§13. The amount of capital to be employed by the company, is mentioned in the act of incorporation, or charter, and is raised in this way: The amount of the capital, or stock, is divided into shares of $100, or less. Persons wishing to invest money in the road, subscribe the number of shares they will respectively take. When all the shares are thus sold and the money is paid in, the company is ready to proceed to the construction of the road. The owners of these shares are called stockholders, who choose from among themselves such number of directors as the charter authorizes. The directors elect from their number a president.
§14. Persons buying shares receive certificates signed by the proper officers, stating the number of shares for which each certificate is given. The holders of these certificates, if they wish to make other use of the money they have invested in the business, may sell their stock to others, to whom they pass their certificates, which are evidence of the amount of stock purchased. Thus these certificates are bought and sold as promissory notes.
§15. Stockholders depend, for the reimbursement of their capital, upon the money to be received for the transportation of passengers and freight. Such portion of the income of the road as remains after paying all expenses of running and repairs, is divided semi-annually among the stockholders. Hence the sums thus divided are called dividends. The earnings of some roads are so large as to make the investment a profitable one; so that the holder of shares is enabled to sell them at an advance. When shares in the stock of any institution are sold at their nominal value, the price named in the certificates, the stock is said to be at par. When they are sold for more or less than their nominal value, they are said to be above or below par. In large commercial cities, as New York, Boston, Philadelphia, and others, the purchase and sale of state stocks, and stocks in rail-roads, banks, &c., is a regular and extensive business of capitalists.
Chapter XXIV.
Banks and Insurance Companies.
§1. Banks, we are told, were first instituted in Italy, where certain Jews assembled, seated on benches, ready to lend money, and to exchange money and bills; and banco being the Italian name for bench, banks took their title from this word. The first banks are said to have been only places where money was laid up or deposited for safe-keeping. But banks at the present day are not used for depositing alone.
§2. Banks in this country can be established only by authority of law. They are incorporated by an act of the legislature. The capital stock is raised by the sale of shares, and issue of certificates, as in the case of rail-roads. (Chap. XXIII., §13.) The stockholders elect of their number (usually) thirteen directors, who choose one of themselves as president. The president and directors choose a cashier and clerks.
§3. Merchants and others in commercial places, deposit in banks, for safe-keeping, the money they receive in the course of business, and then draw it out on their written orders as they have occasion to use it. An order of this kind is called a check.
§4. Persons depositing money only once, or very seldom, and intending to draw for the same at once, usually receive from the cashier a certificate of deposit, which states the name of the depositor, the sum deposited, and to whose order it is to be paid. For the use of money deposited for any considerable period, banks agree to pay interest, usually less, however, than the rate established by law. Certificates of deposit may, by indorsement, be made transferable as promissory notes and other negotiable paper, (Chap. LX., §2,) and are often remitted, instead of money, to distant places, where, by presenting them at a bank, they may, for a trifling compensation, be converted into money.
§5. A material part of the business of banks is to assist merchants and others in transmitting money to distant places. Thus: A, in New York, wishing to send $1,000 to B, in Philadelphia, puts the money into a bank in New York, takes for it an order, called draft, on a bank in Philadelphia, for that amount, to be paid to B. The draft is sent by mail to B, who presents his draft at the bank, and receives the money; and the bank charges the amount to the New York bank.