Non-Assessable Stock

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on September 07, 2023

Are You Retirement Ready?

What Is a Non-Assessable Stock?

Non-assessable stock refers to shares of a company that have been fully paid for, absolving the shareholder from any additional financial obligation to the company.

This is in contrast to assessable stock, where shareholders might be required to pay more than the initial purchase price. Non-assessable stocks are the standard type of stock issued by corporations in many jurisdictions, including the United States.

The primary purpose of issuing non-assessable stock is to protect investors from future claims by the corporation.

When an investor buys a non-assessable stock, they can rest assured that their liability is limited to the amount they initially invested, providing stability and predictability to their investment.

This security and assurance help to foster a broad and active market for the purchase and sale of corporate stock.

Features of Non-Assessable Stocks

Full Payment

A critical feature of non-assessable stock is the requirement for full payment at the time of purchase. Once bought, shareholders owe nothing more to the company, regardless of its financial circumstances.

No Additional Financial Obligation

Non-assessable stocks come with the guarantee that the issuing company will not demand additional payment. Hence, shareholders are not liable for the company's debts or other financial burdens.

Rights of Shareholders

Non-assessable stock shareholders enjoy the same rights as other shareholders, including voting rights and dividends, without the risk of additional assessments.

Features of Non-assessable Stocks

Advantages of Non-Assessable Stocks

Investor Protection

Non-assessable stocks offer significant protection to investors. As no additional payments can be levied, investors have a clear understanding of their maximum potential loss: the initial investment.

Stability in Investment

Non-assessable stocks provides stability to an investor's portfolio. The absence of further financial obligations makes them a steady, predictable investment choice.

Wide Market Acceptance

Non-assessable stocks are widely accepted and more common in the market, which increases their liquidity and potential marketability.

Disadvantages of Non-Assessable Stocks

Lack of Flexibility for the Company

Companies issuing non-assessable stock may lack financial flexibility. In case of financial distress, they cannot call upon shareholders for additional capital.

Potential for Financial Limitations

Relying solely on non-assessable stock for capital raising might limit a company's financial capacity, especially when substantial funding is needed.

Advantages and Disadvantages of Non-assessable Stocks

Creation and Issuance of Non-Assessable Stocks

Role of the Company's Board of Directors

The board of directors of a company plays a critical role in the decision to issue non-assessable stock. They must balance the potential benefits against the possible financial limitations this type of stock might pose.

Laws and Regulations

Laws and regulations often govern the issuance of non-assessable stock. Companies must adhere to these rules, which vary between jurisdictions, during the issuance process.

Non-Assessable Stock in Different Jurisdictions

US Perspective

In the United States, when companies issue stocks, they are usually non-assessable. This means that shareholders are not obligated to pay any additional money beyond the initial purchase price of the shares.

Both federal and state laws in the US strongly support non-assessable stocks and aim to protect investors.

UK Perspective

In the United Kingdom, most companies also issue non-assessable stocks, which are referred to as "fully paid" shares.

The Companies Act of 2006 establishes the guidelines for issuing these shares. In simple terms, when investors buy fully paid shares, they do not have any further financial obligations to the company.

Other Jurisdictions

In different countries, the laws and regulations related to non-assessable stocks can vary significantly.

It is crucial for investors to be aware of these differences before investing in foreign markets. Understanding the specific rules governing non-assessable stocks in each jurisdiction is important for making informed investment decisions and avoiding potential financial risks.

Role of Non-Assessable Stock in a Company’s Capital Structure

Raising Capital

Non-assessable stocks provides a significant means for companies to raise capital. By issuing these stocks, companies receive immediate funding without incurring debt.

Control of the Company

The non-assessable stock allows a company to raise capital while distributing ownership. However, control remains with the existing management, given that voting rights are proportionate to shares held.

Non-Assessable Stock and Investors

Investor Considerations

Investors consider non-assessable stocks a lower-risk investment. However, they must still carefully evaluate the company's financial position and future prospects.

Risks and Rewards

Despite no risk of assessment, non-assessable stockholders face other risks, such as market and business risks. On the other hand, the rewards include potential dividends and capital appreciation.

Future of Non-Assessable Stocks

Predictions and Trends

As business environments evolve, non-assessable stocks are likely to remain a staple in capital markets due to their benefits to both companies and investors. Predict a continued preference for non-assessable stocks, primarily driven by investor protection regulations.

Impact of Changes on the Business Environment

Innovations in financial technology and changing business landscapes might influence the issuance and trading of non-assessable stocks. However, their core value proposition of stability and investor protection will likely continue to drive their popularity.

Final Thoughts

Non-assessable stock, a secure investment option, assures investors by eliminating further financial obligations beyond the initial investment. Though it may limit a company's financial flexibility, the benefit of immediate capital infusion typically outweighs this drawback.

Despite varying regulations in different jurisdictions, non-assessable stocks are standard issuances in many regions, including the US and UK. They play a vital role in a company's capital structure, distributing ownership without diluting control.

Amid evolving business environments and financial technology innovations, non-assessable stocks remain a reliable and robust choice, offering both investor protection and an efficient capital-raising method for companies.

Therefore, investors should be aware of the benefits and risks of non-assessable stocks, considering not only a company's current financial status but also its future prospects.

Non-Assessable Stock FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

Discover Wealth Management Solutions Near You

Find Advisor Near You