Treasury Stock. It often occurs that a new company finds it necessary to set aside a certain number of shares to be sold from time to time to secure working capital. Such stock is held in the treasury until it is needed, and is called treasury stock.
Preferred Stock. Preferred stock is stock which is guaranteed certain advantages over ordinary stock. It is usually given to secure some obligation of the company, and upon it dividends are declared in preference to common stock. That is to say, if a man holds a share of preferred stock he will receive interest thereon out of the profits of the business before such profits are given in the form of dividends to shareholders generally. Preferred stock can be issued only when authorised by the charter of the company. The interest on the investment in the case of preferred stock is more sure, but the security itself is not any more secure than in the case of common stock.
Guaranteed Stock. Guaranteed stock differs from preferred stock in this—that it is entitled to the guaranteed dividend (interest) before all other classes of stock, whether the company earns the necessary amount in any one year or not. This right is carried over from year to year, thus rendering the shares absolutely secured as to interest.
Watered Stock. When stock is issued to the shareholders without increase of actual capital the stock is said to have been watered. A company may organise for, say, $10,000, and may want to increase to $50,000 without adding to the number of its shareholders. Each holder of one share will, in this instance, receive four new shares, and in future instead of receiving a dividend on one share will receive a dividend on five shares. The object of this is, quite commonly, to avoid State laws requiring certain corporations to pay excess of profit over a stated rate per cent. into the State treasury.
Forfeited Stock. Stock is usually sold on certain explicit conditions, such as the paying of ten per cent. down and the balance in installments at stated intervals. If the conditions which are agreed to by the shareholder are not met his stock is declared forfeited, or he can be sued in the same manner as upon any other contract.
Assessments. Some companies organise with the understanding that a certain percentage of the nominal value of the shares is to be paid at the time of subscribing, and that future payments are to be made at such times and in such amounts as the company may require. Under these conditions the stockholders are assessed whenever money is needed. Such assessments are uniform on all stockholders.
Surplus Fund. It is not customary to pay a larger dividend than good interest. The profits remaining after the expenses and dividends are paid are credited to what is called a surplus fund. This fund is the property of the shareholders and is usually invested in good securities.
Franchise. A franchise is a right granted by the State to individuals or to corporations. The franchise of a railroad company is the right to operate its road. Such franchise has a value entirely distinct from the value of the plant or of the ordinary property of the corporation.
Sinking Fund. A sinking fund is a fund set aside yearly for the purpose at some future time of sinking—that is, paying a debt.