issuing high-value private placements: Set FV at ₹100 or ₹1,000 for premium positioning.
✔ If unsure about future needs: Keep FV flexible (₹10 is ideal for most businesses).
💡 Final Tip: Face Value does not determine a company’s worth, but it plays a critical role in how shares are issued, traded, and valued. Always consult a CA or financial expert before setting FV! 🚀
Would you like help with setting your company’s Face Value or planning an IPO? 😊