Legal Definitions - assessable stock

Assessable stock refers to shares in a company where the owner can be legally required to pay additional money beyond the original purchase price. This obligation typically arises if the company faces financial difficulties or needs more capital, and the shares were not initially issued as fully paid. Unlike most modern shares, which are considered fully paid upon purchase and carry no further liability for the shareholder, assessable stock carries a potential future financial obligation.

• Example 1: Historical Bank Shares

  Imagine a scenario in the early 20th century where an individual purchased shares in a newly formed local bank. These shares were explicitly designated as "assessable stock" under the bank's charter, a common practice at the time to protect depositors. Years later, due to an economic downturn and poor lending decisions, the bank faced severe financial distress and was on the brink of insolvency.

  This illustrates assessable stock because the bank's creditors or a regulatory body could legally demand that each shareholder pay an additional amount per share to help cover the bank's outstanding debts and protect its depositors. The individual, as a holder of assessable stock, would be legally obligated to pay this assessment, even though they had already paid the initial purchase price for their shares, or risk losing their investment and facing further legal action.

• Example 2: Mutual Insurance Cooperative

  Consider a specialized mutual insurance cooperative that provides coverage for a niche agricultural industry, where its members are also its shareholders. The cooperative's articles of incorporation state that its membership shares are "assessable" to ensure the long-term stability of the cooperative for all members. One year, the industry experiences an unprecedented series of catastrophic natural disasters, leading to claims that far exceed the cooperative's financial reserves and expected liabilities.

  This demonstrates assessable stock because, in this situation, the mutual insurance cooperative, following its bylaws and the terms of its assessable shares, could levy an assessment on its member-shareholders. This means each shareholder would be required to contribute an additional sum of money, beyond their initial share purchase and regular premiums, to help the cooperative meet its obligations to all insured members and remain solvent.