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Up To Date Business By Various Characters: 6994

Updated: 2017-12-06 00:03

To organise a stock company it is necessary for a number of persons to come together and make a certificate to the effect that they propose to form a company to bear a certain name, for the purpose of transacting a certain kind of business at a certain place. The certificate states that they propose to issue a certain number of shares of stock at a certain price per share, that the capital stock is to be a certain amount, and that the company is to continue to exist for a definite period of time. Blank forms for such certificate are supplied by the Secretary of the State where the company is being organised, and when such certificate is properly filled out, signed, and delivered to him, he issues a license, or charter, to the persons making such certificate, giving them permission to open books, sell stock, and carry on the enterprise outlined.

State laws regarding stock companies differ very largely. Students of this course who desire to know the law in any particular State can easily secure the information by writing to the secretary of that State.

The usual par value of a share of stock is $100. That is, if a company organises with a capital of $200,000, there will be 2000 shares to sell. Each person who buys or subscribes for the stock-that is, who joins the company-receives a certificate of stock. Our illustrations show two examples; one of a national bank, and the other of a manufacturing company. These certificates are transferable at the pleasure of the owners. The transfer is made usually by a form of indorsement on the back of the certificate, but to be legal the transfer must be recorded on the books of the company.

A certificate of stock in a national bank.

The men subscribing in this way become responsible for the good management of the business and are obliged to act according to the laws of the State in which the company is organised. Usually they are not responsible individually for the liabilities of the concern beyond the amounts of their individual subscriptions.

A certificate of stock in a manufacturing company.

Every person who subscribes for stock owns a part of the business and is called a shareholder. All the shareholders meet together, and out of their number they choose a certain number of directors. The directors choose a president and other necessary officers, and in a general way direct the policy of the company. As a rule directors have no salaries attached to their positions. General meetings of shareholders are held once a year to elect the directors and to hear the reports of the officers.

The student should be familiar in a general way with the different classes of stock and with the technical terms familiar to stock companies. The more important of these matters are as follows:

Directors. All the shareholders meet together and out of their number choose a certain number of directors. The directors choose a president and other necessary officers and fix the amount of salary which shall be paid such officers for their work.

Capital Stock. This name is given to the gross capital for which the company is organised, without any reference to its value or to whether it has been fully paid in or not. The paid-in capital is the amount received from the stockholders on the shares for which they have subscribed.

Dividends. The directors of the company, after paying the expenses and laying by a certain amount for contingencies, divide the profits among the shareholders. These profi

ts are called dividends, and in successful concerns such dividends as are declared quarterly, semiannually, or annually usually amount to good interest on the shareholders' investments.

Treasury Stock. It often occurs that a new company finds it necessary to set aside a certain number of shares to be sold from time to time to secure working capital. Such stock is held in the treasury until it is needed, and is called treasury stock.

Preferred Stock. Preferred stock is stock which is guaranteed certain advantages over ordinary stock. It is usually given to secure some obligation of the company, and upon it dividends are declared in preference to common stock. That is to say, if a man holds a share of preferred stock he will receive interest thereon out of the profits of the business before such profits are given in the form of dividends to shareholders generally. Preferred stock can be issued only when authorised by the charter of the company. The interest on the investment in the case of preferred stock is more sure, but the security itself is not any more secure than in the case of common stock.

Guaranteed Stock. Guaranteed stock differs from preferred stock in this-that it is entitled to the guaranteed dividend (interest) before all other classes of stock, whether the company earns the necessary amount in any one year or not. This right is carried over from year to year, thus rendering the shares absolutely secured as to interest.

Watered Stock. When stock is issued to the shareholders without increase of actual capital the stock is said to have been watered. A company may organise for, say, $10,000, and may want to increase to $50,000 without adding to the number of its shareholders. Each holder of one share will, in this instance, receive four new shares, and in future instead of receiving a dividend on one share will receive a dividend on five shares. The object of this is, quite commonly, to avoid State laws requiring certain corporations to pay excess of profit over a stated rate per cent. into the State treasury.

Forfeited Stock. Stock is usually sold on certain explicit conditions, such as the paying of ten per cent. down and the balance in installments at stated intervals. If the conditions which are agreed to by the shareholder are not met his stock is declared forfeited, or he can be sued in the same manner as upon any other contract.

Assessments. Some companies organise with the understanding that a certain percentage of the nominal value of the shares is to be paid at the time of subscribing, and that future payments are to be made at such times and in such amounts as the company may require. Under these conditions the stockholders are assessed whenever money is needed. Such assessments are uniform on all stockholders.

Surplus Fund. It is not customary to pay a larger dividend than good interest. The profits remaining after the expenses and dividends are paid are credited to what is called a surplus fund. This fund is the property of the shareholders and is usually invested in good securities.

Franchise. A franchise is a right granted by the State to individuals or to corporations. The franchise of a railroad company is the right to operate its road. Such franchise has a value entirely distinct from the value of the plant or of the ordinary property of the corporation.

Sinking Fund. A sinking fund is a fund set aside yearly for the purpose at some future time of sinking-that is, paying a debt.

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