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 somewhat similar instance arose in connection with the dissolution of a partnership due to disagreement and personal friction between the two partners. One partner, who owned a one-third interest in the business, had in addition about $50,000 and desired to purchase control. The other partner was willing to sell. However, the total value of the business approximated $300,000, so that it seemed to the minority partner impossible to buy the two-thirds interest he wished with but $50,000. The solution of the difficulty was found in organizing a corporation which issued notes, preferred stock, and common stock. The majority partner took all of the notes and preferred stock and a portion of the common stock for his share; the minority partner took common stock alone and received enough to give him control of the new corporation. The corporate form, in this case, proved sufficiently elastic to enable the two partners to adjust satisfactorily a situation which otherwise would have led to costly quarrels and litigation.
Under personal ownership, either by individuals or by partnerships, it is difficult if not impossible to make an adjustment of claims upon the property which will correspond exactly to the various shades of desire for management, income, and risk. The corporate form is peculiarly well fitted for dividing and recombining and for issuing various forms of securities in such a way as to bring about this desired correspondence.
Again, the great advantage of continuity of ownership of a business, even though one or more of the persons jointly interested may die or withdraw, is often of paramount importance. William L. Douglas, it is stated, owns all of the common stock of the W. L. Douglas Shoe Company of Brockton, Mass. An arrangement has been made, however, to appoint three trustees who, in the event of Mr. Douglas' death, would carry on the business along lines that he has marked out.