STOCK AND $TOCKHOLDERS Stock.—The aggregate of all the interests of all the owners of a corporation is called stock. It is divided into units known as shares. A share of stock is a unit of ownership in a corporation, not in the corporate property, but in the corporation itself. It is important to remember this distinction. The cor poration owns the property and the stockholders own the corporation. The stockholders' ownership is merely a collection of rights which must be observed in the management of the corporate business.
2. English nomenclature.—In England, the defini tions given above do not hold good. Because the English nomenclature is sometimes referred to in this country, the reader ought to understand the English practice. In that cotmtry \-vhen a company is first formed it issues shares. The shares remain as such until they are paid-up, at which time they may be converted into stock. Stock, therefore, can exist only in the paid-up state. Shares exist in unit form and each is given a separate number. Thus, for example, the title to share number 7 can be traced from owner to owner, while in the United States, on the other hand, one share is like another, without individuality, even in respect to having a number. When paid up shares are converted—"consolidated" is the term fre quently used—into stock in England, the stock is con sidered as existing in bulk and not in number. Stock "is, in fact, simply a set of shares put together in a bundle." Thus, while shares usually have a par value of say one pound, consolidated stock may be bought and sold in any amount, say ten shillings, five shillings or even less. In all other respects stock and shares are alike. If a person has thirty-seven pounds, ten shillings of stock, and the shares have a par value of one pound, this person would have thirty-seven votes and would receive dividends equaling the prescribed rate applied to thirty-seven pounds, ten shillings. It will be seen, therefore, that the English practice is more flexible than the American, and has made un necessary the clumsy device of fractional shares used here.
3. Classes of may ordinarily be divided into various classes, each class being entitled uniformly to certain distinct rights. By dividing stock into classes a great flexibility is attainable in separating ownership into its three incidents: control, income and risk. Thus, one class of stock may be given voting power while another class may be limited in voting power or given none at all. Again, one class may be given larger dividends than another. It may take practically all the risk, either in the mat ter of getting an income from the company, or in re covering the capital invested upon the dissolution of the company. • Formerly, division of stock was made chiefly to create different classes of income and risk. One class
was then called common and the other preferred. Now, however, classes are frequently provided to allot to different persons, distinct degrees of control. It is not unusual nowadays, to hear of "Class A" stock, as in the case of the Perlman Rim Corporation, or some other arbitrary designation of the unusual class of stock.
4. Certificates of stock.—Shares are evidenced by certificates, each of which may stand for one or more shares. These certificates are assignable and, by very modem statutes, are made wholly negotiable. The record of ownership kept on the company's books, therefore, is not the conclusive evidence of ownership. Any bona fide' purchaser of a certificate gets title to the stock. Title may also be passed by gift, by will or thru operation of law in seizing the stock to satisfy a judgment or lien.
5. Transfers of stock.—Transfers of ownership usually are made on the books of a company by a proper officer, called a transfer agent. The transfer agent may be either an independent agency, such as a trust company, or an employe of the company giving to this work only such time as it requires. While the certificate is negotiable and its ownership, under the rules relating to negotiable instruments, settles the question of title as between successive owners, the law provides that, in the absence of actual lmowledge to the contrary, the company will be justified in treating the person whose name appears on its books as the owner of the stock. This stipulation is designed merely to protect the company, but it does not justify a retention of any benefits by one who is not an owner but whose name appears on the books. Thus, if A indorsed his certificate in blank, and later lost it, and B found it and sold it to C, an innocent purchaser, for value, C would get title. Now if C neglected to transfer his ownership on the hooks of the company before a dividend was declared, the company, not knowing the true facts, would send the dividend check to A. But A would be compelled to turn the dividend over to C, the true owner.' The Canadian statutes, with rare exceptions, provide that the receipt of the shareholder in whose name shares stand in the books of the company shall be valid and binding discharge to the company for any dividend or money payable in respect of such shares. Usually companies give no tice that dividends will be paid on a certain day to shareholders of record on a date prior to the date of payment. So that in Canada the registered holder on such date would ordinarily receive the dividend, tho he might afterward and before actual receipt of the dividend have sold his stock.