A mutual company may issue shares of guaranty capital that have a stated par value.

Question

Options

• ATrue
• BFalse

• A
  73% (19)
• B
  27% (7)

Explanation

Option A is correct because most state insurance codes expressly permit mutual insurance companies to issue guaranty capital - a special class of securities designed to help mutuals raise funds without converting to a stock company structure. These shares can carry a stated par value, just as stock shares do in a stock company, making the statement true.

Option B is incorrect because it assumes mutual companies are entirely prohibited from issuing par-value instruments. While mutuals don't have traditional capital stock, guaranty capital is a legally recognized exception that bridges the gap between the mutual and stock company models.

Memory tip: Think of guaranty capital as a mutual company's workaround - it lets them tap capital markets ("guaranty" = guaranteed access to funds) while keeping their policyholder-owned structure. The "stated par value" detail signals it functions like a share, so it behaves like one - par value included.

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