Stock discount

Definition

A stock discount occurs when shares are issued at a price below their par value. This often happens during initial offerings or rights issues to attract investors.

5 Must Know Facts For Your Next Test

1. A stock discount can dilute the value of existing shares, affecting current shareholders.
2. Issuing stock at a discount requires specific authorization by the corporation's board and sometimes approval from shareholders.
3. Accounting for stock issued at a discount involves debiting a Discount on Stock account, which is treated as a contra equity account.
4. Legal restrictions may apply to issuing stock at a discount, depending on jurisdiction and corporate bylaws.
5. Discounts on stock issuance are often used in situations where the company needs immediate capital but struggles to attract investors at par value.

Related terms

Par Value:

The nominal or face value of a share as stated in the corporate charter.

Rights Issue: An offering of additional shares to existing shareholders, usually at a discounted price.

Contra Equity Account: An account that reduces total equity, such as treasury stock or discounts on stock issuance.