CLASSES OF STOCK Stock of a corporation is a commodity which the corporation must sell in order to raise the funds necessary for the business, and therefore it is incumbent upon the corporation to make this commodity as attractive as possible, this in order not only that it may be disposed of easily but also at an advantageous price. Stocks are issued, therefore, in several classes providing numer ous combinations of the three elements, income, control and risk. The average buyer of securities wants as large and as steady an income as possible with the smallest risk, and takes comparatively little interest in the control. The cautious investor will take a smaller income if there be less risk attached, whereas the specu latively inclined will take a greater risk for the chance of greater income. Instances often occur where control of the company is the chief end sought by the stock-buyer and he will practically ignore both present risk and income to get the control. The two great divisions or classifications of stock are "common" and "preferred." Common Stock is simply ownership in the corporation, carry ing with it all the usual rights of stockholders (unless otherwise specified) but no special privileges or preferences. These funda mental rights of stockholders are : ( t) To proportionate owner ship in the undivided assets of the corporation and to a certifi cate stating this ownership in shares. (2) To transfer ownership of his shares. (3) To receive dividends when earned and declared by the board of directors. (4) To inspect the corporate books. (5) To subscribe, in proportion to his holdings, to any new issue of stock. (6) To proportionate control through voting power. (7) To vote on other questions affecting the corporation prop erty as a whole. (8) To protect the corporation against wrongful acts of a majority. (9) To restrain ultra vices acts of the corpora tion. (1 o) To share in the proceeds of dissolution.
but in ordinary parlance the term "preferred stock" means pre ferred as to dividends.
Being preferred as to assets means that in case of dissolution of the company, the holders of the stock will receive their por tion of the proceeds of dissolution before holders of other stock not preferred as to assets will participate. This preference is, of course, of no service to the stockholder as long as his company is prosperous and in no danger of dissolution, but in the case of weak companies the preference tends to give his stock a higher market value than stock not so preferred. And in the case of actual dissolution where the assets are not sufficient to satisfy all, the preference will prove to be most valuable.
"Preferred as to dividends" means that this stock is entitled to a specified rate of dividend out of the earnings before any divi dend is given to the stock not so preferred. It does not mean that a certain dividend is guaranteed but merely that if any amount of the earnings be declared as a dividend, the amount necessary to pay the specified rate of dividend on the preferred stock, or such part of such dividend as possible, must be used for this pur pose before any is allocated to pay a dividend on non-preferred stock. If the entire amount declared as a dividend is absorbed by the dividend on the preferred stock, it means simply that the non-preferred or common stock gets nothing. In prosperous corn panies, however, it is usually possible to pay the stipulated rate to the preferred stock and still have sufficient moneys left to pay an equal or even larger rate to the common stock. It. is ordi narily only fair that the common stock should get more in view of the fact that it takes a risk by permitting the preferred stock to take out its share of dividend first.