The Northern Pacific had outstanding $80,000,000 common stock, and $75,000,000 preferred. J. J. Hill (the president), and J. P. Morgan and Company together owned common stock amounting to $26,000, 000. Harriman 'and his backers bought up $37,000, 000 common and $42,000,000 preferred, which gave them a clear majority of $1,500,000 of all the stock of the road. The Hill interests bought more stock until they had $42,000,000 common, and thus gained a majority of $2,000,000 of the common. Then the Harriman people discovered their weakness. The preferred stock possessed equal voting power with the common, but was subject to redemption at par after the 1st of January, 1902. The annual meet ing, however, was to occur in October. The Hill in terests could retain power only by getting a post ponement of' the meeting until after the 1st of Jan uary, when they could redeem the preferred stock. A threat 011 the part of the Hill interests to make this move brought about a compromise whereby- all the stock held by the two interests in the Northern Pacific and the Great Northern was turned over to a holding company known as the Northern. Securities Com pany 31. Liabilities of stockholders.—The states are not all in agreement on the liability of stockholders. Such a diversity exiSts in the rules, especially in rela tion to liability to pay for stock, that the reader, if lie cares to pursue the subject further, must refer to the statutes themselves. At common law, stockholders were required only to pay into the company the amount agreed upon, irrespective of the par value of the stock. In some states the liability is made to exist up to the amount of the par value of the stock, any other agreement being illegal. In a few states, however, among which is New York, the stockholder is liable to pay only the agreed amount to the cor poration, but if the company becomes insolvent, be is liable to the creditors for the difference between the amount already paid in and the par value of the stock. The difficulties presented in this subject are made clear by the use of the device of stock without par value—a device which is being largely used in the creation of new stock.
There is also conflict among the states as to the liability of the successive owners of stock. In New York, Indiana and New Hampshire only those share holders are liable who were shareholders when the debt was contracted, and this liability survives the transfer of their shares. In Connecticut and in a few other states, only those shareholders are liable who held shares when the action by the creditors was com menced. In Illinois, all shareholders who were such, either at the time the debt was contracted, or who be came shareholders prior to the commencement of the action, are held liable.
In some states stockholders have additional liabili ties, such as the liability to pay the wages due from an insolvent corporation; in some, directors still have authority to levy assessments, but in others, including New York, assessments have been abolished.
The Canadian law on the subject may be briefly stated as follows: Without express provision, no member of a corporate body is individually liable for the corporate debts. When a person puts a certain amount of money into a company, paying for his stock in full the price demanded, and receives share cer tificates in return, he may lose what lie has put up, but no more. If he has not paid up in full the price of the shares for which Ile has subscribed, and the company gets into trouble, he may be called upon to pay up the balance. This is what is meant by "limited liability." In the case of limited liability companies, by no internal regulations or by-laws could this limited liability be altered, either in favor of or against the shareholder. Most of the Canadian companies acts
provide, however, for the joint and several liability of directors of a company to the "clerks, laborers, servants and apprentices thereof for all debts not ex ceeding six months' wages due for services performed for the company while they are such directors," but not unless the company has already been sued for the debt within a year from the time it became due, nor unless the director has been sued within a year of his ceasing to act as such, nor in either case before an execution against the company has been returned un satisfied.
32. Forfeiture of slock.—When a stock-holder pays a deposit on his subscription, and agrees to pay further instalments at specified times, he may get a receipt for his money entitling him_ to nothing except the con tinuation of his contract, by the terms of which he is to get the stock upon the payment of the other in stalments; or he may get the stock, usually with a statement that there are certain amounts due. If, when the amounts become due, either thru tbe lapse of the agreed time, or in pursuance to a valid call made by the directors, the instalments are not paid, the directors- may forfeit the stock. In many states, stockholders may be prevented from transferring their stock till calls are paid. In some jurisdictions, for feited stock is considered treasury stock and in other jurisdictions it becomes unissued stock.
33. Authorized stock.—The terms in general use should be carefully studied by the reader. The stock authorized to be issued by the certificate of incorpora tion is called authorized stock. It may be increased or decreased only thru amendment of the certificate as provided by statute. Most states fix a minimum of authorized stock for corporations but no maximum.
Authorized stock is equal to issued stock, plus unissued stock-.
34. Issued stock.—That part of the authorized stock which has been part-paid or full-paid is issued stock. It may be in the bands of outside stockholders or in the treasury of the company. Issued stock is equal to outstanding stock, plus treasury stock, and to full-paid stock plus part-paid stock.
35. Unissued stock.—The name given to authorized stock before issue is unissued stock. As was indi cated above, in a great many jurisdictions this stock must be sold at par altho it may be issued for cash, property or services. When it is desired to sell stock at less than par, it is first issued for property of un certain value, such as a patent, a mine, or the good will of a going business; but in the contract of issue, the property is appraised by the directors as being equal in value to the stock issued for it. Some of the tock is then donated back to the treasury; this treas ury stock can then be sold at any price.
36. Outstanding stock.—Issued stock in the hands of outside stockholders is outstanding stock.
37. _Treasury stock.—Stock that has been issued but has bccn brought back to the company by dona tion or purchase is called treasury stock. Generally a corporation is permitted to purchase its stock only out of surplus. If it is purchased in any other way a corporation doing so thereby reduces its capitalization in fraud of creditors. Treasury stock, then, may be sold at any price since a sale below par will not reduce the company's capital but will cut down its sur plus.
38. Full-paid and part-paid stock.—Stock which has been paid up to the agreed consideration or, in those states where stock cannot be issued at less than par, up to the par value, takes the name of full-paid stock. Stock which has not been paid for up to the par value or up to the agreed value is part-paid stock.