Show T 7 A C B C B-C of Finance PREFERRED AND A COMMON STOCK STOCKBy WJ By HAROLD JOL F. F GREENE AT Manager Y Bond non Department Guaranty Trust Co of New Nc York Corporations have hae been On evolved to enable many men Inert to co in the tho financing an and 1 operating of oC large largo In Industrial In- In or commercial enterprises Thoy They aro are a logical development of or partnerships Just as ns partnerships were a development of ot Individual ownership Stockholders or shareholders are the partners so 80 to speak who own and control the corporation Their ownership owner owner- ower- ower ship and control Is eX expressed essed In certificates cor- cor which they hold each ench I- I cate te entitling them to a voting right in the corporations corporation's affairs and W. W share In its profits If I a corporation were capitalized and that capitalization capitalisation were expressed pressed through the Issue of or of ot stock stock each share with wih a par value alue of or the owner of ot each share share In the case cae of ot a a very simply organized corpor corporation Uon would be entitled to one ono vote yoto out of tho the to bo be cast and ad a share sharo in the profits equal to ono one thousandth tern of ot the tho total As A a a matter mater of ot practice however hoc In most of ot the tho largo large industrial corporations corpora corpora- tons existing today ownership coror- coror Is not So BO clearly cearly defined nor Is tho the division 11 n of or profits so 80 simple Shares of ot stock aro are ordinarily of or two kinds common and preferred and there thero may maj be and frequently are ae two or three different I ference CI classes se of ot between the tho latter later The Tho essen essential dif dif dif- common stock and pre pre- erred stock Is that tho thee dividend on preferred stock Is paid aI before provision is made for tho the common stockholders And by an extension of ot the same Idea It is customary in the event that the I corporation ceases to do business 3 and nd liquidates Its is assets holders of ot pre pro erred ferre 1 stock to bo be recompensed In full ful before any any payment is mado mno to t the tho holders of ot common stock stoc But there ther are arc exceptions to this rule If It a mil mu- I a mJ- mJ 10 lion liot dollar corporation being dolar dated should provo prove to 1 have havo a assets worth only the holders of worth of preferred stock would be repaid In full fel while tho holders bolders of at par value common stock could secure only tor for division be beten be- be tween ten them them This Thi preference carries with Hh it 14 of oC course certain certin limitations tho the chief and most usual one being beins a a fixed dividend divi divi- Because their opportunities for profit are ar greater tho the owners of ot pre pro stock must content themselves ordinarily with wih dividends of or C G 6 or 7 per cent cent depending ot of course upon the state of or the Investment market at tho the time the shares are aro Issued Common shareholders on the other hand 1 may receive no Income at all nl from their In Investment investment In- In vestment In poor years and very high rates in prosperous years year The Tho To paying of ot dividends on preferred stock tock may be subject to other limitations limita tons and conditions They may b bo either either cumulative or non non In the tho event of or a very ver poor por year In which the corpo corporation ton did not earn ear sufficient to pay more moro than Its Is or operating oper orr- r aUg expenses dividend 1 payments on preferred stock stok might necessarily be passed passe remain passed remain unpaid If it I the st stock We-re We ee cumulative such passed passed dividends dividends divi divi- would be paid out of ot the earnings earn earn- ings InS's o of the thc first ear ear- prosperous year ea before be be- fore toro any payment were ere made on the common stock If I on the other hand had tho the preferred stock steel were werd non non tf e the tho passed pasee duo dividends would not be bo made up and the distribution of or profits would be b m made e to both c com eden eden- m- m mon and preferred stockholders without without with with- out regard for tor the omitted dividends Somo Some preferred stock docs does not with wih it any voting yoUng power power the tue theory theor carry cry In Itt such cases being that insomuch as The tho a aho ho holders hoMers of ot common stock are aro carrying nearly nearh all al the tho risk rik of or the business the direction of ot Its is affairs should be re reserved re- re served to them I If It however their conduct conduct con con- duct of or the business Is Inefficient iund does docs not result In a a period of ot years In any profits for division then In many cases tho the preferred stockholders havo have the right to step In itt and vote their shares and eo so secure a voice In the control of at tho the corporation These ares aro the tho norm normal and fundamental t un ame tal features of preferred stock as a op posed to common stock Variations stok are aro dictated by special circumstances It I sometimes happens as we have sees seen that there are am two OT- OT OJ nn A 1 a r ff ff preferred stock I In th this event th th the holders or of class A would take tae prece prece- prece dence dece over oVer class clas B. B as a aswell well wen as ne a over th holders of or common stock In the te d distri distri- buton tho the usual of oC profits preference Class Cas over B would woud the owners have hav owner of or common stock Another provision prevision sometimes found In the te ca case C of railroad railroad rail rail- road roa Issues Issues Is that that when en the tho to earnings are ar more than enough h to provide a dividend payment on common coron stock ata at ata a a c rate rte fixed In advance then a the tho surplus shall be shared bot between both classes of ot owners owners Finally th t. t provision I Is frequently made made- parties when it is expected that the business busi bosi- busness bus bus- ness will wl bo bc b profitable that preter preferred stock shall bo ho re redeemable by the Ising isan- isan Is- Is ing corporation at a figure ir agreed upon at the time of at Its Ia issue Issue This may l be 0 e par though It i Is i usually abot- abot Oo that figure With the to preferred stock redeemed tho the whole earnings may my g go 10 back Into tho the business as surplus or be pal paid 1 out to the common stock holders bolders holders hold bold ers as a dividends Holders of ot both preferred and ad cornmon common corn com Cm mon stock in a corporation are aro ae its is owners own own- ow em ers er and ad bear the risks rIsk of ot ownership Their rights right in the te event of or tion lon or other development which h n threatens tho the property are arc secondary secondary to those of bondholders who ar aro not not owners ower but bt creditors whose claims must be bo paid before the tho to stockholders who ho own O tho tIm property can n receive their share of or tho the price for to which it may Dy b be b sold The preferred stock sok of or established I companies having ample aple earnings earning over overa I a a. period perO of ot years and a a. good dividend I record axed and ad resources adequate for Iq- Iq I ul the preferred stock In full rl can I frequently be classed investment J I as se- se |