When a stock is issued, upon which a certain dividend is guaranteed it is called guaranteed stock, Watered Stock. When stock is issued to the shareholders without increase of actual capital the stock is said to have been watered. A company may organize for say $5,000 and may want to increase to $50,000 without adding to the number of its shareholders. Each holder of one share will in this instance receive nine new shares, and in future instead of receiving a dividend on one share he will receive a dividend on ten shares.

Limited Liability Companies. When the name Limited is affixed to a stock company's name, it signifies that each shareholder is individually liable to the creditors of the company for only the amount representing the value of the shares held by him. When the word Limited is not attached, it is understood that it is a full liability company in which each shareholder is individually liable to the creditors of the company. If a man should buy five shares in a limited company and the company should fail, for say $20,000, the creditors could compel him to pay only the amount subscribed, namely $500. In ordinary companies he could be compelled to pay the entire indebtedness if the amount could not be secured from the shareholders generally. Understand clearly that the name Limited printed after the name of a company, and which is required there by law, does not indicate in any way that the capital or credit of the company is limited.