Is it?
I took an interesting course once upon a time on what the teacher called “advanced issues in corporate and securities law”. A good part of the class material and discussions centred around the concept of the security, and more specifically, the equity security (a.k.a., “share”, “stock”, or even “action” for those who speak français). I’m going to take a look at each of these concepts, in plain English, before doing any legal gymnastics with them.
What’s a share?
When I think of a share, I think of a “part” of something. It is not so much a physical part, but a part reserved for something or someone. If I go into the lemonade stand business with my friend – I do the production, he does the sales – we can split the profits 50/50. So my share of the profits is thus 50%.
But “share” has other meanings as well. As a verb, to share means to divide into portions (whether equally or proportionately to some sort of contribution). Also as a verb, to share in something means to participate in something like joy, or even blame.
A stock?
This to me is a bit different. When I think of a stock, I think of inventory. I think of something I purchased at some point, which sits on a shelf, until someone else comes around to purchase it from me. If I guessed right when I made my purchase, I’ll be able to sell the inventory at a premium. If not, I will have to sell it at a loss and lick my wounds.
But most importantly, if I think of stock, I’m thinking about property in its purest sense. Stock has a tradeable value, and once I purchase it, it belongs to me (see my discussion on Property and MP3s for more on this).
Et en français?
The word action has a similar meaning in English; an action is some sort of act or deed. But in English, just like in French, “action” can also mean a “right of action” or a right to bring a claim against someone for something. The right of action is thus a right to demand the act or deed which is attached with that right.
To put it another way, if you have one action in a company, you have one right to demand a proportionate share in the profits, residual value, or dividends of that company (provided your action comes with all three of those rights attached).
What’s the difference?
Ironically, the French action is perhaps the most analogous with the “bundle of rights” concept of property law espoused by the common law, not the civil law. And the “stock” has an “ownership” feel to it which is more of a civilian concept. The “share” is perhaps a limiting concept in the sense that is restricts what a holder of a share can do, or more appropriately, imposes certain obligations and responsibilities. If my friend and I neglect the lemonade stand business, I will share in the blame as much as he does. Alternatively, if I am to take an active role in the production of the lemonade, but decide to go golfing instead, then I am shirking my responsibility toward the business but still deriving a 50% share in the profits – something my friend will not appreciate.
If my friend and I decide to incorporate the lemonade business, what will we call ourselves? Shareholders? Stockowners? Actionnaires?
In that course I took, we tried to distinguish between the three. Some argued that the “stockowner” concept was a better fit with American company law, while “shareholders” were better suited to Canadian company law. Although we didn’t really discuss the “actionnaires” concept in class, it goes without saying that this fits comfortably within the civil law tradition of Québec.
But do any of these terms necessarily imply that we own a company? Can we say that we “own” the company? This was the question our teacher put to us. In Part II, I’ll examine the concept of legal personality. Maybe that’ll shed some light and help me come up with a more complete answer (that’s right, I took the course two years ago, and I still don’t have an answer I’m happy with).
