# 1911 Encyclopædia Britannica/Stocks and Shares

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​ STOCKS and SHARES. A “share,” in the financial sense, is simply the right to participate in the profits of a particular joint stock undertaking. In the United Kingdom, in the case of a company constituted under the Companies Acts 1862-1907 as a company limited by shares, the memorandum of association is required to state—among other matters—the amount of capital ​with which the company proposes to be registered and the amount of the shares into which such capital is divided. Company statistics show a tendency of late years on the part of companies to register with a smaller nominal capital than they did. The tendency too has been to lower the denomination of the shares. £100 shares, for instance, are now very rare. £1 shares and £5 shares are the most common. They obviously appeal better to the small investor. A typical capital clause runs thus: "The capital of the company shall be £100,000 divided into 100,000 shares of £1 each with such rights as regards dividends and other privileges as are defined by the company’s articles of association for the time being," or "The capital of the company is £150,000 divided into 50,000 preference shares of £1 and 100,000 ordinary shares of £1 each. Such preference shares shall confer a right to a fixed cumulative preferential dividend at the rate of 10% per annum." The form of capital clause varies of course, but the more approved practice now is to leave the rights of preferential shareholders to be defined by the articles, and for this reason: that if such rights are fixed by the memorandum of association without qualification they cannot be subsequently varied. Articles, on the contrary, are always alterable, and as the preference shareholder takes his shares subject to this known liability to alteration no wrong is done him. If the powers of alteration were abused so as to amount to a fraud by the ordinary shareholders on the minority of preference shareholders the court would probably interfere by injunction. The preferential or other special privileges of any particular class of shareholders are now further safeguarded by s. 30 of the Companies Act 1907. The right of a preference shareholder is commonly confined to a preferential dividend and this dividend is prima facie cumulative, that is to say if the profits of the particular year are insufficient to pay it the deficiency must be made good out of the profits of subsequent years: but it is very common to give preference shareholders priority also as regards capital in the winding-up. Founders' shares originated with private companies, being a convenient means of securing to the partners in the vendor firm, on conversion, the control of the business as well as the lion’s share of the profits. Thence they passed to ordinary trading companies, that is, companies which appeal to the public for their capital. Founders' shares in this connexion commonly entitle the holders to one-half or one-third of the company’s profits after payment of a fixed dividend of, say, 7 to 10% to the ordinary shareholders. Founders' shares are mostly subscribed for by the vendors or promoters, though sometimes used by way of bonus to attract subscribers for the ordinary or deferred shares. They are now becoming rare.
Share Warrants to Bearer.—The Companies Act (1862) made no provision for the creation of shares to bearer. All shares under the act are registered and the title on the register is evidenced by a share certificate. The act of 1867 introduced shares to bearer under the title of " share warrants to bearer." A share warrant entitles the bearer to the shares or stock specified in it and such shares or stock are transferable by delivery of the warrant. The warrant is always treated as a negotiable instrument.
" Stock " in the case of companies constituted under the Companies Acts 1862–1907 is created by converting paid-up shares into stock. This may be done under s. 12 of the Companies Act 1862 by resolution. Under the same section a company may increase its capital by the issue of new shares or consolidate it into shares of larger amount; and by s. 21 of the Companies Act 1867 a company may subdivide its shares. The Companies Act 1907 (s. 39) gives a company a further power by special resolution, confirmed by an order of the court, to reorganize its capital, whether by the consolidation of shares of different classes or by the division of its shares into shares of different classes—but no preference or special privilege attached to any class of shares is to be interfered with except by a resolution passed by a majority of shareholders of that class representing three-fourths of the capital of that class. A limited company cannot reduce its capital without the sanction of the court.
Public Companies.—The provisions as to shares and stock under the Companies Clauses Acts 1845, 1863, 1869, are, with a few exceptions, analogous to those under the Companies Acts. The capital of the company is to be divided into shares of a certain number and amount. A share register is to be kept and certificates are to be issued to shareholders, and power is given to convert paid-up shares into a general capital stock to be divided among the shareholders according to their respective interests therein. Such stock has been called a " set of shares put together in a bundle." Preference shares may be created, but there is this difference between preference shares under the Companies Clauses Act and under the Companies Acts, that under the Companies Clauses Acts preference shares are entitled to dividends only out of the profits of each year; under the Companies Acts the dividends as above stated are prima facie cumulative. Shares and stock may under the Companies Clauses Act be issued at a discount; under the Companies Acts they cannot. Under the Companies Clauses Acts if the old shares of the company are at a premium any new shares are to be offered first to the old shareholders. This is not found in the Companies Acts, but a similar provision is commonly inserted in the articles of companies formed under the acts. (E. Ma.)