Debenture Stock.—This term is very rarely used in the United States. It is an English expression meaning, in reality, not stock at all but a bond, corresponding to the American deben ture bond. In American finance, however, the name has been adopted occasionally and applied to a special type of stock con ferring rights, superior to both preferred and common, something in the nature of a prior preference stock. The best known example of this use of the term is the debenture stock of the E. I. du Pont de Nemours Company.
Prior Preference Stock.—Prior preference stock, or prior lien stock, is a term rarely used but indicates usually that, after the issuance of the regular preferred stock, another issue has, with the consent of the old stockholders, been issued having a claim prior to that of all other stocks on dividends or assets. Upon issue, it becomes a first preferred stock and the other names serve merely as convenient descriptions. The prior preferred stock of the Celanese Corporation of America and the prior preferred stock of the Market Street Railway Company of San Francisco are examples.
Guaranteed Stocks.—Guaranteed stock is stock whose divi dend payments are guaranteed by some other company, usually one which is using the property of the issuing concern. Railway companies frequently lease and operate the property of other companies and, as part of the rental, guarantee the payment of dividends at a certain rate to all the stockholders. Although such operation is most general among railway companies, it is fre quently practised among industrials also. Preferred stock is some times referred to as guaranteed stock, a term which, of course, is erroneous. A corporation cannot guarantee its own stock and cannot issue a guaranteed stock.
Voting and Non-voting Stock.—All stockholders have the inherent right to participate in the management of the corporation through voting for directors and on other matters. Non-voting stock may be issued, however, and purchasers of such stock vol untarily surrender their voting rights. It is generally customary to give the vote to the common stock and to withhold it from the preferred. The vote may be apportioned among several classes of stock in any desired manner as long as at least one class of stock is vested with voting power. If stock is issued as voting stock, however, such stock cannot be deprived of the vote without the consent of the holder.
Vetoing Stock.—Vetoing is the name given to stock which has not general voting power but is entitled through provision of the certificate of incorporation to vote on certain questions. Thus a certain issue of preferred stock may be voteless except on the question of the issue of additional preferred stock on which ques tion it is given the voting right.
It is quite common to give to non-voting preferred stock the right to vote after its dividends have not been paid for a certain number of years and to continue this voting power as long as the dividends are unpaid, or in case of cumulative preferred stock as long as dividends are in arrears. In such cases this stock is some
times given the right to vote along with the common, sometimes the exclusive voting right, and sometimes the right to elect the majority of the board of directors.
Since 1912 there has grown up the practice of issuing shares of stock without any nominal or par value, known variously as non par value, or no-par value stock, stock without par value, and unvalued shares. The issuance of non-par value stock is now per mitted by the laws of most States, and this type of stock has been widely adopted in new incorporations and in re-organizations of existing corporations, partly due to tax laws affecting stocks and stock transfers. The statutes usually provide that such stock shall be sold by the company at a price not less than that prescribed in the certificate of incorporation, or the fair market value, or as may be from time to time set by the board of di rectors provided that the certificate of incorporation confers this authority, or for such consideration as shall be consented to or approved by the holders of the majority of shares at a meet ing called to vote on the question. All non-par value shares sold in accordance with these legal provisions are deemed fully paid and non-assessable and the holder of such shares is not liable to the corporation or to the creditors in respect thereto. Every certificate of stock without par value must show the total num ber of such shares authorized, as well as the number represented by the certificate, and also the authorized number of pat-value shares, if any, and their par value, thus making it possible to de termine the proportionate interest in the net assets of a corpora tion which a given stock certificate represents. Having no par value or base on which to estimate a percentage dividend, the total dividend allotment is divided equally among all the non-par value shares outstanding, and declared as so many dollars per share. (J. H. B. ; X.) See A. H. Stockder, Business Ownership and Organization (1922); R. W. Pomeroy, Common Stocks (1927), and J. Moody's Manual of Investments (pub. annually) ; A. S. Dewing, Corporation Finance (1939).