Strictly speaking, stockholders are enterprisers; that is, they are the individuals who assume the risks of business and enjoy the profits of their enterprise. In other words, they are the owners. The evidence of ownership in any corporation is the stock certificate, which bears on its face three important facts: (1) name of the owner, (2) number of shares, (3) par value of each share. Many corporations issue two kinds of stock, preferred and common. Preferred stock bears a definite dividend rate, which, so far as the corporation may be able, is guaranteed. It may also carry a preference in voting or in the division of assets, should the corporation decide to liquidate. Common stock, on the other hand, yields its owner dividends only after dividends have been paid on the preferred stock. To state the same fact in another way, the owners of common stock get all the profits over and above the amount necessary to pay dividends on preferred stock. Here we find the explanation for the wide variation in the value of many common stocks. When a corporation is merely able to pay its preferred dividends the value of its common stock ordinarily drops very low. When, on the other hand, the same corporation is exceedingly prosperous the same common stocks rise in value, often selling for more than preferred stocks. If, to illustrate the case, a corporation which has equal amounts of preferred and common stocks should earn but seven per cent, which is a normal rate, on its entire capitalization, it is likely that its common stock would sell in the neighborhood of par. If, however, the same corporation should earn twenty per cent instead of seven, the common stock would command a high price, say 400.

Thus far in our discussion of corporations we have assumed that the stockholders alone furnish all the capital required. In practice, however, corporations, like single enterprisers and partnerships, usually find it necessary to secure funds from outside sources. The two last named secure their funds on promissory notes; the first, on bonds. These bonds are similar to real estate mortgages in that property in each case is the basis of security, and like mortgages they are evidences of indebtedness. Bonds bear a definite rate of interest, and do not entitle holders to share in any extra prosperity the corporation might enjoy. Consequently, fluctuations in the value of bonds are much less than they are in the case of stocks. Of the two forms of investment, bonds are less speculative, being preferred by those who place security and a low rate of income above risk and a higher rate.