stock

The goods and wares of a merchant or tradesman, kept for sale and traffic. In a larger sense, the capital of a merchant or other person, including his merchandise, money, and credits, or, in other words, the entire property employed in business.

See inventory.

Corporation Law

The term is used in various senses. It may mean the capital or principal fund of a corporation or joint-stock company, formed by the contributions of subscribers or the sale of shares; the aggregate of a certain number of shares severally owned by the members or stockholders of the corporation or the proportional share of an individual stockholder; also the incorporeal property which is represented by the holding of a certificate of stock; and in a wider and more remote sense, the right of a shareholder to participate in the general management of the company and to share proportionally in its net profits or earnings or in the distribution of assets on dissolution.

The term "stock" has also been held to embrace not only capital stock of a corporation but all corporate wealth and resources, subject to all corporate liabilities and obligations.

"Stock" is distinguished from "bonds" and, ordinarily, from "debentures," in that it gives right of ownership in part of assets of corporation and right to interest in any surplus after payment of debt. "Stock" in a corporation is an equity, and it represents an ownership interest, and it is to be distinguished from obligations such as notes or bonds which are not equities and represent no ownership interest. U. S. v. Evans, C.A.Or., 375 F.2d 730, 731.

See also certificate of stock

- discount shares

- equity security

- par value

- registration of securities

- securities

- security

- share of corporate stock.

Classes and Types of Corporate Stock

Preferred stock is a separate portion or class of the stock of a corporation, which is accorded, by the charter or by-laws, a preference or priority in respect to dividends, over the remainder of the stock of the corporation, which in that case is called common stock. That is, holders of the preferred stock are entitled to receive dividends at a fixed annual rate, out of the net earnings or profits of the corporation, before any distribution of earnings is made to the common stock. If the earnings applicable to the payment of dividends are not more than sufficient for such fixed annual dividend, they will be entirely absorbed by the preferred stock. If they are more than sufficient for the purpose, the remainder may be given entirely to the common stock (which is the more usual custom) or such remainder may be distributed pro rata to both classes of the stock, in which case the preferred stock is said to "participate" with the common.

The fixed dividend on preferred stock may be "cumulative" or "non-cumulative."

In the former case, if the stipulated dividend on preferred stock is not earned or paid in any one year, it becomes a charge upon the surplus earnings of the next and succeeding years, and all such accumulated and unpaid dividends on the preferred stock must be paid off before the common stock is entitled to receive dividends.

In the case of "non-cumulative" preferred stock, its preference for any given year is extinguished by the failure to earn or pay its dividend in that year.

If a corporation has no class of preferred stock, all its stock is common stock.

The word "common" in this connection signifies that all the holders of such stock are entitled to an equal pro rata division of profits or net earnings, if any there be, without any preference or priority among themselves.

Deferred stock is rarely issued by American corporations, though it is not uncommon in England.

This kind of stock is distinguished by the fact that the payment of dividends upon it is expressly postponed until some other class of stock has received a dividend, or until some certain liability or obligation of the corporation is discharged.

If there is a class of "preferred stock, the common stock may in this sense be said to be "deferred," and the term is sometimes used as equivalent to "common" stock. But it is not impossible that a corporation should have three classes of stock:

(1) Preferred,

(2) common, and

(3) deferred;

the latter class being postponed, in respect to participation in profits, until both the preferred and the common stock had received dividends at a fixed rate.

@ assented stock

Stock which an owner deposits with a third person in accordance with an agreement by which the owner voluntarily accepts a change in the securities of the corporation.

@ assessable stock

Stock which requires the owner to pay more than its cost if the needs of the corporation require.

+ assessable stock

Stock where the stockholder may have to pay more than his original investment if corporate affairs so require

@ authorized stock

That amount of stock which the corporate charter permits the corporation to issue. The shares described in the articles of incorporation which a corporation may issue. Modern corporate practice recommends authorization of more shares than it is currently planned to issue.

See also authorized stock issue.

@ blue-chip stock

Stock of a listed company which has a high grade financial record.

See listed stock.

@ bonus stock

Stock given to an underwriter as compensation for services. Stock given to purchasers as an inducement.

+ bonus stock

Stock given as premium in connection with (to encourage) the sale of another class of securities; e.g. stock issued to the purchasers of bonds as an inducement to them to purchase bonds or loan money. Par value shares issued without consideration, usually in connection with the issuance of preferred or senior securities, or debt instruments. Bonus shares are considered a species of watered shares and may impose a liability on the recipient equal to the amount of par value

@

callable preferred stock

@ capital stock

The shares of stock representing ownership of a business. The types of stock include preferred stock and common stock. Amount of stock that a corporation may issue; amount subscribed, contributed or secured to be paid in. Haggard v. Lexington Utilities Co., 260 Ky. 261, 84 S.W.2d 84, 87.

Corporate assets or property contributed by shareholders. Bates v. Daley's Inc., 5 Cal.App.2d 95, 42 P.2d 706, 709.

Liability of the corporation to its shareholders, after creditors' claims have been liquidated. Valuation of the corporation as a business enterprise

@ common stock

Securities which represent an ownership interest in a corporation. If the company has also issued preferred stock, both common and preferred have ownership rights. The preferred normally is limited to a fixed dividend but has prior claim on dividends and, in the event of liquidation, assets. Claims of both common and preferred stockholders are junior to claims of bondholders or other creditors of the company. Common stockholders assume the greater risk, but generally exercise the greater control and may gain the greater reward in the form of dividends and capital appreciation. The terms common stock and capital stock are often used interchangeably when the company has no preferred stock.

+ common stock

Class of corporate stock which represents the residual ownership of the corporation. Holders of common stock have voting powers (to, for example, select directors of corporation) and to participate in the profits of the corporation by way of dividends (but only after preferred stockholders have been paid their dividends). Such stock is last to share in property of corporation on dissolution (after demands of creditors and senior security holders are satisfied)

@ control stock

That amount of capital stock which permits the owner to control the corporation. It is not necessarily a majority of the shares.

@ convertible stock

Stock which may be changed or converted into common stock.

@ cumulative preferred stock

A stock having a provision that if one or more dividends are omitted, the omitted dividends must be paid before dividends may be paid on the company's common stock.

@ cumulative stock

A type of stock on which unpaid dividends accumulate until paid. They must be paid totally before the common stockholders receive their dividends.

See cumulative preferred stock

@ donated stock

Stock transferred to the corporation by the stockholders for resale. Floating stock. That part of a corporation's stock which is on the open market for speculation. Stock not yet bought by public holders.

+ donated stock

Securities given to a corporation by its own stockholders commonly for resale

@ growth stock

Stock purchased with a view towards appreciation in value rather than dividend income.

+ growth stock

Type of security characterized by the prospect of increase in market value, but not necessarily with a good dividend return

@ guaranteed stock

Usually preferred stock on which dividends are guaranteed by another company, under much the same circumstances as a bond is guaranteed.

@ guaranty stock

Stock in a savings and loan association in some states which yields all dividends to the holders after dividends to depositors or savers.

@ issued stock

Stock which has been authorized and actually sold to subscribers. It may include treasury stock.

@ listed stock

The stock of a company which is traded on a securities exchange, and for which a listing application and a registration statement, giving detailed information about the company and its operations, have been filed with the Securities and Exchange Commission, unless otherwise exempted, and with the exchange itself. The various stock exchanges have different standards for listing.

@ nonassessable stock

Stock which cannot be assessed (i.e. holder cannot be assessed) in the event of failure or insolvency of the corporation. Most all stock is nonassessable.

@ noncumulative preferred stock

@ non-cumulative preferred stock

Type of preferred stock which yields no dividend once the dividend is passed.

Contrast cumulative preferred stock, above.

@ noncumulative stock

@ non-cumulative stock

A preferred stock on which unpaid dividends do not accrue. omitted dividends are, as a rule, gone forever.

@ nonvoting stock

Stock to which no rights to vote attach. Such shares may be created in most states; in some states, however, nonvoting shares may be entitled to vote as a class on certain proposed changes adversely affecting that class as such.

@ non-voting stock

Stock to which no rights to vote attach. Such shares may be created in most states; in some states, however, nonvoting shares may be entitled to vote as a class on certain proposed changes adversely affecting that class as such.

@ no par stock

Stock without par value but which represents a proportionate share of the ownership of a corporation based on the number of shares. Such shares are issued for the consideration designated by the board of directors; such consideration is allocated to stated capital unless the directors or shareholders determine to allocate a portion to capital surplus. A corporation may have both par and no par value stock.

@ no-par stock

Stock without par value but which represents a proportionate share of the ownership of a corporation based on the number of shares. Such shares are issued for the consideration designated by the board of directors; such consideration is allocated to stated capital unless the directors or shareholders determine to allocate a portion to capital surplus. A corporation may have both par and no par value stock.

@ outstanding stock

Stock issued and in the hands of stockholders and such does not include treasury stock

@ paid up stock

@ paid-up stock

Stock for which full payment has been made to the corporation.

+ paid-up stock

Shares of stock for which full payment has been received by the corporation

@ participation preferred stock

A preferred stock which is entitled to its stated dividend and, also, to additional dividends on a specified basis upon payment of dividends on the common stock.

@ participation stock

In general, stock which permits the holder to participate in the profits and surplus.

@ par value stock

@ par-value stock

Stock which originally had a fixed value arrived at by dividing the total value of capital stock by the number of shares to be issued. The par value does not bear a necessary relation to the actual value of the stock because of the part which surplus plays in valuation.

See also par value.

@ penny stock

Generally, highly speculative stock which can be purchased for under a dollar a share.

@ preferred stock

A class of stock with a claim on the company's earnings before payment may be made on the common stock and usually entitled to priority over common stock if company liquidates. Usually entitled to dividends at a specified rate-when declared by the Board of Directors and before payment of a dividend on the common stock-depending upon the terms of the issue.

+ preferred stock

Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred shares are usually entitled only to receive specified limited amounts as dividends or on liquidation. If preferred shares are entitled to share in excess distributions with common shareholders on some defined basis, they are participating preferred shares. Participating preferred shares may also be called class A common, or some similar designation to reflect its open-ended rights.

See also stock

+ Preferred stock is a separate portion or class of the stock of a corporation, which is accorded, by the charter or by-laws, a preference or priority in respect to dividends, over the remainder of the stock of the corporation, which in that case is called common stock. That is, holders of the preferred stock are entitled to receive dividends at a fixed annual rate, out of the net earnings or profits of the corporation, before any distribution of earnings is made to the common stock. If the earnings applicable to the payment of dividends are not more than sufficient for such fixed annual dividend, they will be entirely absorbed by the preferred stock. If they are more than sufficient for the purpose, the remainder may be given entirely to the common stock (which is the more usual custom) or such remainder may be distributed pro rata to both classes of the stock, in which case the preferred stock is said to "participate" with the common.

The fixed dividend on preferred stock may be "cumulative" or "non-cumulative."

In the former case, if the stipulated dividend on preferred stock is not earned or paid in any one year, it becomes a charge upon the surplus earnings of the next and succeeding years, and all such accumulated and unpaid dividends on the preferred stock must be paid off before the common stock is entitled to receive dividends.

In the case of "non-cumulative" preferred stock, its preference for any given year is extinguished by the failure to earn or pay its dividend in that year.

If a corporation has no class of preferred stock, all its stock is common stock.

Callable preferred stock.

Preferred stock which is subject by its terms to being called in for payment at a predetermined price.

@ callable preferred stock

Preferred stock which is subject by its terms to being called in for payment at a predetermined price.

+ callable preferred stock

- preferred stock which may be called by the issuing corporation at a prestated price.

@ premium stock

Stock which carries a premium for trading as in the case of short selling.

@ registered stock

Stock registered under federal Securities Act.

See also listed stock.

+ registered stock

Stock issue that has been registered with Securities and Exchange Commission as a new issue or secondary offering. 15 U.S.C.A. No. 77c et seq.

See also registration of securities

- registration statement

@ restricted stock

Stock to which is attached restrictions as to, transferability

@ subscribed stock

A stockholders' equity account showing the capital that will be contributed as the subscription price is collected. A subscription is a legal contract so that an entry is made debiting a receivable and crediting subscribed stock as soon as the stock is subscribed.

See also subscriber

- subscription

@ treasury stock

Stock issued by a company but later re-acquired. It may be held in the company's treasury indefinitely, reissued to the public, or retired. Treasury stock receives no dividends and has no vote while held by the company. The Revised Model Business Corporation Act and the statutes of several states have eliminated the concept of treasury shares.

+ treasury stock

Stock which has been issued as fully paid to stockholders and subsequently reacquired by the corporation to be used by it in furtherance of its corporate purposes; stock which is merely to be held as unsubscribed for and unissued is not usually regarded as "treasury stock". Bronson v. Bagdad Cooper Corp., 151 A.2d 677, 679.

The Revised Model Business Corporation Act and the statutes of several states have eliminated the concept of treasury shares; reacquired shares automatically having the status of authorized but unissued shares

Compare treasury bond

@ unissued stock

Stock authorized by the corporate charter but not yet distributed to stockholders and subscribers.

@ unlisted stock

Stock not listed on one of the stock exchanges but traded over the counter or privately.

@ voting stock

Stock which carries the right to vote for directors, etc.

+ voting stock

In corporations, that type of stock which gives the holder the right to vote for directors and other matters in contrast to non-voting stock which simply entitles the holder to dividends, if any. Common stock is normally voting stock.

See also stock

@ watered stock

Stock issued for inadequate consideration.

+ watered stock

Stock issued by corporation for less than full and adequate consideration. Stock which is issued by a corporation as fully paid-up stock, when in fact the whole amount of the par value thereof has not been paid in. Stock issued as bonus or otherwise without consideration or issued for a sum of money less than par value, or issued for labor, services, or property which at a fair valuation is less than the par value

@

Law of Descent

The term is used, metaphorically, to denote the original progenitor of a family, or the ancestor from whom the persons in question are all descended; such descendants being called "branches." Matter of Samson's Estate, 139 Misc. 490, 249 N.Y.S. 79, 83.

Generally

@ certificate of stock

A certificate of a corporation or joint-stock company that named person is owner of designated number of shares of stock. It is merely written evidence of ownership of stock, and of the rights and liabilities resulting from such ownership. It is a document representation of an incorporeal right, and stands on the footing similar to that of other muniments of title

See certificate

- share certificate.

@ exchange of stock

See exchange.

@ public stocks

The funded or bonded debt of a government or state

@ stock association

A joint-stock company

@ stock attribution

Under certain circumstances, the tax law applies attribution rules to assign to one taxpayer the ownership interest of another taxpayer. If, for example, the stock of X Corporation is held 60% by M and 40% by S, M may be deemed to own 100% of X Corporation if M and S are mother and son. In such a case, the stock owned by S is attributed to M. Stated differently, M has a 60% "direct" and a 40% "indirect" interest in X Corporation. It can also be said that M is the "constructive" owner of S's interest

See also attribution

@ stock bailout

A species of stock redemption in the form of a preferred stock dividend formerly tax free, but now governed by I.R.C. No. 306

@ stockbroker

One who buys or sells stock as agent of another. Allen v. Todd, 12 Cal.App.2d 654, 90 Cal.Rptr. 807, 810.

See also broker

@ stock certificate

See certificate of stock

- share certificate, certificate

@ stock control

Type of inventory management by which a business maintains perpetual records of its inventory

@ stock corporation

A corporation having a capital stock divided into shares, and which is authorized by law to distribute to the holders thereof dividends or shares of the surplus profits of the corporation

@

- stock dividend

@ stock exchange

The place at which shares of stock are bought and sold. Any organization, association, or group of persons, whether incorporated or unincorporated, which constitutes, maintains, or provides a marketplace or facilities for bringing together purchasers and sellers of securities.

See stock market, below

@ stock insurance company

An insurance company whose shares are held by the public and which pays dividends in contrast to a mutual insurance company whose assets are owned by the policyholders who receive dividends when available

+ stock insurance company

Also known as a "joint stock insurance company," it is an insurance company that has issued capital stock and which is controlled by stockholders who take the profits. It may be distinguished from a "mutual insurance company" which is owned by policy holders. National Chiropractic Insurance Company v. United States, D.C.Iowa, 365 F.Supp. 971, 972.

See also mutual insurance company

@ stock in trade

The inventory carried by a retail business for sale in the ordinary course of business. Also, the tools and equipment owned and used by a tradesman

@ stock jobber

A dealer in stock; one who buys and sells stock on his own account on speculation

@ stock law district

A district in which stock is by law prohibited from running at large

@ stock life insurance company

One in which capital stock investment is made by subscribers to stock, and business is thereafter conducted by board of directors elected by its stockholders, and, subject to statutes, distribution of earnings or profits, as between stockholders and policyholders, is determined by board of directors. Atlantic Life Ins. Co. v. Moncure, D.C.Va., 35 F.2d 360, 362

@ stock market

The organized trading of securities through the various stock exchanges and over-the-counter markets. The largest stock market in the United States is the New York Stock Exchange.

See also over-the-counter market

@ stock note

The term has no technical meaning, and may as well apply to a note given on the sale of stock which the bank had purchased or taken in the payment of doubtful debts as to a note given on account of an original subscription to stock

@ stock option

The right to buy a designated stock, if holder of option chooses, at any time within specified period, at determinable price, or to sell designated stock within an agreed period at determinable price. Richardson v. Richardson, 280 Ark. 498, 659 S.W.2d 510, 514.

In addition to its use for investment purposes, such options are often granted to management and key employees as a form of incentive compensation. The term "stock option" is used when the right is issued other than pro rata to all existing shareholders. When so issued to all existing stockholders, the option is called a "stock right."

For "restricted stock option," "qualified stock option," and "nonqualified stock option", see option.

See also call

- incentive stock option

- put

- put option

- warrant

@ stock option contract

A negotiable instrument which gives the holder the right to buy or sell a certain number of shares of the corporation's stock within a fixed period of time for a certain price.

See also option

@ stock power

A power of attorney permitting a person other than the owner of the stock to transfer legally the title of ownership to a third party

@ stock purchase plan

A plan by which employees of a corporation are allowed to purchase shares of corporate stock

@ stock redemption

A partial or complete liquidation of corporate stock by the corporation with varying tax consequences depending upon the type of redemption. It generally consists in the buy back by the corporation of its own stock. The redemption of the stock of a shareholder by the issuing corporation is generally treated as a sale or exchange of the stock unless the redemption is a dividend. I.R.C. No.No. 301 and 302.

A public corporation might redeem its stock for the purpose of "going private", or as a defense to a hostile takeover attempt.

See also stock bailout, above

@ stock repurchase plan

A program by which a corporation buys back its own shares in the open market. It is usually done when the corporation believes its shares are undervalued by the market.

@ stock rights

The privilege to subscribe to new stock issues or to purchase stock. Usually, rights are contained in securities called warrants and the warrants can be sold to others. A right to purchase stock issued pro rata to existing shareholders. Sometimes issued on a "when, as, and if basis, that is, the holder can buy the stock when it is issued, on such basis or of such kind as is issued, and if it is issued. A document (i.e. negotiable certificate) which gives an existing stockholder the privilege of buying additional stock of a corporation. The right has a value of its own because generally the holder may buy such additional stock at a price less than the market quotation.

Rights are traded in the market. A stock right differs from a warrant to the extent that a right gives a privilege of buying additional stock of the same kind whereas a warrant may permit a preferred stockholder to buy common stock.

See also preemptive right

- warrant (stock warrants)

@ stock split

The issuance of a number of new shares in exchange for each old share held by a stockholder resulting in a proportional change in the number of shares owned by each stockholder. Share splits, or stock splits, may be

(a) split-ups, where one share is split into a larger number of shares, or

(b) reverse splits, or splitdowns, where a number of shares are combined to form a smaller number of shares.

Share splits involve no transfer from surplus to stated capital or any changes except adjustments in par value or stated value per share, when applicable, so that the same stated capital which represented the issued shares before the split properly represents the changed number of shares after the split.

A split-up requires not only board of directors action, but often requires advance shareholder approval as well when the articles of incorporation must be amended to change the par value or stated value of shares and also, when necessary, to authorize additional shares.

The usual accounting treatment for a share split is to do nothing except to reflect the different (usually increased) number, of issued shares and any changes in par or stated value.

A common purpose of a stock split is to reduce the per share market price in order to make for wider trading and a resulting higher per share value (i.e. price).

See also reverse stock split

@ stock subscription

An agreement (by a subscriber) with the corporation to purchase its stock.

See stock rights, above.

See also subscribed stock

- subscriber

- subscription

@ stock swap

In corporate reorganization, an exchange of stock in one corporation for the stock of another corporation

@ stock transfer agent

See transfer agent

@

- stock transfer tax

@ stock warrant

A certificate evidencing the right to buy shares of stock and commonly attached to preferred stock and bonds. It generally has an expiration date before which the warrant must be exercised.

See also warrant

@ tainted stock

Stock owned by a person who is disqualified for some reason from serving as a plaintiff in a derivative action. The shares are "tainted" because for policy reasons a good faith transferee of such shares will also be disqualified from serving as a plaintiff

@