for a debt of the corporation of which he is director or stockholder until judgment be obtained therefor against the corporation and execution thereon returned unsatisfied, or until it is shown to the court that the corporation has no property available for the satisfaction of the indebtedness.

C. S., s. 1155; Rev., s. 1158; 1901, c. 2, s. 92.

ART. 5. CAPITAL STOCK.

87. Classes of stock. Every corporation has power to create two or more kinds of stock of such classes, with such designations, preferences, and voting powers or restriction or qualification thereof as are prescribed by those holding two-thirds of its outstanding capital stock; and the power to increase or decrease the stock as herein elsewhere provided applies to all or any of the classes of stock; and the preferred stock may, if desired, be made subject to redemption at not less than par, at a fixed time and price, to be expressed in the certificate thereof; and the holders thereof are entitled to receive, and the corporation is bound to pay thereon, a fixed yearly dividend, to be expressed in the certificate, payable quarterly, half-yearly or yearly, before any dividend is set apart or paid on the common stock, and such dividends may be made cumulative. In case of insolvency, its debts or other liabilities shall be paid in preference to the preferred stock. No corporation shall create preferred stock except by authority given to the board of directors by a vote of at least two-thirds of the stock voted at a meeting of the common stockholders, duly called for that purpose. The terms "general stock" and 'common

stock" are synonymous.

a

C. S., s. 1156; Rev., s. 1159; 1901, c. 2, s. 19; 1903, c. 660, ss. 2, 3. Corporations § 566. A preferred stockholder of a corporation is not creditor of the corporation, and must be confined to his rights as a stockholder. Weaver Power Company v. Elk Mountain Mill Company, 154 N. C. 76, 69 S. E. 747.

Corporations § 228. Subscriptions to the capital stock of a corporation constitute a trust fund for the protection and security of its creditors.Goodman v. White, 174 N. C. 399, 93 S. E. 906.

NOTE. Care should be taken in the preparation of the resolution, authorizing the issue of preferred stock, as well as in the preparation of the certificate of such stock; otherwise a situation may be created whereby the rights inherent to the various classes of stock may be other than contemplated when the preferred stock was authorized and issued.

If the preferred stock be cumulative, such fact should be definitely stated. Likewise, if it be non-cumulative, this should be explicitly stated. If it be cumulative, and the desire be to have unpaid accumulations of dividends draw interest, this should be stated. If the contrary be the purpose, it should be stated that the cumulation should not bear interest.

It should be stated definitely whether the preference applies only to earnings while the company continues in business; or whether it also carries preference to the assets, so that, in any dissolution or final distribution of the assets of the company, the preferred stock shall have priority over the common stock, not only as to dividends but also in the distribution of the assets; so that the preferred stock will be redeemed or retired at full or at par plus accumulated and unpaid dividends with interest, if such be the attributes of the stock before any distribution be made to the common stock.

Care should be taken that both resolution and certificate of stock shall state definitely whether the dividends to be paid on the preferred stock shall be all to which that stock shall be entitled during the life of the company, bearing in mind that unless otherwise stated, all shares of stock are on an equality.

It will not be difficult to find cases where the preference provided for in resolution and certificate can be construed merely into a priority of payment, and not a limit upon the amount of payment. For instance, a company may authorize and issue 7% preferred stock. The resolution and certificate may state that the holder of the preferred stock shall be entitled to receive, and the company shall be obligated to pay out of the profits and earnings, an annual dividend of 7% before any payment shall be made to If nothing further be stated, it might the holders of the common stock. well be argued that the extent of this preference is that the holder of the preferred stock should be paid 7% dividend before anything be paid to the common stock.

But the company becomes prosperous. Not only is 7% paid upon the preferred stock, but 7% and more is paid upon the common stock. The terms of the resolution and of the certificate have been complied with-7% has been paid upon the preferred stock, and 7% has been paid upon the common stock. There still remains a large sum to be distributed. Now, does this surplus go entirely to the holders of the common stock; or do the holders of the preferred and of the common alike share in this surplus!

If such be the intention, it should be so stated in resolution and certificate. If it is not the intention to allow both common and preferred stockholders to share in the dividends after 7% shall have been paid upon all the stock, then that fact should be set forth so plainly in both resolutions and certificate that there may be no controversy.

Some formula like the following is suggested:

"The holders of the preferred stock shall be entitled to be paid from the surplus earnings of the company, and the company shall be obligated to pay to the holders of the preferred stock out of its surplus earnings, an annual dividend of 7%, payable (annually, semi-annually, or quarterly, as the case may be) before any dividend shall be paid to After the payment of such divithe holders of the common stock. dends on the preferred stock, and after retaining sufficient property at all times to provide for the redemption of all the preferred stock outstanding, all the other earnings of the company shall belong to and be payable to the holders of the common stock; and the only sums which shall be paid to the holders of the preferred stock shall be the dividends provided therein, and the redemption of the stock at par, if the company be dissolved; or the redemption of said stock plus the premium thereon provided, in such case, if the stock be retired prior to the dissolution of the company."

88. Issuance of capital stock of corporations without par value. Any corporation heretofore or hereafter organized under the laws

of this state, except banks, trust companies, railroad companies and insurance companies, may, in its original certificates of incorporation, articles of association, or any amendment thereof, create shares of stock with or without nominal or par vlaue, and may create two or more classes of stock or debentures, with such preferences, voting powers, restrictions and qualifications as shall be fixed in such certificate of incorporation, articles of association or amendment thereof. Subject to any provisions so fixed, every share without par value shall equal every other such share.

2. The provisions of law relating to the issuance of stock with par value shall apply to the issuance of stock without nominal or par value, and such corporation may issue its authorized shares without nominal or par value, for cash, property, tangible or intangible, services or expenses, as may be determined from time to time by the board of directors, subject to the provisions of the certificate of incorporation, article of association, or amendments thereof, and in case of increase in capital stock, subject to such vote of stockholders, as is now or may hereafter be fixed by law, determine the terms and manner of the disposition of the increased stock pursuant to section one thousand one hundred and thirtyone of the Consolidated Statutes of North Carolina, and when the cash or other consideration for which they are to be issued, as stated in the certificate of incorporation, articles of association or amendments thereof, has been received, such shares shall be fully paid stock and not liable to any further call or assessment thereon, all the subscriber or holder be liable for any further pay

ments.

3. In any case in which the law requires that the par value of the shares of stock of a corporation be stated, it shall be stated, in respect of shares without nominal or par value, that such shares are without nominal or par value, and wherever the amount of stock authorized or issued, is required to be stated, if any shares without nominal or par value are authorized, the number of shares authorized or issued of the several classes shall be stated, and it shall also be stated whether such shares are with or without nominal or par value and what hte par value is of such shares as have par value.

4. Any such corporation heretofore organized, whether under a special act of legislature or otherwise, may amend its certificate

of incorporation, so as to change its certificates of stock from certificates with par value to certificates without nominal or par value, or vice versa.

5. The tax upon the certificate of incorporation, or extension or renewal or corporate existence, or increase of capital stock without nominal or par value, shall be the same as if each share of stock had a par or face value of one hundred dollars.

6. The intent and purpose of this act is to require a share of stock to be treated and represented, subject to lawful preferences, rights, limitations, privileges and restrictions, as a mere evidence of an aliquot part or divisional interest in the assets and earnings of the corporation issuing the same, whatever the extent or value. of such assets or earnings may be, to the end that misrepresentation or misunderstanding arising through the difference between actual value of a share of stock and the value appearing on the face of the certificate therefor may be eliminated.

7. Except as otherwise provided by this act, corporations issuing shares without any par or face value under the provisions hereof, shall be and remain subject to the laws of the state now or hereafter in force relating to the formation, regulation or reorganization rights, powers and privileges of such corporation and all other laws applicable thereto.

8. That all laws and clauses of laws in conflict with this act are hereby repealed.

1921, c. 116.

89. Stock to be paid in money or money's worth; issue for labor or property. Nothing but money shall be considered as payment for any part of the capital stock of any corporation organized under this chapter, except as herein provided in case of the purchase of property or labor performed. Any corporation may issue stock for labor done or personal property or real estate or leases thereof, and, in the absence of fraud in the transaction, the judgment of the directors as to the value of such labor, property, real estate or leases shall be conclusive.

C. S., s. 1157; Rev., ss. 1159, 1160; 1901, c. 2, ss. 19, 53; 1903, c. 660, ss. 2, 3.

Corporations § 232. A valuation of property taken in payment for subscription to capital stock, which is grossly excessive and knowingly made, is a fraud on the creditors who may proceed against the stockholder as for an unpaid subscription.-Goodman v. White, 174 N. C. 399, 93 S. E. 906. Corporations § 232. A grossly excessive valuation of property received

in payment of stock knowingly made may be conclusive evidence of fraud.Whitlock v. Alexander, 160 N. C. 465, 76 S. E. 538. To the same effect.-Hob. good v. Ehlen, 141 N. C. 344, 53 S. E. 857.

For discussion of stock issued for personal services and labor, see Hobgood v. Ehlen, 141 N. C. 344, 53 S. E. 857.

90. Stock issued for property; how value ascertained; how stock reported. Any corporation formed under this chapter may purchase any property necessary for its business, and issue stock to the amount of the value thereof in payment therefor. The stock so issued shall be full-paid stock, and not liable to any further call, nor shall the holder thereof be liable for any further payment under any of the provisions of this chapter; and in the absence of actual fraud the judgment of the directors as to the value of the property shall be conclusive. In all statements and reports of the corporation to be published or filed, this stock shall not be stated or reported as being issued for cash paid to the corporation, but shall be reported in this respect according to the facts.

C. S., s. 1158; Rev., s. 1161; 1901, c. 2, s. 54.

Corporations § 269. Stockholder, paying for stock with property, has burden of showing that the property was taken at its true value, and that such value was approved by board of directors, acting independently in the interest of the corporation.-Goodman v. White, 174 N. C. 399, 93 S. E. 906.

Corporations § 232. A valuation of property taken in payment for subscription to capital stock, which is grossly excessive and knowingly made, is a fraud on the creditors who may proceed against the stockholder as for an unpaid subscription.-Goodman v. White, 174 N. C. 399, 93 S. E. 906.

Corporations § 269. Evidence that corporation formally valued a patent and accepted it in payment of stock held competent to show that the stock was not unpaid.-Whitlock v. Alexander, 160 Ñ. C. 465, 76 S. E. 538.

Corporations § 271. Evidence held to make a question for the jury whether patents transferred to a corporation in payment of stock were worth the par value of the stock.-Ibid.

91. Construction companies building railroads, etc., may take stock therein; how issued, valued, and reported. Corporations having for their object the building or repairing of railroads, water, gas or electric works, tunnels, bridges, viaducts, canals, hotels, wharves, piers, or any like works of internal improvement or public use, may subscribe for, take, pay for, hold, use and dispose of stock or bonds in any corporation formed for the purpose of constructing, maintaining and operating any such public works; and the directors of any such corporation formed for the purpose of constructing, maintaining and operating any public work of the description aforesaid may accept in payment of any