First preferred and second preferred.

common together with the first preferred stockholders are not able to furnish the funds needed, they together may agree to offer for sale another series of shares which shall take precedence over both former issues, and in which the new issue shall stand as first preferred and the others in their former dividend-paying relations. The new preferred, therefore, would have first claim, the old preferred second claim, and the common would have third claim to dividends.

Cumulative and noncumulative preferred.

The conditions of preferment may be such that in case dividends are not declared at a regular time agreed on, and to the amount provided, that the amount of dividend which "passed "-that is, which passes over as not paid-shall "cumulate" and become an additional charge against the amount set apart as dividends to be paid to the preferred stockholder out of future profits before the common stockholders may participate. If no such provision be made in the contract of preferment, however, the stock is "non-cumulative," and a "passed" dividend will be lost to the preferred stock. Under the cumulative feature of preferred stock, it will readily be understood, a number of "passed" dividends may become such an enormous charge upon the future earnings of the company as to render the common stock practically worthless. On the other hand, the 66 cumulative" feature may allow the common stockholders, through their officers, to delay the payment of dividends on preferred until such a surplus has been acquired by the company that the common stockholders may receive much more than their proportionate share of the profits; without a cumulative preferment, the representatives of the common stock may continue to apply the profits to improvements until the industry shall become so highly profitable through added capital that the regular return to the common stock may far exceed that which is fixed for the preferred.

non

Trust certificate.

It sometimes happens that a number of stockholders may wish to pool their holdings in a company for purposes of control. To this end the stockholders agreeing will appoint a trustee to hold the stock and exercise all rights of control for them. The trustee gets his powers from a written trust agreement, under which he pays to the several stockholders the dividends declared, and finally delivers the shares after the trust agreement is terminated. When such an arrangement is made the trustee issues to each stockholder depositing his stock a trust certificate. One of the trust certificates issued by J. P. Morgan & Co. as trustee for Reading First Preferred is given on page 107. A reading of the certificate will further explain its use.

Other special forms of stock, such as guaranteed stock, founder's shares, treasury stock, etc., are allowed under the laws of some States. These might be enlarged Other forms upon, but for the purposes of this treatise it is sufficient to call attention to the principal proprietary interests which may be sold as a means of obtaining funds for enterprise. We pass now to a consideration of

of stocks.

sales of credit.

CHAPTER VII

FUNDS OBTAINED BY SALES OF COMMERCIAL CREDIT

THERE are still other ways of obtaining funds by exchange-methods which do not involve the sale of labor, tangible properties, or business interests. If one has salable credit, this may be disposed of to meet the funding needs of business. In Part I credit was discussed as a form of funds. We will now discuss its use as a means of obtaining funds.

The extent of credit uses by the laboring

man.

Credit is bought and sold in the market in the same manner as are services, or stocks of merchandise. Like services and tangible properties, however, one must find a purchaser-some one who is willing to exchange money or credit funds for a promise to deliver money at a future time. In this is found its limitation; it is this that places it beyond the reach of the ordinary laborer as a means of obtaining capital. The day-laborer goes to the man of means (the capitalist) and proposes to give him his promise to pay $110 one year hence for $100 in gold. The man of means says "No." Some such reasoning as this goes on in the capitalist's mind: "You have never been able to do more than maintain yourself." "Yes, it is true you have paid your account. at the grocer's; you have kept faith with those who have furnished the means necessary to 'maintenance' on credit, but you have never displayed any ability to acquire 'capital."" "What surplus earnings you have had were dissipated." "You have not the ability nor the integrity to make your