Providing For The Dividend

The dividend is provided for by debiting profit and loss account with the amount required to pay the dividend for the quarter or half year on the whole of the capital stock. This amount is placed at the credit of "Dividend No. So-and-So" in the bank's ledger, and when so placed it becomes a liability of the bank exactly the same as the deposits are a liability. The whole balance is distributed by means of cheques payable to the individual stockholders.

The Stock Department

The stock department may be an appanage of the chief accountant's department, but usually it is a department by itself. Its principal purpose is to show a record of the stock holdings and transfers or transmissions, and of the dividend payments. The working of the department can be illustrated by describing what happens when a new bank is started. Let us say that the subscribed and paid-up capital is $1,000,000, in $100 shares. There may be 1,000 shareholders, each one owning any number of shares from one up to 500. These people own the bank, their right to participation in its assets and profits varying according to the number of shares held. A shareholder owning one share owns a one-ten thousandth interest in the undertaking; one owning ten shares has a one-thousandth interest, and so on. Once they have paid in their money they cannot withdraw it; that is to say, they cannot reclaim it from the bank, unless the majority of stockholders of the bank formally decide to wind up its business.

In that event, whoever is appointed to wind it up must first satisfy the rightful claims of all creditors, after which the residue will be divided among the stockholders pro rata to the amount of their stock holdings. Unless this voluntary winding up is decided upon, the bank holds the capital it gets from its stockholders in perpetuity, or until it "fails to meet its liabilities as they accrue." This latter is styled suspension, failure, or insolvency, and when it occurs the bank is to be liquidated unless arrangements can be made to start it again.

Double Liability Clause

The liquidation is not left in the hands of the owners or stockholders. Because of their failure to meet their liabilities as they accrued the business is taken out of their hands, and the creditors, or rather the Canadian Bankers' Association, acting for them, appoint a representative, who has control during the suspension. In this case also the debts must be paid and the residue, if any, distributed among the stockholders. It happens sometimes that the assets of a failed bank are not sufficient to pay off its debts. Then the stockholders are called on to contribute under the terms of the double liability clause of the Bank Act. Under this, each owner of a paid-up $100 share is liable to the extent of a further $100 to the bank's creditors.

But, though a stockholder may not claim from the bank money paid for his shares, he is at perfect liberty to sell his interest to anyone who will buy. In Montreal and Toronto there is a regular market for bank stock, the shares of the principal banks are continually changing hands. When a sale is made the seller must transfer his stock to the buyer. Shares also change owners when a stockholder dies and his estate is divided among his heirs. In that case, they are said to be transmitted.

The record of the names and holdings of the owners of the bank is kept in the stock ledger. Each stockholder has an account, the number of shares or the par amount of stock held by him being his balance. In balancing the ledger, a list of the accounts is made, the balance of each one being shown. The total must equal the amount of the bank's capital. In the case of the hypothetical bank taken, the total would have to be at every balancing 10,000 shares or $1,000,000.