At this stage I think it will be advisable to explain the different kinds of documents given to a purchaser on the Stock Exchange, or in other words, the form of certificate or voucher to which he is entitled as evidence that he is possessor of the security he has bought.

A security may take one of three forms - namely, Shares, Stock, or Bonds, all of these being divided into several subclasses. Shares may be generally described as a security subdivided into a large number of equal small parts. These small parts may and often are eventually converted into stock. The difference is therefore in a great many cases more apparent than real; but there is one important distinction - namely, that all stock is fully paid up, whereas in the case of shares a portion may be paid up, leaving an outstanding balance which the shareholder may have to pay when called upon.

I should explain that there are two classes of joint-stock companies - that in which the liability of the shareholders is unlimited, and that in which their liability is limited to the amount of their shares. The City of Glasgow Bank was an example of a company with unlimited liability; and the widespread ruin wrought by its failure on the unfortunate shareholders caused a more general adoption of the limited liability principle by companies which previously had been satisfied to proceed on the old lines. The share list now contains very few companies with unlimited liability. There is, however, a considerable number of companies in which a portion, and sometimes only a small portion, of the amount due under each share has been called up. It is important to have this point in view when considering the expediency of investing in the shares of such companies, for while a holder of fully-paid shares in a company which becomes bankrupt cannot lose more than the sum he has already paid for them, the holder of partly-paid shares may lose not merely the price paid, but may also have to pay up four or five times as much in respect of the portion of the shares uncalled at date of purchase.

Stock may be either inscribed or registered. When registered stock is bought a transfer is signed both by the seller and purchaser, the transfer is forwarded for registration to the office where the register of the stock is kept, and a certificate, showing the amount of the stock, is issued to the purchaser. Inscribed stock, on the other hand, is transferred by the seller signing the register of the stock. Of course any one living in the provinces who sells inscribed stock, the books of which are kept in London, cannot conveniently go through this process; and the difficulty is met by his giving a power of attorney to some one in London - generally a stockbroker - to sign the register on his behalf. This cumbrous system is confined mainly to Government loans. In the case of shares the seller signs a deed of transfer conveying to the buyer his right to them. The latter also signs it as undertaking any liability under the shares, and receives from the company a certificate showing the amount of his holding.

There is the further distinction between stock and shares, that the possession of shares implies only a partnership in the company, while the holder of stock may be a partner or a creditor. Thus, railway stock may be "ordinary," or "preference," or "debenture stock" - the two former representing an interest in the partnership of the railway, and the latter an interest in the debt due by the railway; but railway shares represent a partnership alone.

The holder of bonds is invariably the creditor of the state or company whose bonds he possesses. Bonds in some cases are made payable to a specified individual, whose name is registered in the books of the borrowing corporation or company, and the dividends are sent to him by post. These are called "Registered Bonds," and they pass by transfer. Or they may be what are called "Bearer Bonds." A bearer bond is a promise by the state or corporation to pay the amount of the bond at a certain fixed date, but it does not contain the name of the lender, and is therefore so far like a bank-note that it can pass from hand to hand, the main difference being that a bank-note is payable at once, while a bearer bond may be due twenty, forty, or one hundred years hence. In the case of bearer bonds small cheques promising to pay the interest at the due dates are attached to the bond. These cheques are called "coupons," hence "Bearer Bonds" are sometimes called "Coupon Bonds."