21. Division Of Bonds

The capital consists generally of three parts: first, bonds, which lie at the bottom and are a first lien on all the united property for their payment. In other words, should these not be paid, or the interest on them at maturity, the owners can foreclose the property and take it, and thereafter hold it absolutely as their own. The bonds are issued for about half the value of the property, so there is a wide margin for loss and depreciation occasioned by the ups and downs of business.

22. Preferred Stock

The second part <>1 the capital consists of preferred stock, on which a fixed rate of interest is to be paid. The amount issued perhaps may equal that of the bonds, and it is expected that the company will, in ordinary times, easily earn the amount thus promised to the preferred shareholders.

23. Common Stock

The third part of the capital con-sists of common stock, a portion or all of which may be issued. The amount often equals that of the bonds and preferred stock combined, and is not all issued at the inning. The residue of profits not required to pay the interest on the bonds and preferred stock belongs to the common stockholders. They take the skim milk of the enterprise, and in many cases this proves to be very thin indeed.

24. Services Of Bankers

Bankers sometimes aid in forming the trust: generally this is the work of others. But when the several factories or other properties are bought, or are offered to the projectores of the enterprise its success from their immediate pointof view consists in selling the bonds and stocks and paying the seller, and still having a large quantity left as their profit, which they may keep or sell as they may be inclined. To sell the bonds and stocks is often the work of bankers, who receive a large profit on their undertaking.

25. Amount Of Capital

The capital that is to be issued is based on the earnings of the property that is to form the subject of the trust. These are ascertained for a period usually of three years, or perhaps longer, and form the basis of the superstructure. If, for example, the net annual profits of a concern, or several that are to be united, are $75,000, it is deemed safe to issue bonds bearing six per cent interest for $500,000 preferred stock for the same amount, and bearing the same rate of interest, leaving $15,000 for the common stock; the amount which is authorized, and partly or wholly issued, may be another million. Supposing that the properties have all been bought for the money represented by the bonds and preferred stock, it follows that if the projectors can sell a considerable portion of the common stock, even at a low figure, they still realize large profits.

26. Remuneration

It is not an uncommon thing for the sellers to agree to receive in the way of payment a very considerable part of the purchase price in bonds, or preferred stock, or both. Sometimes they even take a part of the common stock. Thus it is reported that Mr. Carnegie was content to receive all or the largest portion of the price for his great steel works in the bonds of the new company.

The payment of the principal and bonds of a trust company may be guaranteed by a bank or banker, as in the case of the Morgan Ship Combination. For doing this the banking house receives a sum in addition to their other profits for financing the enterprise.