What Is a Non-Assessable Stock?
Let me explain what a non-assessable stock is: it's a type of stock where the company that issues it can't come back to you, the shareholder, and demand more money for additional investments. Your maximum liability as the buyer is just the initial price you paid for the shares. You'll find that stocks from U.S. companies traded on U.S. exchanges—and pretty much all other major exchanges—are generally non-assessable.
Key Takeaways
When we talk about non-assessable, we're referring to shares that don't let the issuer ask for more payments from you as a stockholder. Today, the vast majority of shares fall into this category. Back in the 19th century, though, companies often issued assessable stock at a discount, with the option to later assess shareholders for additional funds.
Understanding Non-Assessable Stock
Think of non-assessable stock as the direct opposite of assessable stock, which is an outdated type of equity offering. In the late 1800s, assessable stock was the norm, sold at a discount with the understanding that the issuer could later call for more money from investors.
For instance, imagine a share with a $20 face value sold for just $5. Later, the company could assess you for up to the remaining $15. If you didn't pay, the stock would revert back to the company.
It's no shock that assessable stock fell out of favor. By the early 1900s, most companies shifted to non-assessable stock, and the last ones were issued in the 1930s. Even though equity wasn't sold at a discount anymore, you as an investor gained confidence knowing you wouldn't be forced to pour more money into the stock after buying it.
Important Note on SEC-Registered Offerings
For any equity offering registered with the SEC, it's standard to have a law firm's opinion stating that the shares are 'duly authorized, validly issued, fully-paid and non-assessable.' This is crucial boilerplate language you should look for.
Investor Protections with Non-Assessable Stock
As the purchaser of non-assessable stock, your biggest commitment is the initial purchase price. You might lose that if the stock value drops to zero, but the company can't require you to invest more just to keep your ownership. Plus, if the company goes bankrupt, you won't lose more than what you put in initially.
Example of a Non-Assessable Stock
You'll see the term 'non-assessable' right on the stock certificates for these shares. Take this vintage example from the Pennsylvania Power & Light Company: a 1973 common stock certificate for 20 shares includes the phrase 'fully paid and non-assessable shares of the common stock without nominal or par value.' This kind of language is standard and confirms the status directly to you, the holder.
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