The mirror., 1916-12-14

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solvent, that each individual member OF
such partnership is personally and individ-
ually liable to the full extent of his private
capital, even outside of that used in the
partnership business, for any obligations
and debts of such partnership. This is
eminently fair and just in the case of a
partnership because it can only function in
the case of small business and each part
ner is supposed to personally safeguard the
credit of the business by his own supel-
vision of it. Where, however, he invests
his money in an enterprise whose scene of
operation may be in Timbuctoo, palpably
he cannot supervise the conduct of its af-
fairs and consequently it is only just and
reasonable that limit should be placed on
his financial liability, else he would be very
loath to invest his money at all in such an
enterprise. BY using the joint stock COM
pany this difficulty is overcome, for the law
states that shareholder in an incorporated
company is liable only to the extent of the
amount of money he has actually contrib
uted to its capital. Thus if he invests
one thousand dollars in a company having
as its object the extraction of nitrogen from
the air, if the company should fail for any
one of numerous reasons, he would simply
lose his initial investment of one thousand
dollars and no more. This is what is meant
by limited liability company. This is
what the word 'INC.,'' after company's
name in this country means, for if it is Ii
censed to do business by the State, the Ii
ability of its shareholders is of necessity
limited as above explained
What then are shares of stock? They
are the individual units into which the en-
tire capital of the company is divided,
each unit being of the same relative par
value and each possessing the same legal
rights and liabilities. Thus suppose Num-
ber of men are about to engage in an en-
terprise which they estimate will require
working capital of ten thousand dollars.
They apply to the proper State official for
charter or license to carry on that partic-
ular business, which charter provides that
the total capital shall be divided into one
thousand shares of the par value of one
hundred dollars each. This means that
the smallest investment that any particular
person can make in such enterprise is one
hundred dollars, although he may take ten
or twenty shares if he so desires. When
he pays his money into the treasury of
the company, he receives certificate issued
under the company's seal, stating that he
is the owner of so many shares of stock, of
the par value CT one hundred dollars each
in the capital of the company and such
stock certificate is as much an evidence of
his title to such interest as is deed to a
piece of real estate evidence of ownership
of the piece of property described therein.
In practical business shares of stock
usually have par value of one hundred
dollars, although, where the business is
highly speculative. such as mining, and it
is necessary to reach as large an investing
public as possible, the par value of each
share may be as low as one dollar, or even
twenty-five cents.
There are three kinds of stock-com-
mon, preferred and deferred, distinguished
by the obligations they impose and the
rights and privileges they respectively con-
fer on their owners, particularly with re-
spect to the protection they afford as an in
vestment, so far as the assets and profits of
the company are concerned. Thus COM
mon stock, as its name denotes, carries no
special privileges with it in the event of the
bankruptcy of the company. In COM
pany whose stock Consists of common as
distinguished from preferred stock, on the
company ceasing to do business its assets
are used, first in satisfying its outstanding
obligations and then, if there happens to
be anything left over, it is divided pro
rata amongst the stockholders. If the
company is a successful one its profits from
year to year are apportioned amongst the
stockholders, according to the number of
shares each one owns, each share of stock,
however, receiving exactly the same pro
rata amount of such net profit. These
dividends, as they are called, the refcre,
are nothing more nor less than the quarter
ly, semi-annual or yearly return on the
capital invested.
On the other hand preferred stock, of
which there are various kinds, has greater
privileges, not only as regards the assets of
the company but also as regards the profits
of the company. Where it is advisable to
make an investment more attractive to the
investing public by making it more secure
and safe as for instance where manufac-
turing company, hitherto operating on COM
mon stock alone, requires an additional
amount of capital for the expansion of the
business or the building of a larger plant,
the owners of the common stock will fire.
quently say to the public eff you will in
vest in our enterprise we will give you
preference over and above the privileges
enjoyed by we common stockholders. We