What Is a Non-Assessable Stock?
A non-assessable stock is a class of stock in which the issuing company is not allowed to impose levies on its shareholders for additional funds for further investment. The maximum liability the purchaser of the stock assumes is equal to the initial purchase price of the shares. Stocks issued by U.S. companies and traded on U.S. exchanges—and indeed, on almost al are generally non-assessable.
- Non-assessable stock is a class of shares, the issuer of which cannot demand additional payment for the shares from stockholders.
- Virtually all shares are non-assessable nowadays.
- In the 19th century, it was common for companies to issue assessable stock: Shares were sold at a discount, with the understanding the issuer could levy an assessment for more funds on shareholders in the future.
Understanding Non-Assessable Stock
Non-assessable stocks are the opposite of assessable stocks, a now-defunct type of primary offering. Assessable stock was usually sold at a discount and did allow the issuer to gather additional funds from investors after their initial purchase of the stock. For example, a share of stock with a face value of $20 might be sold for $5. At some point, the issuer would slap the investors with an assessment for more funds—up to the entire discounted amount ($15, in this example). If an investor refused to pay, the stock returned to the issuing company.
Assessable stock was the primary type of equity issued in the late 1800s. Not surprisingly, it proved unpopular, and most companies switched over to issuing non-assessable stock in the early 1900s; the last accessible shares were sold in the 1930s.
Although an equity was no longer sold at a discount compared to its share price, investors were more confident about buying non-assessable stocks because they no longer had to worry about the possibility that the issuer would force them to invest more money in the stock after the initial transaction.
In any sort of equity offering that is registered with the Securities and Exchange Commission, it is standard to include the opinion of a law firm that states the shares are "duly authorized, validly issued, fully-paid and non-assessable."
In other words, the largest investment the purchaser of a non-assessable stock has to make is the initial purchase price of the shares. The investor may lose the invested amount if the stock price goes to zero. However, the investor will never be required by the issuing company to make additional investments as a condition of their stock ownership. 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 stock certificates.
For example, this vintage Pennsylvania Power & Light Company common stock certificate for 20 shares, dating from 1973, contains the phrase "fully paid and non-assessable shares of the common stock without nominal or par value." The language is highly common boilerplate.