corporate debts. It is supposed to be the foundation upon which any credits granted the corporation are based. Hence both the common law and the statutes are insistent that no dividends shall be declared that will impair the capital stock or endanger the solvency of the corporation. (See § 255.)

§ 332. Certificates of Stock.

The ownership of stock is usually evidenced by a certificate issued by the corporation, signed by the proper corporate officials-usually the president and secretary-and sealed with the corporate seal. These certificates of stock, or stock certificates, state that the party named therein is the holder of a specified number of shares of its stock, transferable only on the books of the corporation.

The certificate of stock is a tangible and very convenient evidence of the owner's interest in the corporation, but is not the interest itself. The certificate may be lost or destroyed but the owner is still a stockholder to the same extent and with the same rights in the corporation as before. Usually the stock books of the corporation are all sufficient evidence of this fact. If, however, the stockholder wishes to sell or transfer his stock, the certificate is practically indispensable as his interest will not be transferred on the books of the corporation until his duly assigned certificate is surrendered. He must then secure a reissue of his lost or destroyed certificate. As a rule, before this will be done, a bond of indemnity must be given the corporation to ensure it against loss in case the original certificate turns up in the possession of some bona fide holder.

A subscriber to stock is not entitled to a certificate until he has paid the corporation the full price agreed upon for his stock. A receipt or instalment scrip should be given him for any partial payments made on his subscription. (See Form 15.) As soon as the last payment has been made, he is entitled to a certificate and can then force its issuance if neces

sary. In case stock is issued and outstanding and is bought from the holder, the purchaser is entitled to a new certificate upon surrendering the old certificate, duly endorsed, to the proper officer of the corporation, who is usually the secretary.

Certificates of stock have a quasi-negotiability and in practice are endorsed in blank and are then circulated freely. The holder of such a certificate-unless he is the party in whose name the certificate was issued-is not, however, a stockholder of record or entitled to any of the rights of a stockholder-except in some cases when the transfer books are closed or transfer is improperly refused-until on surrender of the endorsed certificate, the stock represented thereby is transferred to his own name on the books of the corporation. As soon as this is done, he becomes a stockholder of record, entitled to all a stockholder's rights.

A corporation is under no obligation to issue the full amount of its authorized capital stock. On the contrary, after any statutory requirements as to minimum issue have been complied with (See § 185 (d)), it may issue such portions from time to time as may be necessary or expedient. The stock which has been issued is termed “issued stock" and unless this comes back into possession of the corporation, it is also termed "outstanding stock." Any stock that has not been issued is termed "unissued stock."

Unissued stock has in itself no value. When issued it represents an interest in the corporate business but until that time it represents nothing more than the right of issue.

Unissued stock can neither be voted by the corporation nor can it participate in dividends, nor does it in any way affect the outstanding stock. It is not an asset of the corporation, simply because of the fact that it has no value. If it were an asset, it is obvious that a high condition of corporate pros

perity might be induced at very small expense by an increase of the authorized capital stock.

Issued and outstanding stock is for bookkeeping purposes regarded as a liability of the corporation. It is, however, only a technical liability. (See § 331.) A corporation may be not only solvent but highly prosperous at a time when its actual assets are materially less than its issued capital stock.

$ 334. Stock Full Paid and Partly Paid.

A corporation may agree to sell its stock for any fair price it sees fit and when this price is paid, the corporation has no further claim against the purchaser. If, however, the agreed price is less than the par value of the stock, and the corporation later becomes insolvent, the corporate creditors can force the purchasers of such stock-if it is still in their hands to pay the difference between the amount actually received by the corporation and the face value of the stock, or as much thereof as may be necessary to discharge the corporate obligations.

Also if stock is sold at its full face value but on instalments and these have not all been paid, the purchasers are liable to the corporation or its creditors for the balance due.

Also if stock has been issued by the corporation for considerations other than cash, and these considerations are not of the face value of the stock, the stock is not full paid. Corporate creditors may then again force payment of the difference between the actual value of the property received and the face value of the stock for which it was given, provided that the stock is still in the hands of the original purchasers, and the corporate creditors can prove the inadequacy of the purchase price and can show that the transaction was not in good faith.

If, however, the corporation has once received values in cash, property or services, up to the par value of stock issued

therefor, such stock is termed full paid. Then, save as to the stock of financial institutions which is subject to special liabilities, the parties receiving such stock are not liable either to corporate creditors or to the corporation itself for any further payments on their stock. The corporation may fail and the stockholders will lose their investment, but that marks the limit of their possible loss as far as the stock is concerned.

The disquieting liability on partly paid stock makes it very desirable that stock should be full paid. In conservative corporations this end is attained by issuing the stock in exchange for actual value in money, property or labor, equal to the par value of the stock. In speculative corporations it is attempted by issuing the stock in exchange for more or less indeterminate values optimistically estimated to be equal to the face value of the stock. These estimates are usually much at variance with the real conditions, but if there is any colorable payment, the courts are inclined to hold the stock full paid. There must usually be either direct fraud or such obvious overvaluation as to amount to fraud, before the courts will hold the payment insufficient.

The liability on partly paid stock follows it into the hands of purchasers if they take the stock with knowledge of the conditions. If, however, the stock is marked "full paid " and is sold to an innocent purchaser for value, this liability does not follow it into his hands, nor unless otherwise provided by statute, does it remain with the seller, but disappears entirely.

§ 335. Payment for Stock.

In most of the states original issues of stock may be paid for in anything that has value-money, property or laborexcept in the case of the stock of banks and other financial institutions, which must usually be paid for in cash.

When payment in full is made for stock purchased from

the corporation, the check is usually drawn in favor of the treasurer, who then either secures the proper stock certificates and delivers them to the purchaser, or otherwise gives him a receipt evidencing his payment, and entitling him to receive full paid certificates for his stock.

If subscriptions are payable in regular instalments, or as calls are made by the board of directors, these payments are also made to the treasurer, who should either give a formal receipt for each instalment received, or otherwise give the subscriber some form of instalment scrip. If scrip is given, it is delivered to the purchaser at the time the first instalment is paid and then evidences both his subscription and amount paid thereon. As succeeding payments are made, they are endorsed upon the scrip, and when the entire amount has been paid, the subscriber surrenders his scrip in exchange for a full paid certificate of stock. (See Form 15.)

§ 336. Treasury Stock.

The term “treasury stock" is often used to designate unissued stock, on the assumption that such stock is held in the treasury of the corporation to be issued as required. The matter is purely one of verbiage, but the authorized and better use of the term is to designate "issued and outstanding stock of the corporation that has been donated to or otherwise acquired by the corporation and which is held subject to disposal by the directors."

As already stated, in speculative corporations the capital stock is usually issued in its entirety for property, a technical full payment of the stock being thereby secured. By previous agreement the parties to whom it is issued usually return a portion of this stock to the corporation, ostensibly as a donation, to be used for the purposes of the corporation. The disposal of this returned stock then lies in the discretion of the directors and it can be sold for less than its par value without