What Was an Assessable Security?
Assessable security or stock, now a defunct type of primary offering, was a class of equities that a company would issue to investors at a discount to face value in exchange for the company’s right to come back to investors for more money at a later date. There were few restrictions as to when a company could impose a levy on issued stock.
Typically, the amount a company could demand was equal to the face value of the stock minus the purchase price. In other words, the investor paid a discount to face value, but may have to pay the discount amount to the company at a later date.
- Assessable securities were a type of stock issue sold to investors at a discount in exchange for the right to come back for more money at a later date.
- These issues are no longer allowed on major financial exchanges.
- Assessable securities were sold at a discount, but the company could come back for additional funds at a later date.
- The company could ask for funds up to the discounted amount.
Understanding Assessable Securities
The last time companies issued assessable stocks in the U.S., or other developed markets, was before World War II. Today, all securities traded on major exchanges are non-assessable, and if companies need to raise additional funds, they typically issue additional stock or bonds.
Another type of assessable stock, called assessable capital stock, made shareholders liable for an amount greater than what they paid for their stock. However, the assessment of this particular type of stock only took place in the event of bankruptcy or insolvency. Moreover, assessable capital stock was only issued by financial institutions like banks.
Assessable stock is still a topic on the Series 63, or Uniform Securities Agent license exam, which each state requires to conduct securities business. Exam takers, for example, are required to know that a gift of assessable stock is considered both a sale, as well as an offer; the person received the gift of stock and also received an offer to essentially buy more stock at a set price, once the company that issued it asks for more money.
In the current market, preferred shares and bonds have a face or par value. Common shares do as well, but typically this is set at $0.001 or some other number that is virtually nil.
Example of an Assessable Security
There are no current examples of this type of security because they are no longer issued on major financial stock markets.
A hypothetical example of an assessable security would be if a company issued par value shares at $100, but sold them at $90, or $70. The company could come back at a later date and ask for up to $10, or $30 as the case may be. These top-up amounts could be up to the amount of the discount the investor originally received.