Definition - What does Watered Stock mean?
Watered stock is stock that has a face value that is higher than its true worth. Watered stock can occur when a company sells shares of stock at a price that does not accurately reflect the invested capital.
In the context of the law, the stockholder can still be liable for the face value of watered stocks that he or she owns, as opposed to the lower true value.
Justipedia explains Watered Stock
Watered stock can present problems for investors, because it may have a very low degree of liquidity. This means that it could be very difficult for investors to sell shares of the stock at the watered level. Instead, if an investor wants to sell shares of his or her watered stock, then he or she may have to do so at a much lower price, and take a loss as a result. For this reason, many investors attempt to avoid purchasing watered stocks.