Non-Assessable Stock
Candlefocus EditorNon-assessable stock refers to the type of shares issued by corporations in which the issuer does not have the ability to demand additional payments from shareholders for their shares. This class of shares dominates the current capital markets, with most of the shares issued today being non-assessable.
History of Non-Assessable Stock
Prior to the widespread adoption of non-assessable stock, companies primarily issued what is known as assessable stock. This type of stock was very common in the 19th century, especially in the mining industry. Such stocks were typically offered at a discount and the issuer had the right to demand an assessment on the shareholders at a later date to raise additional funds.
Advantages of Non-Assessable Stock
The main advantage of non-assessable stock is that it provides greater certainty for shareholders. Since there is no risk of being asked to pay an additional assessment in the future, investors can better plan their long-term investments. This also makes it much easier for companies to attract investors, as non-assessable stock is generally perceived as providing greater protection for investors.
In addition, non-assessable stock helps to ensure that companies will remain responsible and accountable to their shareholders. This is because, without the ability to call for assessments, the company must find alternative methods to raise additional funds, such as issuing new stock or taking out loans. This keeps the company more financially responsible and provides shareholders with additional safeguards.
Disadvantages of Non-Assessable Stock
Of course, there can be some drawbacks to relying solely on non-assessable stock. With no ability to call for assessments, companies may simply become complacent and not do enough to raise additional capital when it is needed. Likewise, investors may not have a good understanding of when and how the company will raise additional funds. Additionally, the lack of assessments may mean both parties are not as informed about their respective rights and responsibilites as they could be.
Conclusion
Non-assessable stock has become the standard in modern capital markets and offers greater certainty and protection for investors. However, it is also important to be aware of the potential drawbacks of relying entirely on non-assessable shares. In the end, it is important for both companies and investors to understand the implications of non-assessable stock and make sure they are going into the investment with their eyes open.