dends on the stock of the lessor. Cumulative preferred stock is sometimes unwisely called guaranteed stock; the specific use of the term should be confined to the definition given.

Convertible stock is preferred stock which is issued as being redeemable in bonds of the corporation selling it, or in cash, at the option of the holder. There must be express statutory authority for issuing convertible stock, as in New Jersey. Bonds convertible into stock have long been known, but the opposite arrangement is recent.

Founders' shares are a new class of stock in America, and are not in general use. They are more common in England. To this class of stock belong the surplus profits of a corporation, or a portion of the surplus profits, which remain after paying fixed dividends on the preferred and common stock, and, perhaps, after setting aside also a given amount of the profits for the reserve fund, whenever a distribution of the surplus profits is determined upon. Suppose a corporation is organized with $500,000 capital stock, $300,000 of which is preferred and $200,000 common. Suppose $50,000 of this common stock is set aside as founders' shares, and after 6 per cent. is paid out of the net earnings as a dividend on the preferred stock, the surplus profits are to be divided equally between the common stock and the founders' shares. This would make the founders' shares worth four times as much as the common stock on the basis of earnings. Founders' shares may be issued under the New Jersey law, but under the laws of most of the other states they are now impossible. There is no particular advantage that can be derived from their issue that cannot be had from the judicious issue of common or preferred stock. Founders' shares are commonly used as compensation for promoters or others who, by lending names or influence, have forwarded the interests of a corporation.

Deferred stock claims dividends after the payment of dividends on some other class of stock, or after certain obligations or liabilities of the corporation are paid. It is an unusual form.

Special stock is a kind thus far issued only in Massachusetts. Cook on Corporations says: "Its characteristics are that it is

limited in amount to two-fifths of the actual capital; it is subject to redemption at par after a fixed time, to be specified in the certificate; the corporation is bound to pay a fixed halfyearly sum or dividend upon it as a debt; the holders of it are in no event liable for the debts of the corporation beyond the amount of their stock, and the issue of a special stock makes all the general stockholders liable for all debts and contracts of the corporation until the special stock is fully redeemed."

The foregoing are classes of stock distinguished from one another on account of the conditions that attach to their issue. Stock is further divided in kinds with reference to the status of the stock with reference to its issue, per se.

Unissued stock is the capital stock authorized in the articles of incorporation, or that part of it which has not been exchanged for a consideration, and in which no person has yet acquired property rights. It merely represents the right to admit new stockholders, and has no value in itself. It has no active stock rights, and is not an asset of the corporation.

Issued and outstanding stock is that part of the capital stock which has been bought and paid for, and to which the original purchaser or the purchaser from him is usually entitled without further pecuniary obligation to the corporation. It is supposed to carry with it an interest in the property of the corporation equal in value to the consideration paid for the stock. This is not always true, and, in fact, it is usually true only when all the issued and outstanding stock has been issued at the same price, and the assets of the corporation have remained equal in value to the amount received for all the stock issued. The equality of interest and value of the consideration paid therefor is shortlived in any corporation. As soon as money is put into manufacturing property and machinery the value of the property and machinery is usually less than the price paid for it until the success of the project as a money-making investment is demonstrated. That is, if it were necessary to sell the property and machinery at a forced sale, it would usually bring less than was paid for it. So if the business project is a failure, the worth of stock is likely to be much less than was paid for it. Further,

if the project turns out to be an exceptionally good money maker, the growth of the plant and business will rapidly put the value of the interest represented by stock much in excess of what was paid for the stock, and if a large dividend is being paid on the stock the market price may be still higher than the value of the interest as represented by the assets as shown by the books. The rights of issued and outstanding stock are not merely potential, but actual, according to its class and the conditions of issue as defined in the statute, in the articles, or in the other authority under which it is issued.

Treasury stock is issued and outstanding stock that has come into possession of the corporation which issued it by purchase, donation, or in liquidation of a debt. If it has been issued full paid it remains so, even if sold again below par, and it is considered an asset of the corporation for bookkeeping purposes. But such stock, so long as it is held by the corporation or its representatives as treasury stock, neither participates in dividends nor in the meetings of the corporation as voting stock, though it still represents a paid-for interest in the property of the corporation. The creation of treasury stock is often made a device for selling stock below par and at the same time constituting such stock legally full-paid. A corporation will be organized for the purpose of taking over the business or property of another corporation, or of individuals, and the new corporation will issue its stock full-paid in exchange for the business or property of a certain valuation. Then the seller will give back to the buyer corporation part of the stock as treasury stock, to be disposed of as the directors may determine. Or it may be put in the hands of trustees for sale or disposition under certain. conditions, or as they or the directors may determine. Such stock is usually sold below par, or it is given to well-known men for the use of their names and influence in promoting the welfare of the business, or otherwise, and such stock is legally fullpaid and exempt from all liability. It may also be given away as a bonus with bonds or preferred stock with the advantage over common stock that there is no liability.

Treasury stock may be assigned to the corporation by name,

or to "the treasurer of" the corporation, or to the trustees who are to hold the stock. The secretary makes the usual transfer on the stock book and cancels the certificates turned in. When the directors sell the stock again, the treasurer, if the stock is in his name or in the corporation's name, orders the secretary to issue new certificates to the purchasers. When treasury stock is in the hands of trustees it, does not appear on the books of the corporation until it is sold, when the certificates are assigned to the purchasers and the money is turned over to the treasurer.

Overissued stock is that issued in excess of the total amount of capital shares authorized by the articles of association. Such stock is void under all circumstances.

§ 60. REGISTRARS AND TRANSFER AGENTS.

In the history of corporate practices there have been many fraudulent overissues of stock, so that many honest corporations have sought to reassure the public and to guarantee it against fraud by appointing reputable trust companies to act as registrars and transfer agents for their stock. The reputation of the trust company has a great deal to do with the guarantee that the stock issues are regular, for, if it is inclined to be unscrupulous, it can assist a corporation in defrauding the public. A thoroughly reputable trust company will not undertake to register an issue of stock unless it is convinced of the good repute of the directors and the manager of the corporation. Where the directors of a corporation are but little known, but are known favorably to the officers of a trust company which is widely and favorably known, the sale of the corporation securities is often greatly assisted by the appointment of that trust company as registrar and transfer agent. Some of the stock exchanges, including the New York stock exchange, insist that stock shall be signed by a trust company or other reputable financial agency as registrar before they will list the stock of the corporation seeking to have its securities listed. The specific duty of a transfer agent is to make the transfers of the stock of a corporation, being satisfied of their regularity and freedom

from fraud. The specific duty of a registrar is to sign the new certificates of stock presented by the transfer agent as evidence that there is not an overissue of stock and that the transaction is otherwise regular, and to keep a register of such stock, with the name and address of the owners, at the registration office. It is apparent that the work of transfer agent and registrar may be performed by the same financial agent or by separate agents for each duty, or that the corporation itself may do the transferring, employing an agent for the sole duties of registrar. It stands to reason that a transfer agent or registrar, when employed independently, should be independent in fact, and should have no collusive connection with the corporation by which employed. As at present conducted, the work performed by registrars is not as much of a safeguard as it should be. Mr. Jordan J. Rollins has said: "According to the practice in New York, a registrar seldom requires more than the exhibition of a cancelled certificate of stock for a given number of shares, and the presentation therewith, either by the issuing corporation or by its transfer agent, of a new certificate for the same number of shares in the name of the transferee of the cancelled certificate. Thereupon the registrar signs the new certificate without requiring other evidence of the correctness of the transfer." As transfer agents and registrars are generally appointed and assume their work in pursuance of a resolution passed by the directors of the employing corporation, the relation of principal and agent obtains without specific and detailed contract beyond the mere carrying out of the resolution permitting the employment and, perhaps, arranging for the compensation. The lack of specific conditions under which the work is to be performed, and the present looseness of conducting the work, make the field of transfer and register agency one worthy the attention of those engaged in bettering business methods.

Owing to the comparative indefiniteness and lack of differentiation in the work of these agencies, their duties and liabilities have never been fixed clearly either by law or custom. On a principle of the law of agency a principal corporation has been held to be liable to a good faith purchaser for value in a case