Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Courses
  • Tutoring
  • Home
  • Economics, Finance, & Analytics
  • Investments, Trading, and Financial Markets

Discount Share (Stock) - Explained

What is Discount Share?

Written by Jason Gordon

Updated at April 17th, 2022

Contact Us

If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.

Please fill out the contact form below and we will reply as soon as possible.

  • Marketing, Advertising, Sales & PR
    Principles of Marketing Sales Advertising Public Relations SEO, Social Media, Direct Marketing
  • Accounting, Taxation, and Reporting
    Managerial & Financial Accounting & Reporting Business Taxation
  • Professionalism & Career Development
  • Law, Transactions, & Risk Management
    Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
  • Business Management & Operations
    Operations, Project, & Supply Chain Management Strategy, Entrepreneurship, & Innovation Business Ethics & Social Responsibility Global Business, International Law & Relations Business Communications & Negotiation Management, Leadership, & Organizational Behavior
  • Economics, Finance, & Analytics
    Economic Analysis & Monetary Policy Research, Quantitative Analysis, & Decision Science Investments, Trading, and Financial Markets Banking, Lending, and Credit Industry Business Finance, Personal Finance, and Valuation Principles
  • Courses
+ More

Table of Contents

What is a Discount Share (Stock)?How Does a Discount Share Work?Academic Research on Discount Share

What is a Discount Share (Stock)?

These are the stocks issued in the market to be sold for less than its nominal value or par value. It also refers to selling shares below the fair market value. The nominal value or par value of a share is the minimum price for a specific class of stock to be sold in a public or private offering. The company charter states the par value.

Back to:INVESTMENTS & TRADING

How Does a Discount Share Work?

Discount shares are issued at a discount price to incentivize the investors to purchase the stocks. For this purpose, it is common to issue shares at a price below the market value. It is not common, however, to issue shares below their par value. In general, there is no connection between the market price and par value. Nowadays most of the stocks are issued without a par value. In most of the states of the U.S., it is prohibited to sell the shares at a price less than its nominal or par value. The legal restriction of selling the shares at such a discounted rate is in effect to safeguard the interest of the creditors of the company. The discounted share may result in a deficiency in company capital and shortage of assets. The assets are needed to pay the debt in case of insolvency. Also, the shareholders purchasing the discount shares may face contingency liability to the creditors for the price difference. There are certain exceptions to the rule where a share can be purchased at a discounted rate below par value. Employees with certain stock options are allowed to purchase the share at a low price. Companies may grant a discount on the stocks for their employees at an early stage. The market value may increase at the time when the employees can actually purchase the share, but they are legally permitted to purchase it at a discounted rate.

discount share

Was this article helpful?

Yes
No

Related Articles

  • Yellow Sheets - Explained
  • Inflation Protected Securities - Explained
  • Black Litterman Model - Explained
  • Treasury Bond (T-Bond) - Explained



©2011-2021. The Business Professor, LLC.
  • Privacy

  • Questions

Definition by Author

0
0
Expand