in Hawaii, Nevada, New Mexico and Tennessee, and twelve per cent. in Pennsylvania.

In Hawaii preferred dividends may not be made cumulative. In Nevada preferred stock dividends must be cumulative.

(c) Assets. In Delaware and New Jersey it is specifically provided that in case of insolvency, corporate obligations are to be paid in preference to preferred stock. In Ohio the preferred stock is given preference over common stock in distribution of assets. In Indiana preferred stock has priority at all times over common stock to the extent of its face value and arrears of interest and dividends. In Wisconsin preferred stock may not be given preference in distribution of assets.

(d) Payment. Every liability of unpaid stock applies in the case of preferred stock, unless removed by express statute enactment; hence there are but few statutory provisions referring specifically to payment for preferred stock. In Kentucky preferred stock may only be issued for cash or its equivalent at not less than the par value of the shares, and in Tennessee it must be paid for in cash at its par value.

(e) Redemption. In Tennessee and Montana preferred stock may be made redeemable at not less than par, and at par in North Carolina. In Delaware and New Mexico it may be redeemed at a fixed time and price, but not below par. In Nevada, New Jersey and Virginia it may be made redeemable at not less than par at any time after three years from date of issue. In Indiana and Michigan it must be redeemed at par on terms stated in the creating provision.

(f) Liability of Holders. By express statute provision holders of preferred stock in Delaware, New Jersey and Indiana are exempt from all liability for corporate debts. In Ohio preferred stockholders are liable only after the liability of common stockholders has been exhausted. In Tennessee they are not liable for corporate debts unless their stock has voting power. In Michigan preferred stockholders are exempt from personal liability for corporate debts, except debts for labor performed.

(g) General. In both Wyoming and Alabama preferred stock when issued must be first offered for sale to the stockholders of the company in proportion to their holdings of the common stock. In Indiana shares of preferred stock must be of the par value of $100 each and have no vote except on conveying or mortgaging real property, and on declaring dividends on the common stock to the impairment of capital, in both of which cases a majority vote of the preferred stock is necessary. In Michigan preferred stock votes as does common stock in elections of directors unless otherwise provided in the charter or amendments thereof, and if in any case the value of common stock has been impaired to the extent of ten per cent., or if dividends due on preferred stock remain unpaid for sixty days, preferred stock has equal rights with common stock in the control of the company.

In Nevada if preferred stock has received dividends exceeding seven per cent. a year, it may be converted into tenyear, seven per cent. bonds. In New Mexico, also, preferred stock may be converted into bonds on prescribed conditions. by a two-thirds vote of each class of stock. In Kentucky a corporation, if all its stock is common stock, may, by a twothirds vote of the stockholders, convert its stock into common and preferred and distribute the preferred pro rata among its stockholders. In Montana and Wisconsin the dividends, and presumably any other privileges of preferred stock, must be expressed on the face of the certificate, and in the latter state on both common and preferred certificates.

In Maryland the preferred stock authorized by the statutes of the state partakes much of the character of a bond. It may only be issued by a corporation empowered to issue bonds and must be authorized at a general meeting of stockholders. Six per cent. interest or dividends must be guaranteed out of profits and such preferred stock has preference over any subsequent mortgage.

As a rule, preferred stock is best provided for at the time of incorporation when but few people are to be consulted and an agreement as to the details of the issue is therefore more readily secured. Preferred stock is also best created by charter provision, where permissible, because of the greater stability thereby secured. It must, however, be noted that preferred stock properly issued and going into the hand of purchasers for value, no matter whether created by charter, by-laws or direct action of the stockholders, constitutes a contract between the corporation and its preferred stockholders and cannot be rescinded or recalled except by consent of all the parties interested.1

§ 340. Nature of Preferred Stock.

The entire trend of modern decisions involving preferred stock is toward the position that preferred stock is merely common stock with certain specified privileges. In other words, preferred stock loses none of the rights of common stock by reason of its preference, unless such rights are denied. it by statute, or are withdrawn from it by the provisions under which it is created, or are superseded by its preferred rights.5

Thus if part of the stock of a corporation is given a preferential six per cent. dividend, this fact does not in itself disturb any of the other rights of this stock, and, unless otherwise provided-by some competent authority, such stock will take precedence of the common stock as to its preferred dividend but otherwise will still vote, participate in dividends. and in any distribution of assets on the liquidation of the company, just as does the common stock. The mere fact of having a preferential dividend has not in itself deprived the preferred stock of any other rights belonging to stock of the corporation." Its six per cent. preferred dividend must be paid out of profits

Kent v. Quicksilver Min. Co., 78 N. Y. 159 (1879); Roberts v. RobertsWicks Co., 184 N. Y. 257 (1906).

I Cook on Corps., §§ 269, 273, 274.

Boardman v. Lake Shore, etc., 84 N. Y. 157 (1881).

before any dividends may be declared upon the common stock, but if further dividends are declared in that year, the preferred stock will participate therein just as does the common stock so soon as this latter has received its six per cent.

As already stated, stock is not a liability of the corporation and, unless otherwise expressly provided by statute, this is equally true of the preferred stock and also of its preferred dividend, even though the preferred dividend were expressed as guaranteed, or as an annual interest to be paid on the specified stock. Such preferred dividend or interest can only be paid out of profits and is not a debt of the corporation until such profits have been earned and declared as dividends or interest.7

§ 341. Variations in Form.

Subject to any statutory regulations the preferences of preferred stock are purely a matter of agreement among the stockholders of the corporation. They may confer or deny any right they see fit, either in whole or in part. The only limitations on their powers in the matter are those of law and public policy.

Under these conditions, preferred stock is naturally issued in many different forms. Thus different classes of preferred stock may be created, the first receiving its dividends before the second, and the second before the third, and so on, all of the preferred stocks receiving their dividends in any year before the common stock may receive any dividend at all. Also these different classes may receive different rights in dividends, the first receiving perhaps five per cent., the second six per cent. and the third seven per cent. Or perhaps the amount of the preferred dividend, instead of being fixed absolutely, will be made contingent upon the amount of corporate profits earned. Or perhaps the corporate income from particular sources may be designated for payment of preferred dividends. Or it may

7 Miller v. Ratterman, 47 Ohio St. 141 (1890); Hamlin et al v. Toledo, St. L. & K. C. R. R. Co., 78 Fed. Rep. 664 (1897).

be provided that the preferred dividend shall first be paid and the preferred stock then participate equally with the common stock of the company in all further dividends for that year. Or the preferred stock may be given preference in distribution of assets, or be given other special redemption features, or be made convertible. into common stock under prescribed conditions.

On the other hand, privileges or rights may be denied. It may be deprived of the voting right. Its dividends may be made non-cumulative, or it may be strictly limited to the preferential dividend.

§ 342. Cumulative Dividends.

Dividends on preferred stock are either cumulative or non-cumulative. If, when preferred stock is created, the character of its dividend is not specified, it is held to be cumulative.

A cumulative dividend is one which, if not paid in any year, becomes a charge against the profits of the corporation and cumulates from year to year until paid. If the cumulated dividend is paid in part in any year, the balance only goes over as a charge against profits.

When a cumulative preferred stock exists, no dividends may be paid upon the common stock in any year until not only the preferred dividend for that year has been paid in full but any preferred dividends not paid in preceding years. Thus if preferred stock bears a six per cent., cumulative dividend and no dividends are paid the first year, it must receive a twelve per cent. dividend in the second year before any dividends may be paid upon the common stock. If no dividends are paid in the second year, in the third year the preferred stock must receive its full eighteen per cent. before the common stock may receive any portion of the profits.

Non-cumulative dividends, on the contrary, while a first charge on any profits declared as dividends in any one year, do not continue as a charge against the profits of following