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of the stock involved. A stock certificate may be issued for one share or for any number of shares. No transfer is complete until the transaction has been recorded on the books of the company, but a person buying stock of another is entitled to any dividend paid on said stock, and could recover it from the assignor is paid to him by the company. The legal owner of stock for all purposes is the person in whose name it appears on the corporate books; the equitable owner is the real owner whose name does not appear on the books because the assignment to him has not been entered on the company's books. The rulings of the courts as to stock appear under the proper headings, following.
A rule that is absolute in Illinois, and the evasion of which, by any device or combination, is not permitted, is, that stock subscribed for must be fully paid for in cash or property hy the original subscriber. He is held liable to creditors for the full sum of his subscription. To issue stock as “fully paid” does not avoid the liability to creditors. The only way to escape further liability on stock subscribed for upon the formation of the company is to pay for it in full in cash or with property at a fair valuation. If patents or property are overvalued and exchanged for stock, the subscriber for stock will be held for the difference. There is no further liability on stock once paid for in good faith. Assignees of original subscribers are liable for unpaid balances on stock if they have notice, actual or constructive, that the stock is not fully paid for. Stock actually paid up in full may be bought at any price below par without rendering the assignee liable to creditors. The purpose of the law is that the original capital stock must actually represent the amount of money named. Creditors noting the capitalization may examine the articles of incorporation filed in the county of incorporation and learn who are subscribers for the stock. They then extend credit to the company on the names of the incorporators. If they consider them good and the subscriptions collectible, they give credit on that basis. If the incorporators are without property they will extend no credit. Hence the law holds that all original subscriptions must be paid in full in good faith.
Stockholders are liable as partners (each for all the corporate debts) if the company is not legally organized; but if properly organized they are liable only to the amount of the stock they subscribe for.
There are many kinds of stock, differently named according to the purpose for which issued.
"Bonus” stock is ordinary stock issued as a bonus and given free with bonds or otherwise. Bondholders or persons receiving such stock are liable to creditors for its face value, but are not otherwise liable.
Common stock is the usual stock of the company and is entitled to share in dividends declared and represents ownership of a certain part of the assets of the company in case of dissolution or distribution of assets. Every legal owner of common stock is entitled to vote at stockholders' meetings. (For form of common stock see Form No. 35.)
Preferred stock differs from common stock in the wording of the certificate and is superior to common stock in that dividends are first paid on preferred stock at a certain per cent and the balance of profits to be divided is given pro rata to owners of common stock. Provision may, however, be made that preferred stock shall receive a certain fixed dividend first, and shall share any balance remaining after common stock has received a dividend in amount equal to that first given preferred stock. Preferred stock is usually issued in emergency to induce the purchase of stock by giving a larger privilege and more certain dividend to those who purchase. Preferred stock is usually given the right to vote, but may be denied that power by provision in the certificate or resolution for issue. It is in the nature of a first mortgage on the corporate profits and the certificate usually provides the manner in which preferred stock may be re-purchased by the corporation. The conditions under which preferred stock shall issue should be fully outlined in the certificate of stock. If not provided for in the by-laws or articles preferred stock cannot be issued without amending the cbarter or by-laws. (For preferred stock certificate, Form No. 36.) (For resolution on issue of preferred stock, Form No. 80.)
The statutes of Illinois contain no provisions as to the issuing or status of preferred stock. Where the by-laws provide for such stock, they should provide the manner of issuing same, which should be closely followed.
Treasury stock is stock owned by the corporation having been acquired by purchase, surrender, forfeiture or otherwise. Such stock does not pay dividends while owned by the company, but dividends are payable on it as soon as it is re-sold. No device by means of which stock is subscribed for and then surrendered to the company or sold to the company at a price below par is allowed (in Illinois) to relieve the original stockholder of his liability to creditors for the full amount of his subscription. If treasury stock has been acquired by the corporation in good faith, without fraud as to creditors, it may be resold, freed of all the liabilities that attach to original stock and as fully paid stock. It may be sold or given away in the interest of the business. (Form for transfer of treasury stock to purchaser, see Form No. 81.)
Trustee's stock is stock transferred to a trustee for the purpose of having it sold and the proceeds, less a certain commission, paid to the company. It is an aid to the ready sale of stock. The placing of original stock in the hands of a trustee to be sold at less than par value is not illegal in itself, but does not release the original subscriber from his liability to creditors. Anyone purchasing trustee's stock not fully paid will be liable to creditors for unpaid balance. (Transfer to trustee, Form No. 82.) (Trustee's certificate, Form No. 83.)
Corporate stock is personal property and as such may be pledged as security for commercial paper and other loans; is subject to taxation, to attachment, to sale on execution and to all the conditions that apply to other personal property. The law applicable to stock is further considered in the sub-divisions following.
Under the laws of Illinois the full capital stock must be subscribed for before a charter is issued, so that in Illinois there is no unissued stock.
Municipal subscriptions to railroads or private corporations.
No county, city, town, township or other municipality shall ever become subscriber to the capital stock of any railroad or private corporation, to make donation to or loan its credit in aid of such corporation: Provided, however, That the adoption of this article shall not be construed as affecting the right of any such municipality to make such subscriptions where the same have been authorized, under existing laws, by a vote of the people of such municipalities prior to such adoption. (Constitution 1870, Article xiv.)
Installments—Compelling payment.) § 7. Chap. 32. The shares of stock shall not be less than $10 nor more than $100 each, and shall be deemed personal property, and transferable as such in the manner provided by the by-laws, and subscriptions therefor shall be made payable to the corporation, and shall be payable in such installments and at such time or times as shall be determined by the directors or managers, and an action may be maintained in the name of the corporation to recover any installment which shall remain due and unpaid for the period of twenty days after personal demand therefor, or, in cases where personal demand is not made, within thirty days after a written or printed demand has been deposited in the post office, properly addressed to the post office address of the stockholder. The directors may, by by-law, prescribe other penalties for a failure to pay installments that may from time to time become due, but no penalty working a forfeiture of stock, or of the amounts paid thereon, shall be declared as against any estate before distribution shall have been made, or against any stockholder before demand shall have been made for the amount due thereon, either in person, or by a written or printed notice, duly mailed to the proper address of such stockholder at least thirty days prior to the time when such forfeiture is to take effect: Provided, That proceeds of said sale, over and above the amount due on said shares, shall be paid to the delinquent stockholder. (See World's Fair Excursion Co. v. Gasch, 162 111. 402.
15. Assessments, etc.) § 15. Chap. 32. All assessments or installments of the stock of any stock corporation shall be levied by the directors in accordance with the provisions of the by-laws, but any assessment or installment required to be paid shall be levied pro rata upon all the shares of such stock.
AN ACT in regard to judgments and decrees, and the manner of enforcing the same by execution, and to provide for the redemption of real estate sold under execution or decree. (Approved March 22, 1872. In force July 1, 1872. L. 1871-2, p. 505. (Chap. -.)
52. Stock may be sold on execution.) § 52. The share or interest of a stockholder in any corporation may be taken on execution, and sold as hereinafter provided; but in all cases where such share or interest has been sold or pledged in good faith for a valuable consideration, and the certificate thereof has been delivered upon such sale or pledge, such shares or interest shall not be liable to be taken on execution against the vendor, or pledger, except for the excess of the value thereof over and above the sum for which the same may have been pledged and the certificate thereof delivered. (As amended by act approved June 22, 1883. In force July 1, 1883. L. 1883, p. 110; Legal News Ed., p. 92.
53. Mode of levy.) § 53. If the property has not been attached in the same suit, the officer shall leave an attested copy of the execution with the clerk, treasurer or cashier of the company, if there is any such officer, otherwise with any officer or person having the custody of the books and papers of the corporation; and the property shall be considered as seized on execution when the copy is so left, and shall be sold in like manner as goods and chattels.
54. Mode of sale.) § 54. If the share is already attached in the same suit, the officer shall proceed in seizing and selling it on execution, in the same manner as in selling goods and chattels.
55. Certificate-Refusal, etc.—Penalty.) § 55. The officer of a company who keeps a record or account of the shares or interest of the stockholders therein, shall, upon the exhibiting to him of the execution, be bound to give a certificate of the number of shares or amount of the interest held by the judgment debtor. If he refuses to do so, or if he wilfully gives a false certificate thereof, he shall be liable for double the amount of all damages occasioned by such refusal or false certificate, to be recovered in any proper action, unless the judgment is satisfied by the original defendant.