What is a non-assessable stock?
A non-assessable share is a category of shares in which the issuing company is not authorized to impose on its shareholders levies for additional funds intended for new investments. The maximum responsibility assumed by the purchaser of the shares is equal to the initial purchase price of the shares. Stocks issued by American companies and traded on American stock exchanges – and in fact, on almost all stocks are generally not valued.
Key points to remember
- Non-taxable shares are a class of shares for which the issuer cannot require shareholders to make an additional payment for the shares.
- Almost all actions are not assessable these days.
- In the 19e In the century, it was common for companies to issue assessable shares: the shares were sold at a discount, it being understood that the issuer could receive a valuation for more funds from shareholders in the future.
Understanding non-assessable stock
Non-assessable actions are the opposite of assessable actions, a type of main offer that has now disappeared. Valuable shares were generally sold at a discount and allowed the issuer to raise additional funds from investors after their initial purchase of the shares. For example, a share of inventory with a face value of $ 20 can be sold for $ 5. At some point, the issuer would slap investors with a valuation for more funds – up to the entire discounted amount ($ 15, in this example). If an investor refused to pay, the stock reverted to the issuing company.
Valuable shares were the main type of shares issued in the late 1800s. Not surprisingly, it turned out to be unpopular, and most companies decided to issue non-evaluable shares in the early 1900s; the last accessible shares were sold in the 1930s.
Although a stock is no longer sold at a discount compared to its share price, investors were more confident about buying non-evaluable shares because they no longer had to worry about the possibility that the Issuer requires them to invest more money in the stock after the initial transaction.
In any kind of equity investment registered with the Securities and Exchange Commission, it is common to include the opinion of a law firm which declares that the shares are “duly authorized, validly issued, fully paid and not assessable “.
In other words, the biggest investment the buyer of a non-assessable security must make is the initial purchase price of the shares. The investor may lose the amount invested if the share price reaches zero. However, the investor will never be obliged by the issuing company to make additional investments as a condition of their ownership of shares. The stock being non-assessable also means that if the issuing company goes bankrupt, the shareholders cannot lose more than they invested in the first place.
Example of non-assessable stock
Non-assessable stocks have the word “non-assessable” printed on their share certificates.
For example, this vintage Pennsylvania Power & Light Company 20-share common share certificate, dating from 1973, contains the phrase “fully paid, non-assessable shares of common shares with no par or par value”. The language is very common.