1. What determines the amount of stock a corporation may issue? What is the par value of stock? What is the actual value? What fixes the actual value?

2.

What is a stock certificate? If a ""close" corporation, that is, a corporation with a small harmonious group of stockholders, decided not to issue certificates, what would be the effect? 3. When the capital of a corporation is increased, what persons have a prior right to subscribe for the new stock, and in what proportions? May such right be made negotiable, and if so, how?

4. What is the difference between the "capital stock" and the "capital" of a corporation?

5. For what kinds of property may a corporation under the laws of your state issue its capital stock in payment? Explain fully. How are directors liable if they allow subscribers to stock to pay some instalments with notes?

6. Stock certificates are issued to the original subscribers bearing the printed words "fully paid and non-assessable," when in fact they were only partly paid for; later the stock is sold and assigned to a purchaser without notice of the fact that it is not paid for in full. What remedy has a creditor or the corporation against the original subscriber and against the transferee?

7. What is the object of "no par value stock"?

8. What is common stock? Define non-participating stock. What is preferred stock? Is preferred stock a debt of the corpora

tion? Why do investors object to non-cumulative preferred stock?

9. Have preferred shareholders a right to recover when dividend is earned but not declared? In event of insolvency can a holder of preferred stock claim payment for par value before creditors?

10.

II.

Which is the safer investment, preferred or common stock?
Why?

Why is common stock sometimes more valuable than preferred
stock?

12. What is treasury stock? How does it differ from unissued stock? 13. If a stock certificate is lost, what should be done? 14. How is stock transferred?

CHAPTER LIII

STOCKHOLDERS AND THEIR MEETINGS1

§ 360. Incorporators

Incorporators are the persons who sign the certificate of incorporation. They must usually be subscribers for stock and later become stockholders. It is the incorporators who draw up the application and make the charter provisions. After the charter has been accepted, those who have subscribed for stock become stockholders and these elect the directors. (See § 331.)

§ 361. What Constitutes a Stockholder

The stockholders of a corporation are those who actually hold its stock, or who have subscribed for its stock and have had their subscriptions duly accepted by the corporation. A "stockholder of record" is one whose ownership of stock is duly recorded upon the books of the corporation.

When outstanding stock is purchased, the transfer must be entered on the books of the company before the purchaser becomes a stockholder of record, entitled to vote, to share in dividends, and to receive a certificate of stock in his own name. Until that time he is the equitable owner of the stock, but is not known or recognized in any way as a stockholder.

$362. Rights of Stockholders

The individual stockholder has but little part in the active management of the corporation.

The rights of holders of common stock may be stated as follows:

1 For form of minutes of stockholders' meetings, see Chapter CVII, Form 59.

I.

1. To be notified of, and to participate in, all stockholders' meetings, in person or by proxy, and to

cast one vote for each share of stock held.

2. To vote in the election of directors at the annual meeting each year, and upon any amendment of the by-laws or other general matters brought before the meeting.

3. To share, in proportion to the amount of stock owned, in all dividends declared on the common

stock.

4. In event of the dissolution of the corporation, to share in like proportion in any assets remaining

after all the corporate debts and obligations have been paid.

5. To inspect the corporate books and accounts.

It should be said, however, that this last right has been so restricted in practice as to amount to little more than the right to inspect the list of holders of stock as shown by the stock ledger.

The remedy of a stockholder denied access to the books would be by writ of mandamus. Theoretically, the holder of a single share may enforce this right of inspection, but practically the courts would hesitate to act where the interest was small. To inspect the books of a large corporation is a serious interference with business and the courts would not allow inspection except for weighty reasons.

Holders of preferred stock have the same rights, except as these may have been extended or restricted by the conditions under which the stock was issued.

§363. Powers of Stockholders

The powers of the stockholders may be summarized as follows:

3. Amendment of the charter. (See § 329.)

4. Dissolution of the company.

5.

6.

Sale of the entire assets of the company.

The exercise of any specially conferred charter powers.

The board of directors is the sole managing and controlling authority of the corporation. The stockholders make the bylaws by which the directors are controlled, and elect the directors by whom the corporate affairs are conducted, but beyond this they do not interfere in any way with the transaction of the corporate business or the management of the corporate property. All this rests with the board. Nor can the stockholders act directly for the corporation. A contract signed by every stockholder would not be the contract of the corporation and would not bind the corporation, unless also signed by its proper officers or otherwise formally accepted by its directors. § 364. Liabilities of Stockholders

A stockholder is liable to the company or to its creditors for any instalments remaining unpaid upon stock subscribed for by him. He may also be liable to creditors on any stock held by him which is not full-paid. Should dividends be paid from capital instead of from profits, stockholders are liable to corporate creditors for any amount so received by them.

Also stockholders of national banks and of most state banks and trust companies are held liable in case of the insolvency of their institutions, for an amount equal to their original subscriptions.

As a rule, however, in the ordinary business corporation the holder of full-paid stock is in no danger of losing anything more through corporate failure or insolvency than the amount he has actually invested in his stock.