"This statement is prepared by parties interested in the sale of securities herein mentioned. Neither the State of Illinois, nor any officer of the State, assumes any responsibility for any statement contained herein nor recommends any of the securities described below."
Section 8. All securities other than those falling within Class "A," "B" and "C," respectively, shall be known as securities in Class "D."
Section 9 gives the requisites of the statement required to be filed with the Secretary of State before securities of Class "D" may be sold. Such statement is even more complete than that required in Section 7.
SALES AND CONTRACTS VOID.—Every sale or contract in violation of the act is void, and the fines vary from not less than $100 to not more than $25,000, and the imprisonment from six months to five years. Although there is great need for a Federal incorporation act there is even greater need for a Federal blue sky law. With different acts in the different States, the Illinois act being simply an example, even the most careful business man may unwittingly find himself in a position where he has violated one of these laws with their severe penalties.
CHAPTER VII
Transfer of Stock
UNIFORM TRANSFER OF STOCK.—Turn now to an entirely different matter, the transfer of stock. A stock certificate is one of the quasi-negotiable instruments of commerce, at common law not fully negotiable like bills and notes, but, nevertheless, having some of the attributes of negotiability, especially in States where what is called the Uniform Transfer of Stock Act has been enacted. This statute applies only to corporations of those States which have passed the statute.
TWO METHODS OF TRANSFERRING STOCK.—Stock may be transferred in two ways: first, by delivery of the certificate with the indorsement upon it of the owner of the stock, indicating that he assigns or authorizes the assignment of the stock, and second, by delivery of the certificate, with a separate document of assignment attached stating that the owner of the certificate assigns or authorizes the transfer of the stock. This second method is not so completely good as the first, where the assignment is on the certificate itself, because if for any reason the separate document should become detached from the certificate, the transferee's right would not be apparent, and therefore the Transfer of Stock Act provides that if a purchaser should get possession of the stock certificate with an indorsement upon it, he would take precedence over even a prior assignee who had a separate paper assigning the certificate to him. Of course, after the transfer is duly registered on the books of the company, then it makes no difference whether that transfer was secured by means of a separate power or assignment or by means of one written on the certificate itself.
EFFECT OF TRANSFER ON THE BOOKS OF THE COMPANY.—What is the effect of transfer on the books of the company? Under the common law, stock was originally transferable just like any intangible right, merely by agreement of the parties, to which requirement was added, as a necessity when stock certificates became common, the delivery of the certificate itself. But it was convenient for the company to know who was owner of its stock. It was inconvenient to have stockholders buy and sell without any notice to the company, and therefore a common by-law was that stock should be transferred only on the books of the company. The Uniform Transfer of Stock Act goes back partially to the old rule, since the transfer of the certificate with the indorsement or separate assignment is what transfers the stock, not the transfer on the books of the company; but in order that the corporation may not be inconvenienced it is provided that the corporation shall have the right to pay dividends to any one registered on the books of the company, such persons being the apparent owners, and that only such persons have the right to vote. An analogous custom that shows the importance of registration of stock transfers on the books of the company is the registry of deeds in the transfer of real estate. It is the deed, not the record of it, which creates a title, but an unrecorded deed may be defeated by creditors or purchasers without notice, so that to protect himself fully the owner of land is obliged to record his deed.