Consideration has thus far been confined to notes and bills, which are the fundamental instruments of commercial credit, but attention must also be given to investment credit instruments. As they are governed in general by the principles of negotiability explained above, it is necessary to analyze only the special characteristics of each class. Investment credit instruments are issued mainly by corporate organizations, and include the stock certificate, the bond, and the short-term note. A certificate of stock represents ownership of one or more shares or parts in an enterprise. If a corporation is organized with a capital stock of $100,000 this signifies the maximum amount which may be issued under its charter. In order to effect its sale the capital stock is divided into a number of shares. These may be given a definite face, or par value, as, for example, $100, and thus the above corporation with a capitalization of $100,000 issues 1,000 shares. Shares may also represent merely a certain proportion of the total capital stock, and since these are without par value, the money worth of such shares is determined by whatever price they will bring when sold on the market. These shares with or without par value constitute the common stock of the corporation.

In addition, it may also issue preferred shares, constituting that portion of the capital stock which possesses certain preferential rights. In event of bankruptcy and liquidation, owners of the preferred stock may have a prior right to the proceeds of the assets before the holders of common stock, but preferred stock more usually has reference to prior claims over dividends of the corporation. In this respect preferred stock may be classified as cumulative or noncumulative. The former gives the holder considerable assurance of the ultimate payment of dividends, for, if omitted within a given time, they are carried over into the following period, and these arrears must first be paid before the owners of the common stock receive any dividends. Noncumulative preferred stock entitles the holder to first claim over profits within a certain time, but if earnings prove insufficient and there is a consequent lapse of dividends, holders of this class of preferred stock lose their claims, for the obligations are not continued into the next dividend period. In general, preferred stock, compared with common, possesses such advantages as greater degree of security and more regularity of income, but on the other hand it entails a limitation in possible profits, for its yield is usually of a fixed per cent, regardless of corporation earnings; while preferred stock is either cumulative or noncumulative, participating or nonparticipating as to dividends, common stock is always uniform in nature.

A stock certificate is not exactly a credit instrument. The holder is not a creditor of the corporation, but really a part owner, and therefore, in the event of insolvency, possesses no claim upon assets, but in fact he may even under circumstances be judged liable for losses in proportion to the amount of his stock if not fully paid.

In a way the stock certificate does partake of the nature of a credit instrument, for it is transferable through mere blank indorsement on the reverse side by the person in whose name it is issued.