CHAP. XV.] LEGAL RELATIONS AMONG SHAREHOLDERS. [§ 787. the profits of the corporate business a certain amount of divi- dends before the holders of common stock shall receive any- thing. 1 On the other hand, preferred shareholders are not creditors of the corporation, and, in the absence of express provision, are entitled on the winding up of the business to receive the principal of their shares only in the same proportion with the holders of common stock. 2 It is apparent how the interests of preferred shareholders may differ from those of the holders of common shares. For instance, one course of policy may insure for the corporation sufficient profits to pay the dividends on the preferred stock ; while another course, proper but more hazardous, will probably result in profit sufficient to pay dividends on all the stock, common as well as preferred. Evidently it will be for the interests of the preferred shareholders to have the corporation pursue the former course. § 787. Again, a divergence of interest might arise from the fact that some shares in the corporate stock are _. itt, . Shares fully paid up, while others are not. W hen there is more fully no special provision regulating the matter, it would * p ' seem in such case that any dividends earned should be dis- tributed among the shareholders, not in proportion to the nominal amount of stock held by them, but according to the amounts of capital they have actually paid in. 3 But, however this may be, undoubtedly on the winding up of the company and the distribution of its assets, each shareholder is entitled 1 Unless there is some agree- ment or enactment to the contrary, preference shareholders are entitled to be paid out of the profits of the company their dividends to the amount guaranteed, before the other shareholders receive anything; so that if the profits divisible at any given time are not sufficient to pay the guaranteed dividends in full, the deficiency must be made good out of the next divisible profits; the ordi- nary shareholders taking no profits until all arrears of guaranteed divi- dends have been paid to the prefer- ence shareholders." 2 Lindley on Part., 796; ace. Boardman v. Lake Shore, etc., Ry. Co., 84 N. Y. 157. See § 564. 2 In re London Indian Rubber Co., L. R. 5 Eq. 519; McGregor v. Home Ins. Co., 33 N. J. Eq. 181. The stat- ute may provide that preferred stock shall be a lien on the corporate prop- erty. Heller v. Marine Bank, 89 Md. 002. 3 Still this is by no means clear. "Where there are several classes of shares on which unequal sums have been paid up, the profits of the com- pany ought prima facie to be divided amongst the shareholders in propor- 775
