ORGANIZATIONS 1. Plan of the Text.—This Text is to treat things as they are. Definite reasons will be given when there are any, but no attempt will be made to go into abstract theory. The problem is simple enough—a discussion of tbe ownership of business en terprises. This ownership may be that of a single individual or of a group of individuals. When a group exercises ownership, the members bind them selves together in some form of organization recog nized by the law, and the law prescribes the rights and liabilities of the members.
2. Purposes of may be the rights and liabilities of the members of a business group, be it a partnership, a cooperative association or a corporation, they will be found in some way to iffect the business income of the members, the control _—which they may exercise in the business or the risk _ which they assume. Thus, partners may agree to divide profits in equal or,in unequal shares; stockhold ers of a corporation may so divide their profits that some shares receive fairly regular income—perhaps seven per cent on the capital invested—wbile others receive such irregular dividends as the fluctuatin profits of the business may determine.
3. Risk of ownership.—Creditors should be con sidered as being in some degree owners. They are, in fact, potential owners. Thus, suppose Jones bor rows $5,000 from Smith, to increase bis business. If the loan is not repaid at maturity Smith may sue Jones and cause the sheriff to sell out Jones's business in order to realize the amount due. In fact, the courts generally look upon bondholders--creditors who have accepted bonds to evidence their loans—as becoming the principal owners the moment a corporation be comes insolvent. In England this idea is carried still further. If a company issues bonds—called deben tures in that country—the immediate owners, i.e., the stockholders, may control their business as they see fit until the concern becomes insolvent. At that in stant, however, the bondholders act. Their charge against the company becomes "crystallized," to use tbe English expression, and the bondholders proceed to elect a "receiver," who takes the control of the busi ness from the directors elected by the stock-holders.
If one keeps in mind this idea of creditors as po tential owners, he can readily see how the different forms of business organization variously affect the risk assumed by the owners. The investor with the least risk is the creditor whose claim is secured not only by the investment of other owners in the same enterprise, but also by the private and individual wealth of those owners. This is the case with the creditors of individuals and of partnerships. If an individual's business becomes insolvent, not only his business assets but his private personal assets as well will go to his creditors. Then follow in the order of security, the 'creditors of corporations, whose invest ments are secured only by the'assets contained in the enterprise. Next come the stockholders of a corpora tion. They take all the hazard of the corporate en terprise up to a certain point, for if the corporation fails tbey take the last share of the salvaged re mains. But their risk, under ordinary circumstances, is at most limited to their investment in the business. The private wealth of stockholders is immune from the' claim of corporate creditors. Of course the most risky interest in a business is that of the individual, or partner. He may be obliged to see the creditor take not only the business assets but his private wealth as well.
4. Apportioning Text, however, will treat organization chiefly as it affects control. As a matter of fact, control is almost complementary to risk. The ownership interest which represents the greatest risk, exercises the amplest control, and vice versa. Thus individual and firm proprietors who have the greatest risk have active and complete control of their businesses, while creditors generally have only a potential or passive control, theirs being the minimum risk. Creditors may merely be watchful to see that the 'active control of the stockholder is not incompetent or injurious, i.e., is not unsuccessful or fraudulent.