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have been created. Under a limited partnership special partners are admitted; they have no voice in the management and are not liable for losses in excess of the amount they have invested, but receive profits at a rate agreed upon. In every limited partnership there must be one or more general partners, who are fully liable for debts as in a general partnership. Corporations.—Intermediate between partnerships and modern corporations came the old joint-stock companies. Like ordinary partnerships, each member of a joint-stock company was liable for all its debts, but ownership in the joint-stock company was based upon shares which could be sold without bringing the company to dissolution. The management of the company was intrusted to a board of directors elected by the stockholders. The modern corporation is much like the old joint-stock company, but unlimited liability for debts has been eliminated and the stockholder is only liable to the extent of his investment.* The stockholders elect a board of directors and this board chooses the executive officers of the corporation. Stock may be freely sold and the corporation may continue in business for an indefinite period. Modern business enterprises such as insurance companies, railroad corporations, ship companies, steel mills, and others requiring immense capital would be impossible without this form of organization. The number of stockholders in a great corporation like the United States Steel Company reaches hundreds of thousands and thus the small investor as well as the large investor may share in the ownership of a corporation. Without the corporate form of organization, hazardous enterprises such as the telephone was once thought to be, and as mining and drilling for oil are known to be, would hardly be undertaken. Corporations are known to the law as “artificial” persons; they may sue and be sued; may inherit property; and may enter suit for slander. Corporations are formed under state laws, must pay corporation taxes, and must file an annual report with the state authorities. Despite the very great advantages which belong to the corporation as a form of business organization there are some disadvantages. Adam Smith, so long ago as 1776, observed that the hired managers of corporations were not so careful of other people's money as though it were their own. This objection is not an important one now. The entrepreneur knows that he is responsible for the success of a business and his professional pride and self-interest cause him to give his best services. A more serious objection is voiced in the familiar cry that “corporations have no souls.” Under the protection of a corporation mask, men have been known to take unfair advantage of their competitors and of the public and do many things which as individuals they would shun. However, with stricter laws relating to corporations and, let us hope, a more enlightened conscience, these evils are less in evidence now than they once were. Stocks and Bonds.-The capital necessary to start a business under the corporation plan is usually secured by selling stocks and bonds. There are two kinds of stock: common stock and preferred stock. Preferred stock has an advantage over common stock in that it has the first chance to secure profits. If, for example, a 6-per-cent preferred stock be issued, the common stock will receive no dividends until 6 per cent has been paid to the owners of preferred stock. Preferred stock is usually non-participating, which means that after having received its specified percentage, it shall have no further share in the profits no matter how large they may be. To make preferred stock still more attractive to the investor, it is sometimes made convertible, which makes it exchangeable for common stock at the option of the owner. Common stock is sometimes more valuable than preferred stock and the reverse is sometimes true; it all depends upon the rate of dividends the respective stocks command. It will be seen that preferred stock has the stronger appeal to the conservative investor, while the man who is confident of the money-making powers of the corporation or is of a speculative nature will favor the purchase of common stock. Oftentimes the organizers of a business wish to secure control of the corporation for themselves and they confine the voting power to one class of stock, which is called voting stock.
*In most states holders of bank stocks are liable to twice the amount of their stock; all the shareholders in national banks are so liable. In New York, and a few other states, stockholders are liable for unpaid wages of defunct corporations.
Sometimes a corporation, which is earning large dividends on its stock, will issue stock dividends. This means that additional stock is given to those who already own stock without any additional investment on their part. Thus if a corporation has issued 1,000 shares of stock which has been sold for $10o a share, its capital would be $1oo,ooo. Should it pay dividends at 20 per cent, the
return would seem large, but a Ioo-per-cent stock-dividend would increase its capitalization to $200,ooo and its earnings would now appear to be only Io per cent. Bonds are very different from stocks. Stocks are evidences of ownership in a corporation, and the owners of stocks share in profits. Bonds are evidences of a debt owed by a corporation. Bonds are sold in order to secure capital, which has no share in management. The bondholder most receive interest on his bonds before anything goes to the owners of stocks. If the owners of bonds are not paid interest and principal when due, they may enter suit before a court of law to place the business in the hands of a receiver or to protect their interests in some other way. Profit-Sharing.—Business enterprises, organized as individual proprietorships, partnerships, or corporations, may arrange to admit their employees to a share of the profits. Profit-sharing originated in France in the mind of a house painter and decorator by the name of Leclaire. The plan of sharing profits with his men was first tried in 1843 and met with success from the start. The men of the “Maison Leclaire” found it increased their earnings and Leclaire benefited because of the greater interest of the men in their work and their attention to economy of time and materials. The success of the “Maison Leclaire” plan led to its adoption by other French houses and it soon was introduced in the United States. The A. S. Cameron Company of Jersey City was the pioneer and the plan was successful until the death of Mr. Cameron. Profit-sharing has not been an unqualified success. The scheme works fairly well where the working men are intelli