The Business Man's Encyclopedia Vol. 1 Books 1 - IV
A. W. SHAW COMPANY, 1912

BOOK I

SELLING STOCK TO SECURE CAPITAL.

Page 1 of 4

The third great division by which capital may be secured either wholly or in part, is by the sale of stock.

There is little or no difficulty surrounding the procuring of a charter. Nor does the capitalization of the company need to bear much relation to the amount of capital that it actually has. While state laws differ in this respect, yet in every state there is more or less chance for padding to be done. A corporation having a few thousand dollars, for instance, may incorporate for fifty, one hundred or five hundred thousand dollars, as it suits it best. So a corporation is easy to organize and to finance—on paper. There are many of these paper corporations in existence which are deliberately organized for large sums in order to be able to sell their stock at a substantial discount. These, however, are stock-selling propositions, not legitimate business propositions, and need not be considered here.

The General Advantages of Selling Stock.—There are several prominent advantages in financing a business by the sale of stock. The first is that it provides capital; the next, it gets interested stock-holders. Further than this, it provides for assistance in the consultation and management by providing a board of interested directors. Lastly, a corporation rightly organized the stock of which has been conservatively put upon the market, has a fair amount of commercial prestige.

Capital Provided by the Sale of Stock.—The first great advantage of selling stock is that it provides a working capital for a business. The money so obtained is not borrowed; it becomes the actual property of the corporation. Good will is an intangible asset at best, but when stock is sold it becomes a most tangible one. At times it is impossible to borrow a single cent on the good will and prospects of a business no matter how good they both may be. But when stock is offered covering such good will, the borrowing difficulty is done away with. All the general advantages which come from the having of capital come from the sale of stock. It gives ready money, and as such, is a powerful lever for increasing and maintaining business.

The Advantage of Having Interested Stockholders.— The interested stockholder is a man who "plugs for business." There is no man in a community who has the money to buy a small block of stock who is not able to swing some trade to a business, no matter how big that business is, or even if it be engaged in deals outside that stockholder's apparent interest. A satisfied stockholder is one of the best assets of a company.

There are numerous businesses which are built up to a great part on the business of the stockholders. One of the advantages of a National or State bank over an ordinary private bank, for instance, is that the various stockholders of the concern not only transact their own business with the bank in which they own stock, but they form a center of interest about which are grouped customers. The same conditions hold in a mercantile business where the farmers throughout the country are holders of stock. These stockholders all feel that when they trade at "their" store they are getting a refund on their purchases in the way of dividends on their holdings.

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