22 
THE WORK OF THE STOCK EXCHANGE 
perpetual in character, and represents the equities of the com- 
pany as far as these are not subject to bonds, preferred stocks 
or other senior securities. In order that a stock issue may be 
conveniently dealt in, it is divided into a definite number of 
equal shares. The actual market value of the given share at 
any given time will depend upon its proportionate claim to 
dividends paid and net earnings obtained, and to the equities 
of the company, rather than to any nominal or par value which 
may be assigned to the share. As a convenience to dealings, 
common stock issues will sometimes be “split up” into a greater 
number of shares by allowing the holder of “old shares” to 
exchange them according to a stated ratio for “new shares.” 
This of course usually occurs in the case of very prosperous 
concerns, the price of whose shares has become inconveniently 
high. The reverse process is sometimes followed with com- 
panies whose shares have fallen to low levels, and here a fewer 
rather than a greater number of “new shares” will be obtained 
in exchange for the “old shares”; such exchanges are often 
made in the course of serious corporate reorganizations. 
“Rights.”—Corporations sometimes find it possible and 
desirable to obtain additional capital through the sale of addi- 
tional amounts of common stock. This is usually done by giv- 
ing existing common stockholders a privilege or “right” to 
subscribe to the new stock in proportion to their several hold- 
ings of the existing stock. In case a company with 1,000,000 
shares of common stock decided to issue 100,000 additional 
common shares, the holder of, say, 100 shares would thus 
obtain the right to buy 10 new shares at a “ratio of 10 to 1.” 
The price at which an old shareholder can subscribe to new 
stock in this way must of course be fixed. Naturally, if a 
“right” is to possess any market value, this subscription price 
must be less than the existing market price.® The period dur- 
ing which such a “right” may be exercised depends of course 
on the circumstances in each case, but it is often sufficiently 
8 Appendix Ie.