I've looked everywhere, and everyone says that stocks can never sell below zero. I don't think that's true. For example, if a company is structured with unlimited liability, it should be possible for its stock to trade at negative prices.
Is it really impossible for stocks to trade at negative prices? If so, how are unlimited liability companies valued when they have negative shareholders' equity and are facing insolvency?
With an unlimited liability company, yes, in theory, its stock can trade at negative value that will still be capped by personal bankruptcy...in other words, if you own a portion of an unlimited liability company that is worth -$1 million, and your net worth is $250k, you'll just have to file personal bankruptcy and pay what can be recovered from your assets. The obvious difference with limited liability companies is that this firewall exists at the company level (rather than the individual) i.e. company files bankruptcy and your stockholdings get devalued to zero if liabilities exceed assets.
Having said all that, unlimited liability companies are quite rare if any on public exchanges. I believe most exchanges preclude them from being listed, but I can't find anything to support that belief. The last notable unlimited liability company I could find was American Express which converted to limited liability in 1965. This article states that it was the last publicly traded unlimited liability company in the United States.
A lot of the unlimited liability companies you hear of today are sole proprietors or partnerships. When you see a publicly traded corporate name/brand associated with the unlimited liability designation, that specific entity is most likely a subsidiary of some sort, probably created in that form for tax purposes, and surrounded by legal firewalls that prevent shareholder exposure to unlimited liability.
If a company has no assets and significant liabilities, it is bankrupt. With only a slight simplification, the company will be closed down. Any assets will be sold off (though in this hypothetical example, there are none). Any liabilities which cannot be paid off are simply cancelled.
Therefore, it makes no sense to claim a company is worth less than nothing, because bankruptcy would reduce that to nothing. Even if that wasn't true, stock holders aren't responsible for the company's liabilities.
It is possible for some securities (or combinations of securities) to trade below zero. For example futures, and options spreads.
However most stock exchange systems limit the minimum price of a security to a penny. If there was significant demand, modifications could be made to allow stocks to trade at negative prices, but there does not appear to be demand for such a feature (most companies are limited liability, so the value could not go below zero).
A share may not be bought, sold or traded for less than the par value. Simply stated, if the par value of a share is $1.00, then it cannot be issued to an investor for less than a dollar, paid for in funds or services.
