The first definition refers to share prices. Every public company determines what the nominal price of its shares will be, which can also be known as the ‘par value’ of each share. Once a nominal share price has been set, the company cannot sell any shares for an amount below that nominal value.
Nominal values of larger businesses tend to linger around the 100p or $1 per share mark, while some smaller companies can set a nominal share price of value as low as one-hundredth of a penny. Denominations of 1p or 0.1p are also common for smaller companies. The nominal value does not move based on the share price, and should not be used to determine the market value of a public company.
When smaller companies see their share price fall below the nominal value of their shares they can find it difficult to raise funds, as investors are not willing to pay above the nominal value of a share when the market has valued those shares at a lower level. This can see companies ask shareholders permission to lower the nominal value of shares so any fundraising is more attractive to the market.
Nominal values are also often used in economics as expressions of monetary terms for a specific period without changing the figure to reflect inflation. This allows economists to compare the actual changes in price or growth.
A third, similar definition is applicable for mergers and acquisitions. If a company pays a nominal fee for an asset, then this means the company is purchasing an asset at a negligible price that is way below the actual value of the asset. An example of when a business would pay a nominal fee would be a building materials firm agreeing to buy a construction company for just 100p (the nominal fee as the business would be worth more if it has any assets whatsoever). This nominal fee could be agreed because the building materials firm has agreed to take on a heap of debt from the construction business under the transaction, for example, rather than pay a large amount to the construction firm.
