Though regularly carrying the largest share of actual present control, the stock may itself divide into two or more clasSes having obvi ously divergent interests, with the result that each class will exercise for different purposes the amount of control it possesses. If there is common stock and preferred stock with a lim ited dividend, the common shareholders may throw their influence in favor of a more haz ardous conduct of the enterprise with an ex pectation of greater profit accruing to them. Since the preferred shareholders, however, do not get income beyond the limited dividends, if the corporation pays these limited dividends to their full amount, the preferred shareholders will throw their influence in favor of the safer conduct of business against the hazards the common shareholders would gladly undertake for the hope of greater profits.
Interests of both classes of shareholders might coincide. If the corporation should not earn enough to pay the full dividends the pre ferred stock is entitled to, the preferred share holders might desire the more hazardous con duct of the business as eagerly as the common shareholders. If the amount of preferred and common were the same, and each had the same voting power, each class would enjoy control equally. In practice this might not lead to a dead-lock in policy, even though the interests of the two classes were diverse: one shareholder owning a large amount of com mon and a small amount of preferred might vote his preferred to favor his common.
If the amount of common were twice as great as the amount of preferred, and a share of each class had the same voting rights, the quality of control would in a way differ just as truly as if the amounts of each class were equal but a greater voting power were given the common than the preferred. In either case the common shareholder in a clash of inter ests would be more likely to have the corpor ation's policy incline to his advantage. We shall discuss this more fully later.
A corporation having only one class of stock outstanding, and no other securities, offers, of course, the simplest type of stock. Such a se curity carries all the control, all the income, and all the risk. It effects only a vertical divis ion of ownership, like the division of a part.
nership. An enterprise financed entirely with one class of stock gains, of course, the regular corporate advantages, an easy separation of administration and control, an easy verti cal division into a large number of shares that makes a market possible, and limited liabil ity. Such financing does not take advantage
of the appeal to different types of mind. It is the proper form, however, if a satisfactory division of income, management, and risk cannot be made. A mining corporation espe cially cannot well divide the peculiar hazards of the enterprise. Since any class of mining securities must retain so much risk, investors will not sacrifice anything of income or con trol. A satisfactory adjustment cannot be made. So it naturally follows that nearly all mining corporations, including oil companies, have only one class of stock and no other se curities. If they do have any preferred stock or bonds, such issues are almost always of comparatively small amounts. Coal-mining companies have issued bonds to some extent. The business rests on a more assured basis than mining for metals.
Manufacturing companies frequently issue no securities but their common stock. Prob ably the general greater simplicity of our in dustrial corporation financing comes about from the fact that the enterprises they are • engaged in inherit directly old established kinds of business. Traditionally they cling • more closely to the form of private enter prise. So far our financial ingenuity has di rected itself for the most part to the compara tively new forms of business, — the railroads . and other public-service corporations. With the coming of the big industrial combinations ' more complex forms of financing appear, and will probably make their way generally into :industrial corporations. Even of our big in dustrial enterprises many are still largely family affairs, — such, for example, as the Arlington Mills manufacturing cotton and wool at Lawrence and Methuen, Massachu setts, which have their entire capitalization of $6,000,000 in common stock. The business may have been hazardous in the beginning and, like mining, not have offered the basis for more than one form of security, and sub sequently may not have needed any other for its financing. The Mergenthaler Linotype Company has its entire capitalization of $12,786,700 in common stock on which it pays 15 per cent dividends.
Some very large concerns have no capitali zation but their common stock. The Singer Sewing Machine Company has its entire cap ital in $60,000,000 common: The Pullman Company has no securities but its common stock, amounting to $120,000,000. Though a holding company may have only common stock outstanding, that fact does not neces sarily indicate simplicity, for the subsidiary companies may have complex capitalizations.