Non-Assessable Stock
What Is a Non-Assessable Stock?
A non-assessable stock is a class of stock where the responsible company isn't permitted to impose levies on its shareholders for extra funds to make further investments. The maximum liability the purchaser of the stock accepts at least for now that is equivalent to the initial purchase price of the shares. Stocks issued by U.S. companies and traded on U.S. exchanges (and practically any remaining exchanges) are generally non-assessable.
Figuring out Non-Assessable Stock
A non-assessable stock is something contrary to a assessable stocks, a now-old type of primary offering. Assessable stock was the primary type of equity issued in the late 1800s. Assessable stock was generally sold at a discount and permitted the issuer to gather extra funds from investors after their initial purchase of the stock.
For instance, a share of stock with a face value of $20 may be sold for $5. Sooner or later, the issuer would serve the investors with an assessment for additional funds — up to the whole discounted amount (In this model, $15). Assuming an investor would not pay, the stock returned to the responsible company.
As anyone might expect, assessable stock proved to be disagreeable. Most companies exchanged over to giving non-assessable stock in the mid 1900s, and the last assessable shares were sold during the 1930s.
In spite of the fact that equity was not generally sold at a discount compared to its share price, investors were more sure about buying non-assessable stocks since they no longer needed to worry about the possibility that the issuer would force them to invest more money in the stock after the initial transaction.
For any equity offering that is registered with the Securities and Exchange Commission (SEC), it is standard to incorporate the assessment of a law firm that states the shares are "properly authorized, legitimately issued, completely paid and non-assessable."
The biggest investment the purchaser of a non-assessable stock needs to make is the initial purchase price of the shares. The investor might lose the invested amount on the off chance that the stock price goes to zero. Nonetheless, the investor won't ever be required by the responsible company to make extra investments as a condition of their stock ownership.
At the point when a stock is non-assessable, it likewise means that assuming that the responsible company fails, the shareholders can't lose more money than they invested in any case.
Illustration of a Non-Assessable Stock
Non-assessable stocks have "non-assessable" imprinted on their stock certificates.
This vintage Pennsylvania Power and Light Company common stock certificate for 20 shares, dating from 1973, contains the phrase "completely paid and non-assessable shares of the common stock without nominal or par value." The phrase is common for boilerplate language.
Features
- In the 19th century, companies issued assessable stock at a discount with the comprehension that the issuer could levy an assessment for additional funds on shareholders later on.
- Non-assessable alludes to a class of shares that don't permit the issuer to demand extra payment for the shares from stockholders.
- The majority of shares are presently non-assessable.
