STOCK. When money is invested, the investor requires some tangible evidence of his investment and some measure of its size. Moreover, when, as is usually the case, he is one of many in vestors in the same object, means must exist of defining rigidly and legally the proportion held by each. This is true whether he invests his capital in a loan to a government, municipality or trading concern, or acquires a definite share of the last-named.
This evidence of the existence, nature and size of his holding consists either of "stock" or of "shares." Stock in Great Britain can be issued, bought, sold or redeemed in any odd amount. A share is indivisible and represents, as its name implies, a definite proportion of the total nominal value of the property. This is the vital distinction, which is best clarified by an example.
Stock is always expressed in "so many pounds, shillings and pence face value." Thus "L2oo consols" means "L200 face value of British Consolidated Stock." The face value, in conjunction with the rate of interest, determines the dividend. Thus the rate of interest upon consols is 21 per cent., and so the dividend upon £200 consols is L5 per annum. Face value has no connection with the market value. Thus a sale of £200 consols may fetch no more than Lioo in cash. Market value depends simply upon the current price, which is usually quoted in pounds cash per £ioo stock. Thus, at a market price of 6o, £200 consols could be bought and sold for L120 cash. Stock is always bought and sold in quantities expressed in face value, viz.: a sale of £215.6.8 stock, or a purchase of £350.10.4 stock. Shares are always bought and sold by number, viz.: 352 Courtaulds ordinary shares. (See SHARES.) The chief forms of stock are as follows—(A) Government (British, colonial or foreign), municipal (British, colonial or for eign) and debenture stock (railways, shipping, trading, manufac turing, etc.). In every case the stock is evidence of a loan made to the Government, municipality, railway, etc. The stock may be redeemable or it may be irredeemable. The total amount issued is usually limited, but the borrower may have power to issue more at his discretion. It may be issued at par (i.e., Liao stock for LI oo cash) or at a premium or a discount, i.e., at more or less than Lioo cash. It may be redeemable at par or at a premium. It may have definite, tangible security behind it, such as a lien on the customs revenues or upon the manufacturer's plant, or it may be secured simply by the word of the borrower. The vital point is that it is measured in, bought and sold according to, and its dividends based upon, its face value.
(B) Preferred, ordinary and deferred stock. Such stock is
evidence of a definite share in the property owned by the issuing company—of which each stockholder is ipso facto a member. By virtue of his holding, he is entitled to a share of the net profits, after interest on debentures has been met, and to certain rights, privileges and liabilities, according to his class of holding. His stock comes under the broad heading of capital stock. As a rule, capital is issued in the form of shares and not stock, and so the reader is referred to the article on SHARES for any further descrip tion. Two points only need here be mentioned. The first is that dividends are always declared in the form of "so much per cent. on the face value of the stock." The second is that, in case of liquidation, any available assets are divided among the stock holders, class by class, in the same proportion as that borne by the face value of their holding to the total face value of the whole of the outstanding stock in the class to which they belong.
The usage of the terms "stocks" and "shares" in the United States is quite different from that in England. In the United States stock signifies the ownership in the business held by the many persons who have bought interest in it and who are known as the stockholders. It does not carry the' idea of a loan but indi cates always an actual purchase of part ownership. Loans to either private businesses, governments or municipalities are represented by "bonds," except in the case of New York city, which still adheres to the English usage and still has outstanding its "stock," which is to all intents and purposes equivalent to the municipal bonds of other American cities. The aggregate ownership or stock of an American corporation is divided into a large number of units or shares, of which each stockholder may hold one or many. The share, then, is one of the units of ownership. This ownership is represented by "certificates of stock," and when a person buys one or more shares of stock he receives as evidence of this ownership a certificate of stock filled in for the proper num ber of shares. This is a convenient and practical method of rep resenting ownership, because the ownership can readily be trans ferred by the transfer of the certificate. (See TRANSFER.) Owners of stock in a corporation participate in the prosperity of the com pany by receiving their proportionate share of any profits that the board of directors sees fit from time to time to divide among them. This division of surplus is generally made annually, semi annually or quarterly, and all moneys or other property so divided among the shareholders is called a dividend.