What is Nonassessable Stock and Its Legal Implications?
Definition & Meaning
Nonassessable stock refers to a type of stock where the shareholder's liability is limited to the amount they have already paid for their shares. This means that shareholders cannot be required to pay additional funds to cover the company's debts. Typically, stock certificates for nonassessable stock will state "fully paid and non-assessable." In the United States, most stocks issued are classified as nonassessable, providing a layer of financial protection for investors.
Legal Use & context
This term is commonly used in corporate law, particularly in the context of stock issuance and shareholder rights. Nonassessable stock is relevant in various legal practices, including corporate finance and securities regulation. Understanding this classification can help investors make informed decisions and manage their investments effectively. Users can utilize legal templates from US Legal Forms to create documents related to stock transactions and corporate governance.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A company issues 1,000 shares of nonassessable stock at $10 each. Shareholders cannot be asked to pay more than the $10 they already invested, even if the company faces financial difficulties.
Example 2: A shareholder owns nonassessable stock in a corporation. If the corporation incurs debts, the shareholder's financial responsibility remains limited to their initial investment, protecting their personal assets. (hypothetical example)