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Face Value: A Comprehensive Guide to Its Legal Definition and Importance
Definition & Meaning
Face value refers to the nominal or stated value of a financial instrument, such as a stock certificate or a bond. In the case of stocks, it represents the original cost of the stock as noted on the certificate, often referred to as "par value." This value is determined by the issuing company and does not reflect the market value, which can fluctuate due to various factors, including changes in interest rates and economic conditions. For debt instruments, face value indicates the principal amount that will be repaid at maturity.
Table of content
Legal Use & context
Face value is commonly used in finance and securities law. It plays a significant role in understanding the valuation of stocks and bonds during transactions, investments, and financial reporting. Legal practitioners may encounter face value in contexts such as:
Corporate finance transactions
Securities regulations
Debt issuance and repayment agreements
Users can manage related documents using legal templates available through US Legal Forms, which can assist in drafting agreements that involve face value considerations.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A company issues bonds with a face value of $1,000. At maturity, the bondholder will receive $1,000, regardless of the bond's market value at that time.
Example 2: A stock certificate states a face value of $10. However, the stock may be trading on the market for $50 due to demand and company performance. (hypothetical example)
Comparison with related terms
Term
Definition
Difference
Market Value
The current price at which an asset can be bought or sold.
Market value fluctuates based on supply and demand, while face value remains constant.
Par Value
Another term for face value, especially in the context of bonds.
Par value is often used interchangeably with face value, but may have specific implications in bond markets.
Common misunderstandings
What to do if this term applies to you
If you are dealing with financial instruments that have a face value, it is important to understand their implications for your investments or debts. Consider the following steps:
Review the terms of any financial instruments you hold.
Consult with a financial advisor or legal professional if you have questions about how face value affects your situation.
Explore US Legal Forms for templates that can help you draft agreements related to face value considerations.
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