Certificates non-assessable and fully paid: Overview, definition, and example
What does "certificates non-assessable and fully paid" mean?
"Certificates non-assessable and fully paid" is a term used in securities law to indicate that shares issued by a company have been fully paid for by the shareholder and that the shareholder has no further financial obligations to the company related to those shares. This means the company cannot demand additional payments from the shareholder beyond the original purchase price of the shares.
For example, when an investor buys common stock in a corporation and receives a share certificate stating that the shares are "fully paid and non-assessable," it confirms that the company cannot later require more funds from the investor for those shares.
Why is "certificates non-assessable and fully paid" important?
This concept is important because it protects shareholders from unexpected financial obligations. It ensures that once shares are purchased and paid for, the shareholder has full ownership without the risk of additional assessments, calls for payment, or capital demands from the issuing company.
For businesses, issuing fully paid and non-assessable shares builds investor confidence, as it guarantees that ownership rights are clear and final. This assurance can attract more investors and provide stability in capital markets.
Understanding "certificates non-assessable and fully paid" through an example
Imagine a startup raises capital by issuing shares to investors. Each investor pays the agreed-upon price for their shares, and the company provides certificates stating that the shares are "non-assessable and fully paid." This means the company cannot later demand more money from those investors for the same shares.
In another scenario, a publicly traded company issues new shares in a secondary offering. The purchase agreement specifies that all shares are fully paid and non-assessable, ensuring that buyers will not be subject to future financial obligations beyond the initial purchase price.
An example of a "certificates non-assessable and fully paid" clause
Here’s how this clause might appear in a stock issuance agreement:
“All shares issued under this Agreement shall be fully paid and non-assessable. The holder of such shares shall have no further obligation to the Company with respect to additional payments, contributions, or assessments related to the shares purchased.”
Conclusion
The designation "certificates non-assessable and fully paid" provides shareholders with legal protection against future financial claims from the issuing company. It assures investors that their ownership is complete upon purchase, fostering trust and stability in securities transactions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.