Assessable Stock

What Was Assessable Stock?

Assessable 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. This may be contrasted with non-assessable stock.

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. Also, assessable capital stock was only issued by financial institutions.

Understanding Assessable Stock

Assessable stock was the primary offering type issued in the late 1800s. To entice investors into buying a potentially expensive stock, issuers would initially sell the stock at far below the dollar value printed on its stock certificate.

For example, say an assessable stock issue had an initial capitalization of $20. The issuer might sell the stock for $5, or a 75% discount. Eventually, the issuing company would almost always come back to investors for more money, up to the difference between the initial investment and the face value of the stock. In this case, the company could ask for as much as an additional $15. If the investor refused this assessment, the issuing company could resell that stock certificate.

Timeframe for Assessable Stock

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 more money, they issue additional stock or bonds.

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 that received the gift of stock and also has received an offer to essentially buy more stock at a set price, once the company that issued it asks for more money.

One reason knowing about assessable stocks might be on the test is that the industry simply wants its professionals to know about the structure of assessable stock, in the event that companies ever attempted to assess common shareholders in the future. This practice is not permitted for non-assessable stock.