Definition
Non-Assessable Stock, also known as fully paid shares, refers to shares of a company’s stock for which the holder is not liable for any further payments beyond the initial payment. This means that if the company requires more capital in the future for debts or operations, the shareholders holding non-assessable stocks are not obliged to contribute. In other words, the financial obligation of the shareholder is limited to the original cost of the shares.
Phonetic
The phonetics of the keyword “Non-Assessable Stock” would be: Non – /nɒn/Assessable – /əˈsɛsəbəl/Stock – /stɑːk/
Key Takeaways
Sure, here you go.
- Non-Assessable Definition: Non-assessable stocks, also known as fully paid stocks, are shares that the holder is not liable for any more money beyond the initial investment. Once purchased, the stockholder is not required to pay additional fees or funds towards the company’s potential debts or obligations.
- Set Costs: Non-assessable stocks differ from assessable stocks in the fact that their costs are set. They cannot be assessed for further payments, making them a safer but potentially less rewarding investment compared to assessable stocks that may request further investment.
- Common in U.S.: Non-assessable stocks are the most common type of stock sold in the United States. The opposite, assessable stocks, are more rare and primarily used by companies in risky industries or in financial distress.
- Shareholder Rights
- Capital Stock
- Stock Certificate
- Shareholder Liability
- Par Value
Importance
Non-assessable stocks hold significant importance in the business/finance realm as they provide a layer of protection to shareholders. Once these stocks are bought, shareholders are not obligated to contribute additional funds beyond the initial purchase price, even if the company falls into financial hardship. This means that the company cannot levy additional charges, thus, limiting the financial liability of investors. They are highly sought after for this level of assuredness, as the risk associated with investment is reduced. Moreover, non-assessable stock simplifies the investment process because investors don’t have to worry about potential assessment calls, making it an attractive choice for many individuals and institutions.
Explanation
Non-assessable stocks, also known as fully paid shares, offer a significant advantage to investors due to the protection they provide. Their purpose is to mitigate the potential financial responsibilities of shareholders to contribute more capital beyond their initial investment. As the name suggests, once investors have purchased the shares at a specific price, these stocks cannot be “assessed” or called upon for additional money irrespective of the company’s financial state. This makes non-assessable stocks an attractive choice for investors as it caps their financial risk to the initial amount they invested in purchasing the shares, ensuring they are not liable for any of the company’s debt or additional financial obligations.The usage of non-assessable stock serves not just as a protection to investors, but also acts as a means to draw in more investments, especially from more cautious investors who prioritize security and predictability. From a company’s perspective, non-assessable stocks can help raise equity capital by selling these shares to the public or private investors, with the assurance to investors that they are not liable for any additional payments. As such, non-assessable stocks offer a precise and defined amount of risk for investors, enhancing the appeal of the company’s investment proposition.
Examples
1. Alphabet Inc: Alphabet Inc., the parent company of Google is a real-world example where non-assessable stocks are issued. When an investor buys a share of Alphabet, they pay a fixed price at the beginning and run no risk of being assessed for more money later on. 2. Tesla Inc: Tesla, an American electric vehicle and energy company, also issues non-assessable shares. Once an investor has purchased a share in Tesla, they are not liable for any additional payments.3. Microsoft Corporation: Microsoft, one of the largest technology companies, offers shares to investors that are non-assessable. This means that the company wouldn’t come back to shareholders asking for more money to cover the debts of the corporation. Once the shares have been initially paid for, no further assessments will be made.
Frequently Asked Questions(FAQ)
What is non-assessable stock?
Non-assessable stock refers to shares that are fully paid by the investors and they are not liable for any further payment other than the price they originally paid for it. Investors are not required to invest additional funds into the company if financial necessity arises.
How does non-assessable stock differ from assessable stock?
In contrast to non-assessable stock, assessable stockholders may be required to pay extra money beyond the initial purchase price for the benefit of the company if the company deems it necessary. Non-assessable stockholders have no such obligation.
What is the main benefit of owning non-assessable stock?
The main advantage is that investors are exempt from additional investment requirements in the company. This limit shareholders’ investment to only the initial amount paid for the stock.
Can a company issue both non-assessable and assessable stock?
Yes, a company can issue both types of stock. However, most companies issue non-assessable stock because it is more attractive to investors knowing they won’t be asked for additional financial contribution.
Are all publicly traded companies’ stocks non-assessable?
Nearly all stocks traded on major exchanges are non-assessable, as stock exchanges often require their listed companies to issue only non-assessable stocks to protect shareholders.
What happens to the shareholders if a company with assessable stock goes bankrupt?
If a company goes bankrupt, assessable stock shareholders may be required to contribute additional funds to help cover the company’s debts. This can lead to a greater financial loss than the initial investment.
Are there any potential downsides for a company to issue non-assessable stock?
The company may face limitations in raising additional funds from existing shareholders in times of financial emergency, as there is no obligation for stockholders to contribute extra capital.
Related Finance Terms
Sources for More Information
