What is stock in a corporation?
The defining characteristic of a corporate legal structure is that its ownership is in the form of stock. The “capital stock” collectively refers to everything in which that entity has an interest, which the courts analogize to a trust fund made up of the assets, opportunities, and business operations of the corporate enterprise. See, e.g., Turner v. Cattleman's Trust Co. of Ft. Worth, 215 S.W. 831, 832 (Tex. Comm'n App. 1919) (“The term ‘capital” is used to designate that portion of the assets of a corporation, regardless of their source, which is utilized for the conduct of the corporate business and for the purposes of deriving therefrom the gains and profits.”); Dewing v. Perdicaries, 96 U.S. 193, 196 (1877) (“The capital stock and all the other property and effects of a corporation are a trust fund.”). The capital stock is divided into shares, which are owned by shareholders or stockholders. Turner v. Cattleman's Trust Co. of Ft. Worth, 215 S.W. at 832 (“The shares of stock are the intangible interests in the corporate business owned by the individual shareholders.”).
Shares of Stock
“‘Share’ means a unit into which the ownership interest in a for-profit corporation, professional corporation, real estate investment trust, or professional association is divided, regardless of whether the share is certificated or uncertificated.” Tex. Bus. Orgs. Code § BOC § 1.002 (80). “In order to bring into existence the relationship of stockholder to a corporation there must be some sort of contract in which the subscriber obtains the right to demand and exercise the privileges of a shareholder.” Turner v. Cattleman's Trust Co. of Ft. Worth, 215 S.W. at 832.
Each share of stock is an undivided, proportional ownership interest in the common fund. Id. (each share represents a “definite interest in the common fund existing in the individual”); Dewing v. Perdicaries, 96 U.S. at 196 (shares represent “aliquot parts of the trust fund”); Farrington v. State of Tennessee, 95 U.S. 679, 687 (1877) (“Each share represents an aliquot part of the capital stock.”). See also Auto. Mortg. Co., 266 S.W. at 135 (“It is generally agreed that shares in an incorporated company are the aliquot parts of the capital stock, and merely give to the owner a right to his share of the profits of the corporation, while it is a going concern, and to a share of the proceeds of its assets, when sold for distribution in case of its dissolution and winding up.”) (quoting Presnall v. Stockyards Nat’l Bank, 151 S. W. 873, 876 (Tex. Civ. App.—Texarkana 1912), aff’d, 194 S. W. 384 (Tex. 1917)). However, ownership of the fund itself and ownership of the partial interest in that fund are completely different things. Auto. Mortg. Co., 266 S.W. at 135 (“Shares of stock in a corporation are a species of personal property, belonging to the holder thereof, entirely separate and distinct from the property of the corporation itself.”); Farrington, 95 U.S. at 686 (“The capital stock [i.e., the corpus of the trust fund] and the shares of the capital stock are distinct things.”). The “possession of the stock evidenced by the certificate does not pass from, but is retained by, the corporation.” Turner v. Cattleman's Trust Co. of Ft. Worth, 215 S.W. at 832. The corporation owns the capital stock collectively. Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 645 (Tex. 1996); see also McAlister v. Eclipse Oil Co., 98 S.W.2d 171, 176 (Tex. 1936) (“Under our authorities the corporation is a legal entity, distinct from its stockholders. In this regard, strictly speaking, the ownership of the corporate assets is vested in the corporation itself and not in its stockholders.”); Hicks v. State, 419 S.W.3d 555, 558 (Tex. App.—Amarillo 2013, no pet.) (“It has long been the law that a stockholder owns an interest in the company but not the assets of the company. Rather, the assets, including the cash residing in corporate bank accounts, are owned by the corporation, and the latter is a separate legal entity from its shareholders.”). But the corporation owns the stock as a trustee for the benefit of the shareholders. Dewing, 96 U.S. at 196 (“The corporation owns and holds [the trust fund] as a trustee.”); Farrington, 95 U.S. at 686 (“It is a trust fund, held by the corporation as a trustee.”); Farrington, 95 U.S. at 687 (“Every [stock]holder is a cestui que trust to the extent of his ownership.”); McAlister, 98 S.W.2d at 176 (“Also, strictly speaking, the ownership of the stock does not carry with it the equitable title to the corporate property. This simply means, however, that the stockholders have no right to require the corporation to convey to them the legal title to the corporate property. In a larger or real sense the stockholders of a corporation are the beneficial owners of its corporate properties.”).
Shares of stock are personal property, and the stockholder is a property owner. TEX. BUS. ORGS. CODE ANN. § 21.801 (West 2006) (“Except as otherwise provided by this code, the shares and other securities of a corporation are personal property.”); Engel v. Teleprompter Corp., 703 F.2d 127, 131 (5th Cir. 1983) (“Under Texas law, shares of corporate stock are personal property.”); Capital Parks, Inc. v. Se. Advert. & Sales Sys., Inc., 864 F. Supp. 14, 16 (W.D. Tex. 1993) (“The shares of corporate stock, on the other hand, are the personal property of the shareholders.”), aff’d sub nom., 30 F.3d 627 (5th Cir. 1994); Barnhill v. Automated Shrimp Corp., 222 S.W.3d 756, 764 (Tex. App.—Waco 2007, no pet.) (“By virtue of owning shares of stock in a Texas corporation, Barnhill maintains personal property in Texas.”); Brosseau v. Ranzau, 81 S.W.3d 381, 387 (Tex. App.—Beaumont 2002, pet. denied) (“In Texas, stock is considered personal property, even when the underlying corporation itself owns real property.”); Evans v. Prufrock Rests., Inc., 757 S.W.2d 804, 805–806 (Tex. App.—Dallas 1988, writ denied) (“[T]he transaction was the sale of a personalty rather than realty. . . . It is a well established fact that the sale of stock is personalty not real estate.”); Griffith v. Jones, 518 S.W.2d 435, 437 (Tex. Civ. App.—Tyler 1974, writ ref’d n.r.e.) (“Shares of corporate stock are personal property in the nature of choses in action.”); Benson v. Greenville Nat’l Exch. Bank, 253 S.W.2d 918, 928 (Tex. Civ. App.—Texarkana 1952, writ ref’d n.r.e.) (“Without any attempt at historical review, we think it is now well settled that shares of corporate stock are personal property in the nature of choses in action”); Auto. Mortgage Co. v. Ayub, 266 S.W. 134, 135 (Tex. Comm. App. 1924) (“While not negotiable, shares are freely assignable, and in this respect resemble negotiable choses in action and tangible property rather than other nonnegotiable choses in action.”); Bergin v. Bergin, 312 S.W.2d 409, 412 (Tex. Civ. App.—Texarkana 1958), rev’d on other grounds, 315 S.W.2d 943 (Tex. 1958) (“Corporate stock, which is personalty, is involved.”). Shares of stock in a corporation are a species of personal property, belonging to the holder thereof, entirely separate and distinct from the property of the corporation itself. They are the subject of barter and sale the same as other personal property. Under our laws they are subject to taxation, may be impounded by garnishment proceedings, and may be sold under execution as other personal property. They are the intangible interests of the individual shareholders in the corporate business, while the tangible property belongs to the corporation. Auto. Mortg. Co., 266 S.W. at 135.