This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
A question which often arises is that of issuing common stock as a bonus in connection with bonds or with preferred stock. It is common practice, for example, to sell the bonds of industrial and public utility companies at par with a 10%, 20%, or some other percentage bonus of common stock. On the surface it appears that the stock is being given away, and that the purchasers and subsequent holders must assume a liability to pay its full par value on demand. Ordinarily, this offer is made, not directly by the corporation, but by a firm of bankers or brokers which has probably secured the common stock according to part of a contract which includes compensation for their own services; the stock has thus been made "full-paid." Even when the purchase is made direct from the corporation, however, it may involve no liability on the stock; for technically the purchaser is supposed to pay the full par value of the stock and to take the bonds at a discount. In most of the states there is no statutory or common law which prevents the sale of the bonds or other obligations of a corporation at a discount. When common stock is issued as a bonus with preferred stock, the case may be different. Under such circumstances there are technical points which are variously interpreted in different jurisdictions. In the State of Washington, the Supreme Court has recently decided that persons receiving shares of common stock as a bonus with preferred are liable for the par value of such stock, the accep-tance of the bonus stock carrying an implied promise to pay for it if payment is called for.